Defined contribution

Can millennials save the earth while saving for retirement?

May 4, 2016

The environmental movement may have been a baby boomer invention, but millennials are continuing the tradition by finding practical ways to save the earth. And they're not just buying electric cars and filling reusable water bottles. They're putting their money where their beliefs are through sustainable investing based on their social or environmental values.

Millennials' growing interest in sustainable investing has created an intriguing possibility for Defined Contribution (DC) plan sponsors looking for ways to get younger employees engaged in their retirement. By incorporating  investing options such as screened, Environmental Social Governance (ESG) or Impact strategies into their investment menus, plan sponsors can encourage their participants to "do good" now, while doing good for their retirement later.

The size and strength of millennials' values

The strength of millennials' commitment to sustainable investing is clear. In one recent survey, 67% of millennials state that their investments reflect their values. And just to show that interest is not limited to millennials, among women of all ages, the trend is even stronger: 76% say that environmental and social factors are important considerations when making investment decisions.

If millennials are keenly interested in investing according to their values, they are at the same time disengaged from their own retirements. BlackRock's DC Pulse Survey found that only 38% monitor their retirement investments and only 36% increase contributions when possible.

We may be seeing the beginning of a historic generational shift. Simply put, millennials want returns, but they also believe in making a positive impact on the world around them. And we believe we can use that passion to help them build their own retirement. The key is to offer a clear choice and to position it in a way that encourages additional savings.

Understanding Impact strategies

The idea of sustainable investing is not new; many endowments and pension plans have pursued similar strategies for decades. Now many firms, including BlackRock, have made sustainable and Impact strategies available to a wider range of investors at lower costs, with the ultimate goal of driving capital towards companies that are making a positive impact on the world.

We have defined three core segments that reflect a wide range of objectives. They include removing specific sectors, such as weapons manufacturers; investing in companies based on Environmental, Social, and Governance (ESG) factors; and targeting positive social and environmental outcomes through “pure” Impact investing strategies. Within this universe, data-driven investment models are used to construct portfolios designed to provide competitive returns without sacrificing the investor's social or environmental goals.

Appealing to millennial participants

Most plan sponsors are searching for ways to increase participant savings rates, especially among younger workers. New hires may be defaulted into the plan at a 3% or 4% deferral, plus a company match. Beyond that, it is difficult to encourage participants to increase deferrals, especially when you consider the financial commitments of repaying student loans, housing costs and so much more.

But once an Impact investing option is in place, plan sponsors can create a communications strategy encouraging participants in general – and millennials in particular – to save an additional 1% to 2% into the option. The appeal? That their savings can spend decades helping to build a world that reflects their values, while at the same time building their own retirement security.

Of course, there are many ways to incorporate Impact investing into a DC menu, and recent Department of Labor guidance says that plan sponsors can consider sustainable investing criteria when evaluating similar options. Combining Impact options with a targeted participant communications campaign can help satisfy millennials' interest in investing according to their values, and can potentially increase savings rates as well.

Sustainable investing is growing, with assets nearly doubling over the past three to four years. We are also on the edge of a massive generational shift with millennials not only building their own retirement wealth, but also increasingly taking control of the baby boomer wealth passed down to them. Connecting millennials' values with their portfolios can help make the earth a better place while building secure retirements.

Anne Ackerley
Managing Director, Head of BlackRock's U.S. and Canada Defined Contribution Group
Anne F. Ackerley, Managing Director, is head of BlackRock's U.S. & Canada Defined Contribution (USDC) Group. She is responsible for the development and ...