A full version of this article was originally published in 401(k) Specialist.
It’s no secret that millennials are driving demand for environmentally and socially conscious investing. Amidst a fraught political climate, millennials see their investments as a clear way to vote with their dollars.
A whopping 85% of millennials surveyed in the 2016 U.S. Trust Insights on Wealth and Worth study said they consider their investment decisions as a way to express their social, political, and environmental values.
So how well is this demand being addressed in the 401(k) space? Currently, not well enough. But companies like stok are changing this, providing team members with responsible investing plans that add value for employer and employee alike.
High demand
According to a Natixis study, 71% of millennial respondents agree that they would be more likely to contribute or increase their contributions if they knew their investments were doing social good. 77% of these same millennials state that they “would like to see more socially responsible investments in [their] retirement plan offering.”
A vast majority of Natixis’ millennial respondents clearly desire investments that reflect their personal values, but many also see the financial value of these investments. Natixis reported that 74% of millennial participants agree that “companies that provide clean water and clean energy present significant growth opportunities for [their] investments.”
While demand for socially and environmentally responsible 401(k) options is high, millennial participation in 401(k) plans has room for improvement. Offering funds that align with millennial values and their visions for the future economy creates an opportunity to close this participation gap.
High participation
stok’s Burke Pemberton witnessed a jump in 401(k) participation first hand. Handling finances for a company made up of majority millennial employees, Pemberton led the charge in rolling out stok’s fossil- and gun-free 401(k) plan with the help of HIP Investor. stok’s fossil free 401(k) option resulted in 100% employee participation, a dramatic rise from an original rate of 14%.
As with millennials who are interested in clean tech opportunities for future portfolio growth, stok employees appreciate that their 401(k) options consider future risks.
“Using HIP’s Sustainability Impact Ratings gives us a forward look at how our retirement funds are mitigating future risks associated with climate change and social injustice,” Pemberton reiterates.
Closing the participation gap isn’t just for the millennials—the inclusion of young participants has clear benefits for business owners and executives, too.
“When next-gen workers get excited about responsible investing and participate, the sustainable 401(k) plan allows Highly Compensated Employees (HCEs) to better leverage the tax benefits of a retirement plan on account of younger workers becoming more engaged and inspired to invest in company-sponsored plans. This can be a huge tax benefit to business owners and can reduce the need for employer matching.”
High praise
A fossil free 401(k) is more than a smart financial investment. Pemberton explains that stok’s fossil free 401(k) plan has also noticeably helped attract talent for the firm.
“Without a doubt, the 401(k) plan is the most talked about benefit offered by stok. Not only has it been good for retention and recruiting, but stok’s fossil free 401k has been an extremely effective conversation starter. It’s a great story that lets our partners know that we are authentic—we literally ‘put our money where our mouth is’.”
It seems that it will pay to listen to the millennial generation. By combining technological enhancements like auto-enrollment with environmentally and socially focused portfolio options, 401(k) providers who jump on this opportunity will harness a crucial competitive advantage. Likewise, employers who respond to this demand may appear more attractive to younger talent—and boost their bottom line while they’re at it.
For employers, 401(k) providers, and millennials alike, these environmentally and socially focused funds just might be the golden—or green—ticket.
Read the full story of the world’s first fossil- and gun-free 401(k) on 401(k) Specialist!
Arina Abbott is an Associate with Green Alpha Advisors, an asset manager that invests equities in the innovation-driven, sustainable economy.
