Here's when DC plan participants might contribute more

Expanding environmental, social and governance investment options in defined contribution plans often results in increased contribution rates. Nearly nine in 10 plan participants want to align their investments with their values, the 2022 Schroders U.S. Retirement Survey found.

“This year, even more participants are telling us that ESG may be a catalyst to save more for retirement,” said Deb Boyden, head of U.S. Defined Contribution for Schroders. “This is a compelling reason for plan sponsors to consider adding ESG options to their lineup, as ESG could become a significant factor in improving participant retirement readiness, and a consideration of ESG factors offers the opportunity to maximize risk-adjusted returns for participants.”

Investors also are bullish on the impact of ESG on their investments, with 78 percent believing companies that are socially responsible will have better results over time than those that are not socially responsible

Although ESG options in DC plans are not widespread, the vast majority of those who say they have ESG options use them. More specifically, of the 31 percent of 401(k) plan participants surveyed who knew their plan offered ESG options, nine out of 10 invested in those options, and almost three-quarters estimate they allocate 50 percent or more of their assets to socially responsible choices.

This year, more participants say ESG options in 401k plans could improve their savings rates. Having ESG investment options that align with their values in their 401(k) also may produce an unexpected benefit — greater retirement savings. Last year, 69 percent of plan participants who lacked or didn’t know if they have ESG investment options in their plan said they would or might increase their overall contribution rate if offered ESG options. This year even more — 74 percent of respondents — said they might contribute more when given ESG options.

Asked to determine which ESG segments they would like their investments to influence, plan participants that currently invest in ESG or would if they had the option, said:

• Employee welfare/living wage, 51 percent
• Climate change/global warming/carbon reduction, 39 percent
• Human rights, 36 percent
• Biodiversity (pollution, deforestation, clean water), 30 percent
• Diversity and inclusion, 22 percent
• No specific area, 17 percent

As an added benefit, four in 10 investors report that having the ability to invest in ESG options in their 401(k) plan would improve how they view their employer.