Participants in retirement plans save because they are concerned about the future, but this is not their only concern. Additionally, they desire investments that coincide with their beliefs and contribute to the change they wish to see in the world. This is the reasoning for the growing demand for Environmental, Social, and Governance (ESG) principles in investments, employee perks, and retirement plans.
ESG products were once considered a niche market. However, investors, led by Millennials, have begun to demand value in addition to returns. Currently, one in four dollars invested takes ESG factors into account. Within the next five years, ESG assets may account for 50% of all professionally managed investments.
For plan sponsors and employers who wish to remain competitive, this need must be met. Organizations that promote ESG in their employee benefits, retirement plan investment alternatives, and overall workplace culture may stand out to the future generation as desirable employers. Consider the following five ways that ESG principles might benefit your firm and employees.
ESG initiatives can help increase employee engagement and retention
Employee engagement and retention are crucial for business performance and a healthy workplace culture. Incorporating ESG investment alternatives within your retirement plan can increase employee engagement and encourage retention. 41% of full-time employees are more likely to remain with their employers if their retirement plan incorporates ESG-focused products, according to a new survey. In addition, 42% of poll respondents indicated they are more inclined to remain with an employer who incorporates ESG concepts into workplace benefits.
ESG can also assist in recruitment
ESG is not only effective at retaining personnel, but also at attracting top talent. Environmental, social, and governance-conscious investments have broad appeal. 70% of 401(k) participants, for example, are interested in retirement plan choices with a beneficial impact on ESG concerns. As indicated previously, the desire is expanding significantly among younger employees. 95 percent of Millennial employees are interested in ESG investments, a 9 percent increase from 2017.
ESG can increase participation in retirement plans
The first step in motivating your employees to invest for the future is to offer a company-sponsored retirement plan. What is the next step? Obtaining as many staff as possible to participate. Another area where ESG can make a difference is this one. As per a research it reveals that 76% of respondents would be more inclined to enroll in or participate in a workplace retirement plan if it offered ESG investment options. 7 Increasing the availability of ESG investments could inspire people who have not yet joined to do so. However, the benefits of participation do not end there. 63 percent of survey respondents indicated that they would recommend to other employees a plan that contained ESG alternatives. 8 And once registered, 60% of employees said they would be more likely to utilise plan tools if ESG investments were incorporated in the plan. 8
ESG helps promoting saving habits
For many plan participants, the potential to link their retirement assets with their principles is a compelling motivator. In addition to enhancing plan participation, ESG investing alternatives can assist increase a plan's savings rate. In fact, 60% of a poll respondents indicated that they would likely contribute more to an ESG-focused plan.
ESG can enhance plan efficiencies and generate savings
Taking a longer-term perspective, the impact of ESG investing options may enhance plan participation not only at the company level, but also across the nation. More employees engaging in the plan can increase plan efficiencies, resulting in cost savings for both employers and employees. The need for ESG is also driving the development of more ESG investment solutions. Over the next three years, an estimated 200 new funds with ESG investment mandates will debut. The tsunami of support and demand for ESG ultimately bodes well for the entire ecosystem, including plan sponsors, investors, employees, and the planet itself.
Promoting ESG in retirement plans
As investor and employee awareness of environmental, social, and governance issues increases, they seek investment solutions that match their goals and values. By implementing ESG into your benefits and retirement plan, you may be in the greatest position to address the demands of your participants, improve your organization's reputation, and contribute to a more ethical and sustainable world.
Investing inherently entails the inherent hazards of shifting pricing and variable rates of return and yield. All transactions with securities carry a considerable risk of loss. Environmental, Social, and Governance (ESG) Risk may force the portfolio to forego particular investment possibilities and/or exposures to particular companies, sectors, or countries. There are comprehensive ESG certifications and courses available with Directors’ Institute, wherein an individual can be ESG certified and upgraded as ESG expert. Even an employer can facilitate this certification for its employees.