Options for 401K and Other DC Retirement Plans

If you participate in a 401K or other type of defined contribution retirement plan, you may be interested in adding a sustainable investment option into your plan’s choices.

The US SIF Foundation's Report on US Sustainable Investing Trends 2022 found that sustainable investing assets account for $8.4 trillion in assets under management (AUM). Of this total, the report identified $613 billion in AUM from 177 exchange traded funds and $590 billion from 444 mutual funds.
According to a 2021 Morgan Stanley study, 79 percent of individual investors surveyed remained interested in sustainable investing despite economic concerns during the COVID19 pandemic. Among millennials, an all-time high of 99 percent were interested. In a 2019 survey by Natixis Global Asset Management of participants in 401K and other defined contribution plans, 75 percent of respondents said it was important to make the world a better place while growing their wealth. Sixty one percent said including sustainable investment options would make them more likely to contribute to their plan.

1. What is sustainable investing? 

Sustainable investing is an investment approach that considers ESG criteria to generate long-term competitive financial returns and positive societal impact. There are a wide range of ESG issues that are utilized such as labor rights, racial and gender diversity, climate change, sustainable agriculture and corporate executive compensation.
A great way to learn more is to review Getting Started in Sustainable Investing: A Guide for Individual Investors. The US SIF Foundation also offers a free 30-minute online course Sustainable Investing: An Introductory Course for Individual Investors, which includes information on retirement plans.

2. Why should I add a sustainable investment option?

  • Financial performance: Several studies have shown that, on average, the financial performance of sustainable funds has been comparable to or even outperformed their traditional counterparts, including during years of economic volatility and recession.
  • Personal values/priorities: Some individuals seek investment options that align with their ethical concerns and priorities, such as weapons avoidance or animal welfare.
  • Positive impact: Others want investments that, like their charitable giving, contribute to important societal or environmental issues such as women’s advancement and addressing climate change.

3. What are my next steps if I want a sustainable investment option?

Check with your human resources (HR) department; your plan may already have sustainable investment options. If not, let appropriate personnel know about your interest in such options. Many retirement plan platforms have an open structure that enables the addition of new funds.

Additional resources available to your employer or investment committee include: