United States: Impact Investing And 401(K) Plans: A Friendship In The Making?

For the fourth time over three administrations, the Department of Labor (DOL) voiced their cautions and views about fiduciaries using environment, social, and governance — or "ESG" — factors as a consideration in selecting investments for pension assets and 401(k) investment options. The guidance, summarized in our One Minute Memo, includes the following statement that encapsulates its views:

"Fiduciaries must not too readily treat ESG factors as economically relevant to the particular investment choices at issue when making a decision. It does not ineluctably follow from the fact that an investment promotes ESG factors, or that it arguably promotes positive general market trends or industry growth, that the investment is a prudent choice for retirement or other investors."

While the tone of the DOL's views sway with the tone of the administration, how do the current DOL's views reconcile with the changing investment landscape that is quickly and vocally understanding the impact of these "non-financial" factors on a company's long-term shareholder value and workforce? If you are watching from afar, there's an increasing divergence among the values of the largest segment of our workforce, mainstream investing, and the DOL.

The Background

First, a bit of context. ERISA and the Internal Revenue Code (the "Code") govern pension and 401(k) plans. The mere reference to ERISA and the Code can strike fear and consternation in fiduciaries who have oversight for the administration and investment of plan assets. The regulatory scheme is both complex and deep in history, and lends itself to conservative decision-making by fiduciaries.

As 401(k) plans continue to become the primary employer retirement vehicle, participants must decide for themselves how to allocate their contributions among the investment options. But, it is up to the fiduciaries to select the investment options that are offered to participants. It is long-established guidance that a mix of investment options must be given to allow participants to create a diversified portfolio to mitigate risk. This backdrop naturally gives way to a somewhat conservative and traditional view in selecting investment options.

ESGs: A Values Proposition?

But, another movement is gaining traction — investors are increasingly looking to align their values and money. Giving weight to ESG factors is one way of describing impact investing for the mainstream investment community.

Impact investing is an umbrella term that generally refers to making investments with an intent to generate both a financial return and a positive impact on environmental or social issues.

You may have also heard it referred to as socially responsible investing ("SRI") or socially conscious investing. It's basically considering ESG factors in investments and is grounded in the notion that financial returns do not need to be sacrificed at the expense of the environment, human rights, or other social issues, such as how and where materials are sourced, investing in programs that ensure a living wage, fair trade practices, and eradicating human trafficking (increasingly referred to as modern slavery) from the supply chain. These companies aspire to align profit-generating activities with a values-in-action approach to business.

This investment approach fits squarely with the values of millennials, who, at 56 million (or more) strong, now make up one-third of the workforce. Millennials seek meaning in their work and an alignment of their money and values.

A Competitive Edge

As employers seek to compete for top talent, benefits and incentives are always key recruitment and retention tools. Employers will want to right-size these tools to help shape their culture and further retention. A 401(k) plan that offers tax advantages and an employer match is a key retirement tool. As the impact investing world continues to be quantified and refined, and as the notion of this simple alignment of positive financial return and positive social impact resonates with a broader investment base, it will be a natural next step for employers to consider impact investment options in their 401(k) plans, which would appeal to the largest segment of our workforce.

The financial powerhouses of the investment world are recognizing that a focus on these non-economic factors are driving positive financial returns and are being responsive to the broader retail investor. For example, BlackRock CEO Larry Fink's open letter to CEOs is very much a call to action. In fact, in 2016, BlackRock began to offer the BlackRock Impact U.S. Equity Fund Investor A Shares, an impact investment portfolio. Charles Schwab offers a list of Socially Conscious Funds, derived from Morningstar. The notion of sacrificing returns is not a given with these funds or impact investors. There are an increasing number of organizations tracking, evaluating and measuring impact investments, including The Forum for Sustainable and Responsible Investment, the Global Impact Investing Network (GINN), and Morgan Stanley Institute for Sustainable Investing. Of particular note is the Impact Management Project, which is a multi-stakeholder project focused on the topic of impact measurement.

The DOL has not prohibited the consideration of ESG factors. There's a notion that impact investing is still new, which then raises the caution flags. But, as the impact investing world "matures," the cautions will relax. Fundamentally, if fiduciaries are adhering to best practices of good governance that include a diligent and rigorous process of evaluating its investment options from all angles, working with their advisors, and soliciting employee feedback, fiduciaries can enjoy the "best of both worlds." Some of the investment options can occupy a sweet spot of offering consistent market rate of financial returns alongside positive social impacts that powerfully appeal to their workforce and other stakeholders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions