New research from Schroders finds that ESG investments might be a valuable weapon in the fight to increase contribution rates in retirement plans. The 2021 US Retirement Survey found that 90% of participants who are aware of ESG-related investments offered by their employer said they invest in them. Nearly 70% of participants who weren’t offered these types of investments, or weren’t sure if they were offered in their plan, said they might contribute more if they could invest in ESG-related options.
Related: How to Increase ESG ‘Appetite’ Among Investors
“Offering plan participants ESG investment options would not only appeal to purpose-minded investors, but it could also help to motivate some participants to save more toward their retirement,” Deb Boyden, Head of US Defined Contribution at Schroders, said in a statement. “Surprisingly, four in 10 participants didn’t know if their plan offered any ESG options, which indicates the need for greater plan communications because once investors know they have the option, they seem eager to invest.”
Schroders surveyed 1,000 Boomers and Gen Xers in late January for the report.
Sarah Bratton Hughes, Head of Sustainability, North America at Schroders, added that plan sponsors are balancing increased interest from participants with lingering regulatory restraint. “Despite regulatory overhang, demand for sustainable investment retirement options continues to rise,” she said. “Looking ahead, taking ESG adoption from ambition to action will require a greater emphasis on education by plan sponsors, so participants understand the purpose of ESG and how sustainable investments can be used to build retirement savings.”
Schroders also examined the impact that participants felt COVID-19 has had on their retirement prospects, with some reassuring results for DC plan advisors. Respondents with a defined contribution plan were generally better off than those without, according to the survey. For example:
- 42% of DC plan participants say they are “very confident” about their ability to invest intelligently, compared to 18% of non-DC participants.
- About 40% of DC participants say their retirement is on track, compared to 14% of those without a DC plan.
- DC plan participants are able to focus more on growth, with half saying that was their primary investment objective, compared to 56% of non-DC participants who were trying to generate steady income.
- DC plan participants plan to retire at an average age of 63, compared to 65 among non-DC respondents.
DC plan participants have weathered the COVID crisis fairly well. A third said they increased their contribution rates, and only 10% felt compelled to decrease it. Nearly three-quarters said the pandemic will have no impact on their expected retirement age.
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