Now that retirement plans are in the clear to offer environmental, social, and governance strategies, ESG education is more important than ever, according to Schroders.
“ESG and sustainable investing is still a catch-all phrase to a lot of people,” said Lazaro Tiant, the firm’s investment director of sustainability. “I think there will be a growing appreciation of the different approaches that can be taken when developing [distinct] investment products.”
Tiant’s comments follow last week’s ruling by the Department of Labor, which removed barriers to considering ESG factors in retirement plans. Going forward, the Schroders director expects more demand for education — including the definition of sustainability, the criteria and outcomes of particular strategies, and how those outcome are going to be measured.
According to Tiant, the DOL ruling reinforces the urgency of ESG progression and recognizes demand from plan participants, many of whom now belong to the millennial age group. Plan sponsors need to understand “what’s important to their participant lineup and what’s driving demand for sustainable investment options,” Tiant said.
In its 2022 U.S. Retirement Survey released in April, Schroders found that 74 percent of plan participants who lacked or were unaware of ESG investment options said they would increase their contribution rate if offered the option to invest in ESG strategies. Out of the same group, 87 percent said they wanted investments to align with their values, while 78 percent believed that socially responsible companies will have better results in the long term than companies that are not committed to ESG.
Asset managers should “highlight whether there could be upfront education, not only to the sponsor, but also to the participants, so everyone knows what to expect,” Tiant said. “But at the end of all that, if there is actual defined and measurable investment criteria that a sponsor is going for, or that they’ve seen available through their conversations with managers, it’s really then about communication and education.”
For Schroders, which now has $940 billion in assets under management, a large part of its ESG strategy is rooted in an active ownership approach. In its third quarter sustainable investment report, the firm highlighted its votes on 80 sustainability-related shareholder resolutions, of which 66 were voted with the management of companies. In the category of votes against management, 30 percent were director-related.
The firm found that it typically takes at least two years for requests to begin to materialize into measurable change.
“When we look at transition plans, we want to get a grasp on the who, what, where, when, how and why,” the report stated. “We use this information to help us identify companies that are well placed to outperform in a net zero world, and those that may falter unless they change course.”
