BlackRock, Wells Fargo reportedly preparing ESG funds for 401(k) plans

Both companies are said to be developing target-date funds with this focus

Jun 13, 2018 @ 2:11 pm

By Bloomberg News

Doing good and saving for retirement may soon get easier.

BlackRock Inc. and Wells Fargo & Co. are developing their first-ever ESG funds for retirement savings plans, seeking to tap into growing demand for ethical investing. Both firms plan to create a series of target-date funds with this focus, according to people familiar with the matter, with BlackRock aiming to debut some later this year.

The asset managers are betting that a surge in interest in environmental, social or governance investing will carry through to 401(k)s, where there are few such options. While assets under management in ESG funds tracked by Bloomberg rose 37% in 2017 to more than $445 billion, less than 10% of 401(k) plans now offer such choices, according to Edward Farrington, executive vice president for retirement strategies at Natixis Investment Managers.

The move is aimed at spurring reluctant millennials to invest more for retirement. There's evidence that a younger generation of investors want such options and have yet to create a nest egg for the future. About two-thirds of millennials have saved nothing for retirement, according to a National Institute on Retirement Security report in February.

Farrell Denby, a BlackRock spokesman, declined to comment on specific plans. Under CEO Larry Fink, the firm has said companies should align their interests with societal needs. BlackRock engages with about 1,600 companies each year on a range of ESG issues and incorporates them into the company's investment analysis.

"As a fiduciary to our clients, BlackRock has a responsibility to protect and enhance the value of the assets they have entrusted to us," Mr. Denby said in an emailed statement. "We believe sustainability-related issues can play an important role in driving long term company strategy and economic performance, and thus carefully incorporating these considerations into the investment research and portfolio construction process can enhance long-term risk-adjusted returns."

A Wells Fargo spokesman, Robert Julavits, declined to comment. Its asset management unit oversees about $500 billion in assets.

Target-date funds, which offer a mix of investments and automatically rebalance as workers age, have become popular choices for investors. The category saw net inflows of $68 billion in 2017 and ended the year with $1.1 trillion in assets, according to data compiled by the Investment Company Institute. Over the past 10 years, net inflows have totaled $521 billion.

But fund managers expect it could take years to get ESG funds added to typically conservative retirement plans.

ESG funds are keeping pace with the broader market. Year to date, the iShares MSCI KLD 400 Social ETF (DSI) and the iShares MSCI USA ESG Select ETF (SUSA), among the biggest exchange-traded funds in the category, have gained 6.1% and 4.6%, respectively, on a total return basis. The iShares Core S&P 500 ETF (IVV) is up 5%.

BlackRock, the world's largest asset manager, and Wells Fargo see ESG as a growth engine for retirement assets even as the U.S. Labor Department has urged retirement plan sponsors to use caution in this area. In April, the department issued guidance to sponsors saying ESG investments may not always be "prudent." Under the Obama administration, the Labor Department tried to remove perceived barriers to socially responsible investing by retirement funds.

The guidance could cause plan sponsors to think twice before implementing ESG strategies, according to Alex Bernhardt, U.S. head of responsible investment at consulting firm Mercer. Last month the U.S. Government Accountability Office also asked the Labor Department to clarify its latest guidance.

But firms like Natixis, the Boston-based unit of the French bank, are moving ahead with young investors in mind. The firm started the first suite of ESG target-date funds specifically for U.S. retirement savers last year after a survey of millennials found that 71% would put more money in retirement plans if they thought the investments were doing social good.

(More: Family foundations beginning to shame public companies to invest more in ESG causes)

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

May 16

Conference

Chicago Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

Events

How are broker-dealers helping 401(k) advisers adapt to a changing market?

Bryan Hodgens, co-head of LPL Financial's Retirement Partners group, says the industry is getting much better at connecting advisers to wealth management opportunities and helping scale their businesses.

Latest news & opinion

IBDs with the most CFPs

How many of the more than 83,000 certified financial planners are employed by the big independent broker-dealers?

InvestmentNews announces 2019 Innovation Awards winners

Sheryl Garrett is this year's InvestmentNews Icon.

Morgan Stanley rides wealth management train to solid first quarter

Chairman and CEO James Gorman expresses excitement about expanding into workplace plans with purchase of Solium.

Fate of New Jersey fiduciary standard could come down to politics, court

With strong support from N.J. Gov. Phil Murphy, the proposal has momentum out of the gate.

Growing wealth fuels demand for family offices

The market for serving wealthy families may be bigger than some data suggest.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print