Background:

Sustainable investment discussions have been largely focused on ESG factors, such as fiduciary issues, and there is much less discussion and research on defined contribution (DC) participants’ attitudes, awareness, and demand for sustainable investment options in their DC plan. To this end, DCIIA Retirement Research Private Label, AARP Public Policy Institute and Natixis recently completed a syndicated study to address this knowledge gap. Over 3,000 respondents participated in an online survey in December 2023, with data analysis, including ANOVA and multivariate analyses (segmentation, conjoint and discriminant) conducted by the DCIIA RRC Private Label.

This study measures:
- Awareness and understanding of the terms “sustainable investing” and “ESG”.

- Demand for plan investment options that redirect funds from corporations with low ESG performance towards those actively supporting ESG initiatives.

- Relative demand separated by environmental, social, and governance issues.

- Perceptions regarding the performance of sustainable investments.

- Willingness to trade off performance to advance environmental, social and governance issues.

- Messaging with the highest potential to stimulate demand.

- DC participant demand segmentation.

Findings:

Three unique segments emerged from the analysis: impact investing receptive, investment fundamentals, and leadership matters.

1. Impact investing receptive: 31% of the DC participant population. This segment places significantly lower weight on investment return (23%) and diversification (11%) than the other two segments. It places significantly higher weight on the impact investing decision-making factors than the other segments.

2. Investment fundamentals: 55% of the DC participant population. The largest of the three segments, this segment values traditional factors when making investment decisions, such as investment returns (39%) and diversification (33%). They place the lowest weight on the impact investing factors of the three segments. Importantly, the results of the entire survey indicate that although this segment places low priority on impact investing factors when making decisions, they are not resistant to impact investing, if it meets performance and diversification conditions.

3. Leadership matters: 14% of the DC participant population. The smallest of the three segments, it places the greatest weight of the three segments on responsible leadership when making investment decisions (23% vs 8% for the other two segments). Their only other dominant decision-making factor is investment returns (33%). This segment could also be seen as receptive to impact investing but is more highly focused on quality of corporate leadership than environmental or social considerations.

Bottom line:

This study suggests that a significant portion of the DC population, particularly the sustainable investing receptive segment, shows a considerable interest in sustainable investing, indicating untapped demand. Members of this segment are naturally receptive to this type of investment, and it seems that this group has a strong probability of investing assets in a sustainable theme in an investment menu. However, there are barriers to reaching this segment because their interests are widely scattered across the 12 sustainable themes defined in the study, which means that many of these participants will not identify with the theme.

A second Research Minute further detailing the findings of this study is forthcoming.

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