PSI Newsletter and Website Header 10.2.15

At the very least, your Investment Committee should have a discussion about the topic. Here’s why.

ESG Investing Defined

ESG is an acronym that stands for environmental, social and governance. These criteria represent the major non-financial items used to evaluate an investment option. ESG factors comprise the core of a socially-responsible investing (SRI) approach. You may have heard SRI described as impact investing. There is a difference. Impact investing is a subset of SRI that attempts to generate positive social good in addition to the goals typically outlined in an SRI approach. For example, impact investing may target organizations that use clean technology, help feed the hungry or house the homeless.

Why Now?

In October of 2015, the Department of Labor (DoL) issued new guidance in Interpretive Bulletin 2015-01 that many feel opened the door to wider adoption of impact investment approaches and SRI in general. Prior DoL pronouncements seemed to indicate that SRI investing was not something that retirement plan fiduciaries should consider. In announcing the Bulletin, DoL Secretary Thomas Perez stated that non-retirement plan ESG investments have grown from $202 billion in 2007 to $4.3 trillion in 2014. By issuing Bulletin 2015-01, the DoL was attempting to remove the perceived stigma surrounding ESG investing in retirement plans.

The most persuasive reason your Investment Committee should consider ESG investment options in your 401(k) plan? Your employees. ThinkAdvisor cites a Morgan Stanley study that shows 71% of individuals are interested in SRI. For the millennial group, that response is greater than 80%.

Why Not Previously?

Historically, investors in SRI strategies had to accept that their investments would probably result in lower returns and involve higher risks. Investing socially meant being willing to settle for an inferior investment approach. Things have changed. A recent ThinkAdvisor piece cited a Morgan Stanley study that analyzed the performance of 10,000 mutual funds over a seven-year period. The study found that funds using SRI strategies performed well in comparison. In other words, as SRI has grown, investing outcomes have improved.

What You Should Do

Put the topic on your agenda for your next Investment Committee meeting. Even if you do not decide to add ESG options now, it is important to start the conversation.

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About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or bob@lawtonrpc.com.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.