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Socially conscious investors influencing 401(k)s

New York

PETER ROTHSTEIN has a job with a social purpose: expanding the clean energy industry in the north-eastern United States as a way to mitigate climate change. Soon, he will be able to support that mission when he saves for retirement.

In November, the Boston-based Northeast Clean Energy Council, where Mr Rothstein is president, will revise its 401(k) plan investment offerings to include mutual funds promoting those sustainability goals. The revamped plan will include a target date fund series that screens for environmental, social and governance factors - so-called ESG investing.

The council, a non-profit business alliance of 250 companies, will continue to offer traditional choices such as total-market index funds, but the ESG option, Natixis Sustainable Future funds, will be the default investment choice for Mr Rothstein's staff of about a dozen employees.

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Mr Rothstein views the shift as a natural evolution. "We have the expertise to understand that these new business models have the potential to be climate solutions and to grow the economy at the same time," he said. "With that perspective, it makes sense for us to incorporate ESG investing for our retirement plan."

The idea of investing with a social purpose is gaining ground. The broad category of sustainable and responsible investing grew 38 per cent in the US from 2016 to the start of 2018, to US$12 trillion in assets under management, according to the US SIF Foundation. That represented US$1 out of every US$4 of the US$46.6 trillion under management, the group noted. A wide range of investments were held, including mutual funds, annuities, exchange-traded funds and closed-end funds.

Morningstar reported that 2018 marked the third consecutive year of record flows into sustainable funds; the number of sustainable funds also jumped nearly 50 per cent.

So far, most sustainable investments are held by institutional and high-net-worth investors. US SIF data showed that of the US$12 trillion invested last year, 72 per cent was held by organisations such as pension funds, insurance companies and educational and philanthropic groups; 25 per cent was managed on behalf of high-net-worth clients or individual investors.

Negligible amounts are held in workplace retirement plans. In 2017, 4 per cent of defined contribution plans included ESG funds, according to a survey by the Plan Sponsor Council of America, and they held less than one per cent of total plan assets. But some experts think 401(k) plans will play a larger role in ESG investing in the years ahead, driven partly by demand from participants. NYTIMES