If you're like most people, the bulk of your investment dollars is locked up in your company's retirement plan. Your employer offers investment choices, often mutual funds, and you pick the ones you want. Increasingly, companies are offering options that let some employees align their retirement portfolios with their values, according to a June report. Recently, the Monitor's Laurent Belsie sat down with three experts to discuss the trend: Cheryl Smith of the Social Investment Forum, which released the report; Reggie Stanley, chief marketing officer at Calvert, a mutual-fund family in Bethesda, Md.; and Amy Muska O'Brien, director of social investing at TIAA-CREF, a financial-services company in New York. Here's an edited transcript of their conversation. Click here to watch the video. Why do people cheer this survey? Four in five company plans still don't offer an ethical-investment option.
Ms. Smith: It's progress compared with a few years ago. In addition, the finding that two out of five [companies] plan to offer [such an option] in the next three years means there's an incredible amount of growth coming in the industry – and a lot more options and choices for investors.
What kind of employers are leading the charge?
Smith: The leaders in the charge are organizations that have a mission affiliation. You see it in government. You see it in education with TIAA-CREF being a longtime leader in the offering of those kinds of funds. [You see it in] healthcare organizations. Companies where the employees feel that they are doing some positive good.
Why is it so hard to get employers, who sponsor these plans, to offer an ethical-investing option?
Mr. Stanley: There's an incredible number of plan sponsors who still don't know much about socially responsible investing [SRI].
How do you get your employer to offer some of these options?
Smith: I think a really good strategy is to find several like-minded employees who will individually and separately ask for [an SRI option]. Because one of the findings is that a number of plan sponsors say: "Well, no one's ever asked." So I think many separate askings would probably be a good strategy.
Are more people asking, Amy?
Ms. O'Brien: I think the interest has always been there, and the interest is growing in new places.... We've actually had an SRI option on the platform for our pension-plan participants since 1990. And we've found even with our constituency base, which is very inclined to be favorable toward the principles underlying SRI, we still don't see 100 percent participation among our 3.2 million participants. In fact, we see about 15 percent of our participants exercising the option.
Why so low?
O'Brien: We've surveyed our own investors on their concerns. They still feel that financial performance is key here, which is what the survey found.
How does the performance of SRI stack up?
Smith: The academic research has been going on for 25 years on that. The most recent has been a metastudy where they've taken all the different studies and put them together to get a very broad base. And in that study, it's really shown that there's no significant difference – either one way or the other. Really, the most important thing is the style. Is it value versus growth in this kind of market? Is it large-cap or small-cap? Domestic or international?
As an investor, I'd want a mix of styles to diversify my portfolio.
Stanley: The beauty is that there are more than 200 socially responsible funds in the industry out there. Increasingly, also, there's a wide array of asset-allocation or balance-fund options that provide the diversification that you're actually seeking – an all-in-one fund.
But employers don't often offer more than one choice in their retirement plans. The new survey says that something like 84 percent don't.
Stanley: You've got to start somewhere. The largest option that's usually chosen is in fact a large-cap equity fund. Usually that makes up a pretty significant portion of an allocation for any participant in a plan.
So what you're suggesting is: Put a little money in and hope over time for more choices.
Smith: I think I would do more than hope. I would keep contacting that employer.
Why are employers now beginning to offer an SRI option?
O'Brien: I think there's always been demand for these kinds of funds in the academic community, in faith-based settings. But recently, I think certain key issues – investor concern around climate change, around human rights – are really causing people who have a social-responsibility mission at their workplace to connect their investing with their personal or their faith values. I also think there's been better coverage of SRI fund options in the media – positive coverage – and the funds have longer track records, so people feel more comfortable and take them more seriously.
Stanley: When you have Enrons and some of the companies that blew up not too long ago, and retirement plans that actually did not fare so well, it's in fact sending a loud signal to corporations that not only do they need to operate with greater concern overall for their impacts, but also with greater concern for their employees. That then is mirrored as an option in their retirement plans as well.