Advocates and Academics are Driving Universities to Offer Sustainable Retirement Plans;
However, Less Than 3% of Schools Offer Them, Plans Now Hold More Than $1 Trillion in 403(b) Assets
WASHINGTON, D.C. – June 10, 2021 – Colleges and universities in the U.S. are a hotbed of climate initiatives and the fossil-fuel divestment movement, but less than 3 percent of these schools offer sustainable retirement plans allowing their employees to avoid investing in funds that include major contributors to climate change and also address other environmental, social and governance (ESG) investment issues (e.g., gender equality and for-profit prisons), according to the Intentional Endowments Network (IEN). The stakes here are high, with more than $1 trillion in 403(b) assets in higher education retirement funds.
IEN is calling on America’s institutions of higher education to start offering ESG integrated retirement plan options and is providing a new “Guide” to assist faculty in this endeavor. Representing over $1 trillion in 403(b) assets, retirement plan options for faculty and employees of colleges and universities are deeply invested in companies and investment products that run counter to the missions and goals of faculty, students, and institutions themselves.
According to the Plan Sponsor Council of America, “fewer than 3 percent of plan sponsor respondents included (an ESG) option on their plan investment menu.” As a result, responsible investment funds (ESG) make up less than 1 percent of the funds in a typical retirement program for colleges and universities.
Further, in a 2019 study done by Mirova titled, “Aligning Portfolios with the Paris Agreement,” they found that funds tracking 500 of the largest publicly traded companies in the US (S&P Index) would warm the planet by 4.3 degrees Centigrade by 2050. This is nearly 3 degrees higher than what the Paris Agreement called for in order to avoid the greatest impact of climate change on the planet.
“Endowments are recognizing the risks and opportunities associated with issues like climate change and racial equity and are increasingly taking action to adjust their investment strategies accordingly -- but most retirement investments are not offering options that do this,” said Georges Dyer, executive director of the Intentional Endowments Network. “IEN's Sustainable Retirements Initiative and this new Guide assists colleges, universities, and other nonprofits in adding strong sustainable investment options to give their faculty and staff the best opportunities for their retirements.”
While colleges and universities have made commitments to divesting their endowments of fossil fuels, including high-profile institutions such as Stanford University, Brown University, Cornell University and the University of Massachusetts, many of these same institutions fall short when it comes to offering retirement plans, for their faculty and staff that align with their core mission and the transition to a low-carbon economy.
“College endowments have taken positive actions on investment issues relating to climate, diversity and inclusion, and racial equity, but higher education retirement plans have been slower to follow the same path,” stated Michael Rhim, a Principal at PRM Consulting and author of the Guide. “While there are various reasons for these gaps, the new Guide is designed to provide practical information for plan sponsors, Human Resources, and Finance Officers to correct this and begin moving the more than $1 trillion in 403(b) in assets towards a world that fosters a healthier planet and a more just society for all, not only in terms of endowment money, but also retirement money.”
“It is critical that fund managers know whether the companies they invest in promote or impede racial equity”, stated Olivia Knight, Racial Justice Initiative Manager at As You Sow. “Our own racial justice research on the S&P demonstrated that no company scored above a 61% on our scorecard. Education is essential to ensure that the money faculty and staff are investing are being invested in funds that promote systemic equality.”
The ESG Retirement Guide is designed to provide practical information relevant to plan sponsors, Human Resources and Finance Officers and personnel, advocates, employees, investment advisors, and others. The IEN Guide, which was developed with the support and expertise of Federated Hermes, Gitterman Wealth Management, Natixis and Schroders, aims to address misconceptions related to the use of ESG funds in retirement plans. In addition, the guide contains sections on fiduciary duty concerns, plan sponsor guidance on ESG, and steps outlining how to advocate for ESG integration in retirement plans. The Guide can be downloaded here.
The Guide includes:
- Information on how ESG performance should not be a hinderance to adding ESG funds to a retirement platform.
- Information to consider and steps to follow for plan sponsors interested in adding ESG funds at their institutions.
- How fiduciaries evaluate ESGs in current regulatory environment.
- “How to guide” for advocates interested in adding ESG retirement options at their institutions.
The Intentional Endowments Network is a peer learning network of colleges, universities, and other mission-driven institutional investors working together to achieve their risk and return objectives through investment actions that create a thriving, sustainable economy. IEN has more than 165 network members including endowments, asset managers, investment consultants, nonprofit partners, and individuals. www.intentionalendowments.org
CONTACT: Alex Frank, (703) 276-3264 and [email protected].