In the view of Bonnie Treichel, Chief Solutions Officer at Endeavor Retirement, there’s still a lot of confusion around Environmental, Social and Governance (ESG) investing. But she has an approach to help advisors sort through the confusion and scale their business.
Treichel, part of the Environmental “Assessment” ESG: What’s Next? panel at the 2022 NAPA 401(k) Summit, noted that many companies now have policies covering Diversity, Equity and Inclusion (DEI) and other sustainability issues.
“These policies are excellent, and I encourage more companies to adopt them,” Treichel said. “But confusion arises when plan sponsors try to incorporate their specific corporate or social initiatives in their retirement plans’ investment line-up.”
According to Treichel, such decisions pose a two-fold problem, because they are not:
- Consistent with the spirit of the regulations and fiduciary duties defined in ERISA Section 404.
- Scalable for advisors and their investment teams.
To sort through the confusion, Treichel counseled advisors to remind plan sponsors that under ERISA, there are two important duties to keep in mind.
“First, there’s the duty of loyalty, which means that the participants’ financial interests must come first,” she emphasized. “Second, the duty of care requires that you follow a prudent process and document it. For investment analysis, this means weighing qualitative and quantitative factors that add long-term financial value for participants.”
For Treichel, advisors using ERISA as their guide also address the scalability issue.
“There’s no way advisors can have their investment teams create custom line-ups for every corporate policy that walks in the door,” she added. “The fees would be greater than most plans would permit, and I suspect that more than a few chief investment officers would push back — or quit.”
The framework for a better way forward
Treichel said that with the right framework, advisors can sort through the confusion and enable their plan sponsor clients to incorporate ESG into their retirement plans.
Her advice to advisors? “Update your Investment Policy Statement (IPS) to determine the qualitative and quantitative factors you want to evaluate and refine your approach to manager due diligence to reflect ESG. Then, utilize this consistent framework for ESG investing across your business.”
In this way, Treichel concluded, advisors will meet their clients’ needs and achieve scale across their business.
“Advisors should be helping plan sponsors take financial considerations to social responsibility, not the other way around,” she concluded. “This is the new era of ESG investing.”
Roberta Hess is CEO/Founder of Princeton Marketing. She can be reached at roberta@princetonmkt.com.
