Let me explain further, starting with a definition of responsible investing.
Responsible investing is the investment process that integrates the pure financial dimensions of return and risk with environmental, social, and governance considerations, also known as ESG factors. This certain type of investing refers to strategies that integrate these factors into the selection process for employee benefits, including retirement plans.
Imagine a mid-sized nonprofit organization (about 100 employees) that is dedicated to gender equality. The organization works on advocacy, education, and leadership development to empower women worldwide. The organization’s current approach to recruit and retain smart and dedicated employees includes offering flexible work schedules and generous benefits, including a great employer match on 403b retirement plans. The organization offers its employees a variety of retirement investment options that meet basic needs and requirements through a well-regarded plan adviser.
However, the investment options include a number of corporations that show a total disregard for issues pertaining to gender equality. In fact, some companies have received national attention for the mistreatment of their female employees, including lack of women leadership, indifference to sexual harassment claims, family-unfriendly leave policies, etc.
If the plan adviser is unaware of the organization’s mission and core values, they may not have considered responsible investment strategies in their offerings. As a result, the employer and employees are unaware of the contradiction between value and investments. To prevent this situation from happening, the plan adviser as well as the employer should take into account the ESG factors and align the nonprofit's investment options with its core values. The money invested will fund the corporations that are a better match for the nonprofit’s mission. For more information this subject, please reference my recent LinkedIn article here.
So, why should employers shift from traditional investment plans to offer responsible investment options that align with organizational core values?
Let's explore some of the benefits of responsible investing:
- Strengthened commitment to organizational mission and values.
- Increased buy-in among employees for an organization’s public stance and action.
- Enhanced commitment to the mission by employees who can ensure their investments align with personal values.
- Addition of a powerful tool for employee hiring and retention.
- Relevant to managing a workforce with a large population of Millennial and Gen Z employees that care about causes.
- Cost-effective way to show the moral integrity of the organization to employees.
If you or your employer are interested in aligning retirement plans with your organization’s and employees’ values, I recommend the following next steps:
- Survey employees to learn if they have a preference for integrating ESG Investments into the options available in the organization's retirement plan.
- Ask the firm’s financial adviser to deliver a presentation on responsible investment options.
- Seek out a new retirement plan adviser with expertise in your area.
For more information, please contact Marcio Silveria at firstname.lastname@example.org.
All investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Marcio Silveira, CFA, CFP, Investment Advisor Representative Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Toler Financial Group, LLC and Cambridge are not affiliated.