The US Forum for Sustainable and Responsible (US SIF) has released an updated guide for pension funds ahead of changes to the Department of Labor’s investment rules.
The guide outlines five steps for retirement plan sponsors that are considering ESG criteria in the investment strategies for their defined contribution plans.
It focuses on boosting knowledge of sustainable investing for plan sponsors, as well as gauging interest from and educating participants, choosing funds, and implementing ESG criteria.
The document also contains a summary of studies on the financial performance of funds using ESG criteria and updates on relevant Department of Labor regulations. Critics of sustainable and ESG-themed investment approaches have argued that pension plan fiduciaries should focus solely on maximizing returns rather than other non-financial criteria.
Sustainable investments have hit an all-time high in the US, with assets under professional management that consider ESG factors increasing by 42% between 2018 and 2020, from $12 trillion to $17.1 trillion, US SIF said. However, retirement plans are lagging in their incorporation of these funds.
Institutional asset owners have driven the majority of this activity to date, but studies from both Natixis Global Asset Management and the Morgan Stanley Institute for Sustainable Investment have shown an increase in demand from individual investors.
Lisa Woll, CEO of the US SIF Foundation, said: “The expected reversal of Department of Labor rules on the use of ESG criteria in funds included in retirement plans will provide plan sponsors will greater certainty about adding sustainable products to their offering. This guide will help provide the tools to add such funds and to meet the increasing demand for sustainable investment options.”
US SIF focuses on long term investment and positive social and environmental impacts and its members include investment managers, advisors, mutual fund companies, research firms and non-profit organizations, among others.