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ESG Investing Not New to 403(b)s

ESG Investing—that is, investing in a way that is mindful of environmental, social and governance matters and concerns—has been an increasing topic of discussion in recent years. But while it may be a recent development to some, it’s not new to the 403(b) world, reports a recent blog. 

How familiar are 403(b)s to ESG investing? While few 401(k) plans are reported to make it possible to make ESG investments, far more 403(b)s do so—and have, for many years, according to Michael Webb in the Cammack Retirement Top of Mind Blog. In “403(b) Plans: The Trendsetters for ESG Investing?” he cites a CNBC report that says just 3% of 401(k) plans do, whereas he found it to be common among 403(b) plans 30 years ago. “While these investments were known then as socially responsible funds, rather than ESG, many of the same investments are still around today,” he writes. Webb attributes the widespread practice of investment in ESG funds to the longtime dominance of insurance companies—which often included ESGs in the variable annuities they offered to 403(b) plans. 

Now, Webb says, ESG investing has evolved for some 403(b) plans from working with exclusionary funds that avoided investments in such things as tobacco and fossil fuels, to investing in inclusionary funds and impact investing. The newest development, he writes, is offering “complete ESG tiers of investments from which participants can craft a diversified investment array of ESG funds.”

Webb notes that the Department of Labor has found that ESG investing has not had a bad effect on 403(b) plans, and suggests that 401(k)s and other plan sponsors “can take comfort in that fact.”