401(k) Specialist Issue 2 - 2019 - 4

EDITOR'S LETTER
Silly Notions of Sustainability
" PEOPLE WILL CARE about acid rain when it peels the paint from their Porsche, " a
college friend once said with self-righteous certainty.
Or, reducing the argument to the absurd (as if it needed help), it wasn't the complexity
of science and economics that prevented a solution to the acrid cloud contaminating
the Northeast, rather the alleged indifference of an imagined stereotype
with a shoulder-draped cashmere sweater.
It's easier to blame than understand, something that's gotten worse in the decades
since the coed's quip. No more self-sacrifice to show fealty to a cause; now it's
simply a tweet and a troll to register outrage with little risked and far less gained.
Which brings us to the thorny issue of ESG investing.
A recent Cerulli report finds loyalty lacking in the environmental, social and governance
space, especially with 401(k) participants.
Yes, they say such menu options are extremely important, but what they do
is far different.
Survey data shows that plan participants and sponsors are generally supportive of
ESG-oriented investments as a concept.
However, the global research and consulting firm notes that ESG investing in
401(k)s still faces headwinds, and " fee sensitivity, the notion that ESG investing
entails a tradeoff in performance, and the regulatory environment in the DC market
present barriers to adoption. "
It's the second barrier, the perceived performance tradeoff, that's of particular
interest.
Advocates have long argued that savings needn't be sacrificed for sustainability,
but evidence was missing until a high-profile research report from MSCI provided an
all-important causal link between ESG factors and company performance.
Yet the report wasn't the slam dunk many thought, one reason regulators are
still having so much trouble instituting specific guidelines-especially in the age
of fiduciary-with one high-profile ERISA attorney (not Fred Reish) calling them a
" compliance nightmare. "
This isn't to denigrate ESG; far from it. It's that the requisite cost/benefit analysis
has been upended, introducing inefficiencies by attempting to prematurely force
markets where none exist (yet).
It's one reason for the spectacular failure of Solyndra and similar public-sector
pet projects, and why the private sector should take note. Between feel-good bromides
and actual human behavior, Cerulli showed us what wins-every time.
ONLINE
EXTRA
John Sullivan
Editor-in-Chief, 401(k) Specialist
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Issue 2, 2018 | 401kSpecialist.com
$3 Billion
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How Jania Stout built
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Offbeat and Original
Enrollment Strategies
Fintech Frustration:
What advisors really want
The Mind of a Fiduciary:
Are they born or made?
Create a Competitive
401(k) Advantage
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401(k) Specialist Issue 2 - 2019

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