ESG funds' place in the retirement plan investment lineup
As workers learn about the potential advantages of socially responsible investing, sponsors of workplace retirement plans have begun to offer these options to their participants in the form of ESG funds. As part of our "State of the participant 2022" report, we looked at the status of stand-alone ESG funds among the DC plans that John Hancock recordkeeps. Here’s what we found out.
More retirement plans are offering ESG options
Although it may be a relatively small portion of defined contribution (DC) plans that include stand-alone environmental, social, and governance (ESG) funds in their investment lineup, the number has been rising steadily year over year. Is it time for you to consider offering socially responsible investments? That depends largely on your investment strategy and philosophy.
John Hancock DC plans offering ESG funds on a stand-alone basis
Source: John Hancock year-end internal data for open-architecture plans for 2019 through 2021.
People of all ages are engaging with ESG
Although conventional wisdom says young people have the biggest appetite for responsible investing, the reality is much different. We discovered interest among participants of all ages—with an average in-plan ESG investor age of 49 years old.
Ages of participants with in-plan ESG fund holdings in 2021
Source: John Hancock year-end internal data for open-architecture plans, as of 12/31/21.
Contribution allocations are concentrated in two investment categories
A scan of participants holding stand-alone sustainable investment funds shows that U.S. large-cap stock and government bond are the most popular categories, held by 36.6% and 30.9%, respectively. Next in line are foreign stock, global stock, allocation, U.S. mid-cap stock, and core bond funds, all being used by at least 1% of in-plan ESG investors.
Most-held in-plan ESG funds
Based on percentage of participants holding standalone responsible-investment funds
Source: John Hancock year-end internal data for open-architecture plans, as of 12/31/21.
Greater clarity could affect the demand for ESG investments
As we see with our book of business, some plans and participants are already engaged with ESG funds, while other plan sponsors and financial professionals are discussing how ESG investing may fit with their investment policies and plan objectives. In the meantime, watch the progress of the U.S. Department of Labor’s proposed regulations, clarifying how plan sponsors can incorporate ESG factors into the investment selection process. If finalized, these regulations may lift some of the uncertainty about offering these funds to participants who want them.
For more insight into how plans are designed and participants are progressing, read our State of the participant 2022 report.
Incorporating environmental, social, and governance (ESG) criteria and investing primarily in instruments that have certain ESG characteristics, as determined by the manager, carry the risk that the fund may perform differently, including underperforming, funds that do not use an ESG investment strategy.
Important disclosures
MGTS-PS 47216-GE 07/22 47216 MGR0714222286297