If you're interested in steering your retirement money
toward companies with values that match your own, there's a good chance you'll
start seeing more opportunities to invest in them through your 401(k) plan. In
recent guidance that essentially rescinded an earlier opinion, the U.S. Labor
Department has now made it clear to 401(k) sponsors that, really, it's okay to
offer investments that fall under the umbrella of socially responsible
investing — as long as it meets the same criteria as any investment under
While 401(k) plans are not obligated to offer such
investments, the persistent and growing enthusiasm for SRI suggests plan
sponsors would be remiss not to explore including options that fulfill workers'
financial and social objectives. Indeed, according to the Forum for Sustainable
and Responsible Investment, assets in such investments stood at more than $6.5
trillion in 2014, up from $2.7 trillion in 2007 and $639 billion in 1995. Additionally,
a survey done earlier this year by Calvert Investments, which offers a full
menu of SRI mutual funds, shows that most 401(k) participants want SRI options.
Of the more than 1,200 401(k) plan participants and 300
eligible nonparticipants surveyed, 87 percent want investment options that
align with their values and 82 percent would likely choose such an option if
offered. Also, 55 percent of the nonparticipants said they'd be more likely to
participate in their workplace plan if it offered an SRI option.
There are different terms used in the industry for socially
responsible investments. The Labor Department calls them economically targeted
investments, while some people talk about environmental, social and governance
strategies. Regardless of the term, their commonality is an investment approach
that examines a company's social or environmental practices instead of looking
exclusively at its financial performance.
The recent Labor Department guidance, issued in October,
overrides 2008 guidance that said such investing in 401(k) plans and the like
should be "rare." The guidance chilled plan sponsors' willingness to
consider SRI options. Indeed, DOL's new opinion acknowledges that its 2008
guidance "unduly discouraged fiduciaries" from even considering SRI
Data provided by consulting firm Mercer show that based on a
survey of workplace retirement plans, 11.3 percent offer socially responsible
investment options. Among nonprofits, endowments and foundations, that figure
is significantly higher, at 29.4 percent. Some financial advisors have seen
interest in SRI growing among their clients' non-workplace investments,
although Calvert Investments' research shows that 80 percent of advisors do not
mention SRI unless a client asks about it.
Pell, who calls it "impact investing," does not
wait for a client to express interest; she routinely offers it. "You can
build an entire portfolio out of impact investing," Pell said. "When
I bring this up to clients, they are interested in hearing more." Only a
small number of clients reject the idea outright, she said. Pell said that
millennials are among the most interested. They are more concerned about
investing for causes and investing in things they believe in, than just
investing to make money, Pell said.
Various data shows that SRI strategies can be as profitable
as standard investment approaches. For instance, the Calvert Equity Portfolio —
one of the oldest SRI funds — returned 5.45 percent this year through Oct. 31,
compared with a 2.12 percent return for the Standard & Poor's 500 index in
the same time period. Not all SRI-oriented funds beat the market, of course,
but many pros have been pleased with their relative performance.
Arthur Stein, CFP and owner of Arthur Stein Financial,
recently constructed an SRI portfolio for a new client. After doing lots of
research and creating the portfolio, Stein analyzed its performance and saw it
compared favorably with his standard U.S. stock portfolio. One tricky thing
about responsible investing is that it means different things to different
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