Original Article: https://www.wealthmanagement.com/investment/5-reasons-incorporate-esg-employee-benefits
Retirement plan participants save because they’re concerned about their future—but that’s not their sole concern. They also increasingly want investments that align with their values and fuel the change they want to see in the world. This is the sentiment behind the rising interest in Environmental, Social, and Governance (ESG) principles in investments, employee benefits and retirement plans.
Not so long ago, ESG products were considered niche. But investors, led by Millennials, have started to demand value from their investments beyond returns. Today, one in four invested dollars takes ESG factors into account.1 In fact, ESG assets may represent half of all professionally managed investments within the next five years.2
For plan sponsors and employers that want to remain competitive — meeting this demand is imperative. Organizations that prioritize ESG as part of their employee benefits, retirement plan investment options and broader workplace culture may stand out as employers of choice for the next generation. Consider these five ways that ESG principles can help your employees and organization.
1. ESG plans can help improve employee engagement and retention
Engaging and retaining employees is essential for business performance and healthy workplace culture. Incorporating ESG investment options into your retirement plan can help boost engagement and encourage employees to remain with your company. A recent Voya Financial survey revealed that 41% of full-time employees are more likely to stay with their employers if their retirement plan includes ESG-focused products.3 Furthermore, 42% of the survey respondents said they’re more likely to stay with an employer who applies ESG principles to workplace benefits.4
2. ESG can also boost recruitment efforts
ESG not only helps retain employees, but it’s also a powerful tool for attracting top talent. Investments that consider environmental, social, and governance factors have broad appeal. For instance, 70% of 401(k) participants are interested in retirement plan options that positively impact ESG issues.5 As previously mentioned, the interest is especially growing among younger employees. Ninety-five percent of Millennial employees are interested in ESG investments—an increase of 9% from 2017.6
3. ESG options can help boost retirement plan participation
Offering a company-sponsored retirement plan is the first step toward encouraging your employees to save for the future. The next step? Getting as many employees to participate as possible. This is another area where ESG can make a difference. Voya’s survey shows that 76% of respondents would be more likely to enroll or participate in a workplace retirement plan if it offered ESG investment options.7 Increasing the accessibility to ESG investments might encourage those who haven’t enrolled to finally come aboard. But the participation perks don’t stop there. Sixty-three percent of survey respondents said that they’d recommend a plan that included ESG options to other employees.8 And once they are enrolled, 60% of employees said they’d be more likely to engage with plan tools if the plan included ESG investments.8
4. ESG helps participants save even more
The ability to align retirement investments with values is a powerful motivator for many plan participants. In addition to improving plan engagement, ESG investment options can also help boost a plan’s overall savings rate. In fact, 60% of Voya survey respondents said that they’d likely contribute more to a plan that valued ESG.
5. ESG can improve plan economies and yield cost savings
Taking a longer view, the impact of ESG investment options may increase plan participation not just at the employer level but across the country. More employees participating in the plan can help improve plan economies, yielding cost reductions that benefit employers and employees. The demand for ESG is also spurring an increasing number of ESG investment products. An estimated 200 new funds with ESG investment mandates will debut over the next three years.2 The groundswell of support and desire for ESG ends up boding well for the entire ecosystem, from plan sponsors to investors to employees and ultimately the planet.
Advancing ESG in retirement plans
As awareness of environmental, social, and governance issues grows, investors and employees want investment options that reflect their priorities and values. By incorporating ESG into your benefits and retirement plan, you may be in the best position to meet your participant’s needs, enhance the reputation of your organization, and help build a more ethical and sustainable world in the process.
One of the latest advancements in the industry has been the introduction of DALBAR’s ESG-Certified Retirement Plan.9 This yearly certification process evaluates a plan’s success in the application of defined ESG principles more broadly to their retirement plan.
At Voya, we are proud to be the first publicly-traded company to have attained the ESG Retirement Plan Certification from DALBAR — earning five out of five stars for the retirement plan we offer our own employees.
Learn more about Voya’s commitment to ESG here.
Products and services offered through the Voya® family of companies.
All investing involves risks of fluctuating prices and the uncertainties of rates of return and yield inherent in investing. All security transactions involve substantial risk of loss. Environmental, Social and Governance (ESG) Risk has factors that may cause the portfolio to forgo certain investment opportunities and/or exposures to certain industries, sectors or regions.
