Can Investing in Human Rights and Climate Boost Your Retirement Savings?

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April 14, 2022, 10:51 AM

ESG human rights investing

Environmental, social and governance (ESG) options are a hot topic these days among investors. Large investment firms like Fidelity, Charles Schwab and J.P. Morgan Chase have all added ESG or thematic options to their investment catalogs, and the Securities and Exchange Commission is currently considering a rule that would require all registered entities to disclose how they affect the climate.

Global asset management firm Schroders has released its 2022 Retirement Survey confirming exactly how important ESG investing seems to be. Investors increasingly view ESG as a driver of performance, and 74% of survey respondents said they’d consider upping their retirement account contributions if their 401(k) offered ESG options. Would you do the same?

A financial advisor could help you plan for retirement and help you select investments that align with your financial goals. Speak to a qualified advisor today.

Schroder Survey Ties Retirement Savings Level to ESG Availability

Schroders recently released the results of its 2022 Retirement Survey, in which the company found that ESG options in defined contribution plans appear to be heavily tied to participant savings levels. Perhaps unsurprisingly, a whopping 87% of survey participants indicated they wish their investments to align with their values.

“The message is clear: defined contribution plan participants want ESG options,” said Deb Boyden, Head of U.S. Defined Contribution at Schroders. “And this year, even more participants are telling us that ESG may be a catalyst to save more for retirement.”

Indeed, nearly three-fourths of those surveyed said they would consider increasing their overall contribution rate if offered such options. This stems from the majority belief that socially-responsible companies will have better results over time than those which are not.

“As we all know, the more you save and invest, the more you’ll have in retirement. This is a very positive finding for plan sponsors [who want to] make a difference by encouraging higher participation,” continued Boyden.

Only one third of the survey participants even knew their 401(k) plan offered ESG options, but of those, nine out of 10 invested in them. In general, nearly 73% of investors estimate they allocate more than half their assets to socially-responsible choices.

How Retirement Savers Can Take Advantage

ESG human rights investing

The belief that ESG options point towards better investment outcomes is pervasive and may be tied to the perceived risks associated with climate change.

At the end of May 2021, President Joe Biden issued an Executive Order to assess climate-related financial risks, stating that “the failure of financial institutions to appropriately and adequately account for and measure these physical and transition risks threatens the competitiveness of U.S. companies and markets.”

Schroder’s Retirement Survey confirms these concerns, finding that participants cared most about employee welfare, followed by climate change and global warming.

Not every 401(k) plan offers ESG options, but more and more investment firms are launching products that can help interested investors find investments that align with their values. Fidelity recently launched a direct indexing product with an environmental focus that enables investors to invest in 150 “clean” companies. Charles Schwab launched a stock picker that allows investors to find suggested stocks based on themes. There also exist a number of mutual funds and EFTs that focus on ESG, including Vanguard’s Social Index Fund and iShares’ Global Clean Energy EFT. It may be beneficial to search for such funds to see if your 401(k) plan supports ESG options.

Bottom Line

ESG human rights investing

ESG is an investment focus that is growing rapidly in popularity, and Schroders’ 2022 Retirement Survey suggests that defined contribution participants are highly interested in related investment options. So much so, in fact, that retirement savers would consider increasing their 401(k) contributions just to invest more in ESG if their plans offered it. Although not every retirement plan currently supports ESG options, you may be able to invest in socially-responsible companies by researching ESG funds or by opening a brokerage account that does.

Retirement Planning Tips

  • Not sure if ESG or other types of thematic investing will set you up for a smooth retirement? For a solid, long-term financial plan, consider speaking with a qualified financial advisor. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Use SmartAsset’s free retirement calculator to get a good first estimate of how much money you’ll need to retire.

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