Peter Rothstein likes that his job has a social purpose. It expands clean energy to mitigate climate change. Best of all, he will soon be able to support that mission in his retirement plan. Socially conscious investing is gaining ground.
Identifying 401k offerings that support environmental, social and governance (ESG) factors
The Northeast Clean Energy Council, where Mr. Rothstein is president, will revise its 401k plan offerings to include mutual funds promoting those sustainability goals. The revamped plan will include a target date fund series that screens for environmental, social and governance factors, called ESG investing. The council, a nonprofit business alliance of 250 companies, will continue to offer traditional choices such as total-market index funds, but the ESG option will be the default investment choice for Mr. Rothstein’s staff of about a dozen employees.
“These new business models have the potential to be climate solutions and to grow the economy at the same time,” he said. “It makes sense for us to incorporate ESG investing for our retirement plan.”
The idea of investing with a social purpose is gaining ground
Sustainable and responsible investing in the US grew 38% from 2016 to the start of 2018, to $12 trillion in assets under management, according to the US Sustainable and Responsible Investment Foundation (SIF). SIF is a US-based membership association that advances sustainable, responsible and impact investing across all asset classes.
Morningstar reported that 2018 marked the third consecutive year of record flows into sustainable funds; the number of sustainable funds also jumped nearly 50%.
Most sustainable investments are held by institutional and high-net-worth investors
US SIF data showed that of the $12 trillion invested last year, 72% was held by pension funds, insurance companies and educational and philanthropic groups; 25% by high-net-worth clients or individual investors.
Many think 401k plans will play a larger role in ESG investing, driven partly by demand
A Morningstar study published this year found that more than 70% of the US population has “at least a moderate interest” in sustainable investing.
The appetite is especially strong among younger workers: 67% of millennials would be more likely to contribute, or increase their plan contributions, if they knew their investments were contributing to social good.
Most ESG mutual funds rely on ratings systems that score securities for their exposure to indirect financial factors, including a company’s environmental impact, governance policies or how they treat employees or monitor their supply chains.
Critics argue that investors must sacrifice strong returns in return for their socially responsible choices. But a growing body of evidence finds that ESG-screened equities were better than average on measures of quality, financial health and volatility.
A look at San Francisco’s Veritable Vegetable
Veritable Vegetable, an organic produce distributor in San Francisco with about 130 workers, has included socially responsible mutual funds in its 401k plan since 1995. “Since the beginning, we’ve been committed to promoting environmental sustainability in everything we do,” Shira Tannor, the company’s chief administrative officer, said. “We have a different vision of what profitability means,” Ms. Tannor said. “We pay a good living wage to our workers, and sustainable prices to the farmers we work with, and we help people eat healthy food. We’re a for-profit business, but if we have nothing left over after that, we consider that a success.”
Evidence that ESG can match or beat traditional investment options is sparking interest
“We’re getting more questions from plan sponsors — they’re asking if they should be adding this to their investment menus,” says Mikaylee O’Connor, head of defined contribution solutions at RVK, a New York-based investment firm that advises workplace retirement plans. “What’s driving many of the conversations is more research that supports consideration of sustainable investing.”
Fiduciary responsibilities come first
Federal law mandates that sponsors place economic interests of participants ahead of other considerations when making decisions about retirement benefits. But guidance issued in recent years by the Labor Department on whether ESG products meet that obligation has shifted repeatedly.
Some senior managers view their 401k plans simply as a cost center, rather than as a way to promote company values or retain employees. Mr. Rothstein, however, remains bullish. His council’s shift to a socially responsible 401k plan was resonating with employees. “Everyone working in this industry, and more people in general, are recognizing that this matters,” he said.
Creating a Living Trust is an important part of financial planning
A recent New York Times article tells the story of a divorcing couple who amicably divide all community property. The problem was Zoe, a Jack Russell terrier, that “Jim” brought to the marriage. Technically, Zoe belonged to him. In North Carolina, a community property state, pets are classified with “stuff”, to be divided equally between the parties. Three states — Illinois, Alaska and, effective this year, California — have amended their family code to treat pets differently from other types of marital assets.
The divorce lawyer explained that pets are treated in the same way as TVs, furniture and cars. Zoe belonged to Jim like any of the other assets he had brought into the marriage. Jim and “Bob” had been together for 13 years, married for four. During that time they’d shared the cost of Zoe’s regular vet visits, organic food and treats, the groomer, dog walkers–even her canine psychiatrist.
The author had asked for joint custody of Zoe
Over the years, Bob grew to love Zoe, character flaws and all. “I came to appreciate how she would wake up happy every day, ready to greet the world with her prancing walk. I came to see how cataracts near-blinded her and incontinence shamed her. How could I not love her?”
He asked Jim for joint custody for two reasons. In addition to his deep attachment to Zoe, Bob had also hoped that sharing responsibilities for their pet would help them stay connected. Perhaps Zoe could provide an enduring tie.
Zoe was considered personal property
Jim’s answer was “no.” His lawyer advised him that Zoe was considered personal property and he alone could determine her future. For this reason, Bob was sitting in his lawyer’s office, contemplating paying $16,000 for joint custody. His legal team had examined other state laws and come up with a proposed dollar amount for Zoe’s shared custody.
While Zoe was priceless, $16,000 seemed excessive for an 11-pound geriatric terrier. Heartbroken, Bob signed the separation agreement that listed Zoe somewhere between “electric salt and pepper shaker” and “red bowl” on the property inventory. Then Jim and Zoe drove away.
A few weeks later, an email from Jim: No pets allowed
“Would you be interested in having Zoe full time?” “Yes!” Jim finally disclosed that his new townhouse wasn’t dog-friendly. Although the legal agreement was signed and recorded, Bob took full custody of Zoe. Jim wrote again, making sure Bob knew that he wouldn’t pay for any of Zoe’s care “because I won’t ever see her again.” So much for staying connected.
It’s just Bob and Zoe now. Two weeks shy of 17, Zoe is still chasing squirrels. Bob lost his parents and separated from Jim within a few months of each other. He is grateful for the comfort that Zoe brings.
A lawyer with the Animal Legal Defense Fund suggested a “petnup”
Dog lovers understand what the loss of a pet means to its owner. A petnup is a formal agreement of the best way to avoid custody disputes when a relationship ends. It works just like child support. Options include sole custody, joint custod y and even pet support.
California assemblyman Bill Quirk noted in 2018, while advocating the change in law. “As a proud parent of a rescued dog, I know that owners view their pets as more than just property. They are part of our family, and their care needs to be a consideration during divorce proceedings.” Thanks to Mr. Quirk, since January, California judges have been permitted to consider the wellbeing of the animal, as well as who provided its care, in working out custody agreements.
Pet lovers who fear their animals will outlive them should make provisions in their Living Trusts
People who die before their pets leave stranded animals. In a best-case scenario, a neighbor, family member or friend cares for the pet for the rest of its life. The alternatives? The Humane Society estimates that six to eight million dogs and cats enter shelters annually. An estimated half are adopted, and the rest are euthanized. In some sad cases, after the death of its owner a pet is simply let out the front door to get lost, run over or any of the other horrible fates that befall abused animals.
Consider a Pet Trust
A Pet Trust is a legal document that outlines the continued care and maintenance of domestic animals; it also names new caregivers or directsTrusteesto find new homes for pets. ATrusteehas a legal duty to carry out your wishes. When naming aTrustee, think about the expense of caring for a pet. Food and visits to the vet can add up. Some owners make outright gifts of cash for their animals’ care. Read our blog about creating a Trust for your pet.
California Document Preparers assists our clients in the preparation of LivingTrusts