Today, the World Business Council for Sustainable Development (WBCSD)launched “Aligning Retirement Assets” (ARA), a new initiative that enables companies to better align retirement assets, including defined benefit and defined contribution plans, with their overall sustainability goals by integrating Environmental, Social and Governance (ESG) considerations.
As an aspirational goal, the project envisions that 1% (USD $10 billion) of WBCSD member companies’ total retirement assets (estimated at USD $1 trillion) will be invested in ESG-themed funds by 2020.
“This project marks an exciting step forward in transforming the financial system to reward the most sustainable companies,” said Peter Bakker, President and CEO of WBCSD. “The companies and market participants involved are leading the way, helping their employees invest their pension savings towards the world they want.”
Top asset management and investment consulting firms – including Allianz Global Investors, BlackRock, Legal & General Investment Management, Mercer and Natixis – have joined the initiative’s steering committee to contribute best practices and innovative thinking on ESG, helping to educate member companies on incorporating sustainable strategies in their retirement plans.
Through advancements in sustainable investing, initial data indicates it may be possible to create total portfolio solutions that enhance risk-adjusted returns in the long run without compromising short-term return goals. This long-term outlook matches well with the long duration of retirement investments. Additionally, companies who have high ESG characteristics may also be more resilient through a downturn.
Moreover, a clear majority of all employees who work at Fortune 1000 companies expect their 401(k) plans to offer funds aligned with their own companies’ sustainability commitments, with this expectation rising to 66% with millennials and 67% among women, according to a soon-to-be-released study by Povaddo. Such interest has the potential to increase participant engagement and savings rates.
“WBCSD’s ARA project will help provide a variety of stakeholders inside companies with the tools they need to support adoption of ESG investing in company retirement plans with the end goal of improving participant outcomes,” said Alex Bernhardt, U.S. Head of Responsible Investment for Mercer.
Ed Farrington, Natixis’ Executive Vice President for Retirement Strategies said, “Our research has shown that plan participants would save more in their retirement accounts if their investments had a positive social or environmental effect. We hope that constructing a plan offering that aligns retirement savers’ investments with their personal values will help encourage engagement and will ultimately have an enormously positive impact on the US retirement savings system that’s in place today. We are excited to join WBCSD in this effort.”
“With low interest rates and increased longevity, companies need to motivate more people to participate in pension plans and 401(k)s to keep the system healthy,” said Irshaad Ahmad, Head of Institutional Europe at Allianz Global Investors. “Sustainability helps build the context to influence the behavior of plan participants, especially with Millennials who are keenly focused on values.”
“At BlackRock, we believe a company’s approach to managing material environmental, social and governance issues is a key component of long-term growth,” stated Anne Ackerley, BlackRock’s Head of U.S. and Canada Defined Contribution Group. “We are pleased to join this effort to help educate companies on incorporating sustainable strategies in their retirement plans.”
Caroline Ramscar, Head of Sustainability Solutions at Legal & General Investment Management said, “Collaborations are important for our industry to share knowledge, encourage best practices and to push the agenda on the issues that matter most to our clients. We believe that sustainable investing should be mainstream within the industry and are continually looking at new and innovative ways to engage and deliver these messages. There is no better way to create large scale change than to work with our peers and organizations such as WBCSD to pool resources – we are delighted to come on board.”