And so it begins. The effects of the Department of Labor’s Interpretive Bulletin 2015-01, released on Oct. 26, are already being felt. 401(k)s might not be far behind.
The bulletin sets forth new conditions regarding environmental, social and governance issues and their inclusion in pension fund investment platforms. It follows on DOL guidance from 2008 that addresses certain ESG factors and how they affect investment returns; for instance, climate change on low-lying agricultural investments.
Once voluntary, the DOL has made it clear such factors now rate in the investment manager’s fiduciary responsibility. While it only cover’s pension funds (for now) it’s nonetheless bleeding into the 401(k) space and elsewhere.
For example, the latest research from global analytics firm Cerulli examines this trend towards “investing more responsibly,” with a specific focus on Washington Mutual Investors Fund, which is the largest socially conscious fund by assets.
It finds that, overall, consideration of ESG factors is becoming increasingly important to the manager selection decision-making process. More than half (53%) of consultants polled by Cerulli have dedicated resources for ESG manager research, and another 20% are considering adding resources. Moreover, a growing number of institutional investors are including responsible or socially conscious investing strategies into their portfolios.
According to managers surveyed by Cerulli, “values and mission-based considerations” is one of the primary factors driving demand for responsible investing (76% of managers believe it is a significant factor). With individuals beginning to become heavily involved in the movement, mutual funds, in particular, may consider the potential gains of creating environmentally conscious evaluation criteria.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
