Why should employers consider the ESG Retirement Plan Certification?

While many employees are interested in ESG investment options, they are also interested in whether their retirement plans are walking the walk. And the ESG Retirement Plan Certification can help demonstrate just that.

In fact, 95% of millennial investors are interested in incorporating ESG principles into their portfolio, and 85% of the general investing population feel the same way.1

At the same time, more employers are looking to integrate ESG investment options and education into their retirement plans. Voya Financial research suggests employers could further improve employee engagement and retirement outcomes by taking a closer look at ESG practices—from paper usage to default investment options—in the plans themselves.2 And according to Voya research, this is exactly what employees want. In a 2020 survey by Voya, 76% of individuals indicated that it’s important for their employer to apply ESG principles to workplace benefits.3

Recognizing the growing role of ESG, DALBAR—a leading expert in the retirement industry for evaluating, auditing and rating business practices—introduced an ESG Retirement Plan Certification in late 2020.4

While ESG is typically talked about in the context of investment options within a plan, DALBAR’s certification focuses on how companies apply ESG principles to decisions and practices related to managing and administering those plans. Let’s take a closer look at the ESG Retirement Plan Certification and what it may potentially mean for employers.

What the evolution of ESG means for employee benefits

ESG has evolved from a nascent category of socially-responsible investing to a widely-accepted, broader set of principles that incorporates environmental, social and governance factors into workplace benefits decisions. While many employees are interested in ESG investment options, they are also interested in whether their retirement plans are walking the walk—and being transparent about their ESG practices. According to research from the Voya Consumer Insights and Research team, the Certification can have a substantial impact on how employees feel about the organization they work for:

  • 68% feel like the employer cares about serving the greater good / society at large.2
  • 63% feel proud to work for the employer. 2
  • 63% recommend participating in the plan to other employees at the company. 2
  • 60% engage more frequently with the employer’s retirement plan/tools. 2

What does ESG Plan Certification measure?

DALBAR designed its ESG Retirement Plan Certification to reflect the requirements of the Department of Labor, which administers and enforces the Employee Retirement Income Security Act (ERISA). Leveraging ERISA best practices as a baseline, the certification then considers dozens of different ESG practices, among them:

  • Environmental factors, such as paper suppression and online capabilities
  • Social factors from matching contributions to phone center capabilities
  • Governance measuring things like reasonable plan fees, regulation compliance and a sound investment policy

ESG Plan Certification offers many benefits for employers

For employer-sponsored retirement plans, a growing interest in ESG presents unique opportunities. For instance, Voya research suggests 73% of Americans found the idea of ESG investing through a retirement plan appealing. This could translate to potentially better participation and employee retirement outcomes while contributing to overall employee satisfaction and engagement.5 A few key employer benefits of the ESG Retirement Plan Certification include:

  • Risk mitigation: Reduce exposure to regulatory challenges, litigation, and other threats.
  • Employee desirability: Attract employees to plans with the commitment to serving their local and global community.
  • Plan economics: Derive return on investment from the retention of employees.
  • Institutional recognition: Leverage the visible commitment to ESG for your institution.
  • Accessible documentation:  Document plan quality and rationale for decisions and activities via certification.

ESG Certification can help drive plan participation

At the same time, ESG Retirement Plan Certification helps address many factors that directly and indirectly influence employee plan participation, and ultimately employee retirement outcomes. In fact, a Voya survey discovered 60% of participants said they are likely to contribute more to an ESG-certified retirement plan.2 Here are a few ways employees can benefit:

  • Increased participation:  Studies have shown that applying ESG principles to a retirement plan can increase participants’ likelihood of participating in that plan.6
  • Higher contribution rates: Studies have shown that applying ESG principles to a retirement plan can increase participants’ likelihood of contributing more to that plan.6
  • Enhanced retirement outcomes: The combination of greater participation with higher contribution rates may lead to greater retirement security for more participants.
  • Improved employee satisfaction: Participants who value the fact that their plan is environmentally responsible, socially conscious and prudently governed can derive a personal benefit.

ESG Retirement Plan Certification represents an opportunity for employers of all sizes to assess and improve their retirement plans while demonstrating a broader commitment to sustainable business practices.

Voya becomes the first publicly-traded company to earn certification

At Voya, we believe that aligning ESG principles with corporate beliefs and business practices creates value, and it is the right thing to do. ESG Retirement Plan Certification can help employers of all sizes demonstrate their commitment to sustainable business practices and optimize retirement plan design and management while improving employee engagement and long-term financial security.

In fact, Voya was an early proponent of this certification, and in June 2021, we were the first publicly-traded company to receive DALBAR’s ESG Retirement Plan Certification, earning a five-star rating for the 401(k) plans we provide to our own employees. Voya also provided assistance to DALBAR in developing the ESG Plan Certification. DALBAR asked Voya to participate in the data collection process and to provide feedback on the questionnaire process from a client perspective. Voya participated in a beta test for certification.

View the full Guide to the ESG Plan Certification and learn more about Voya's enterprise ESG practices

Related Items

  1. Morgan Stanley Institute for Sustainable Investing, Sustainable signals July, 2020
  2. Voya Consumer Insights and Research, July 2020
  3. Consumer Sentiment during COVID-19, Voya Consumer Insights and Research, July, 2020
  4. DALBAR, Inc. is a leading financial services market research firm that performs a variety of ratings and evaluations of practices and communications, committed to raising the standards of excellence in the financial services and healthcare industries. DALBAR is a separate entity and not a corporate affiliate of Voya Financial®. The DALBAR ESG Certification criteria fall into 3 categories: Environmental (Paper Suppression, Automatic Enrollment, Online Capabilities), Social (Premature Withdrawal Options, Matching Contributions, Phone Center Capabilities, Pre/Post Retirement Support) and Governance (Reasonable Plan Fees, Compliance with Applicable Regulations, Sound Investment Policy, Investment Review, 3rd Party Requirements). There is an annual fee for ESG Plan Certification which is uniform for all participants in the program and based on the number of participants in the plan (10,000 participants is $5,000). The DALBAR ESG Certification does not reflect actual client experiences or outcomes and is not indicative of future performance. While Voya provided assistance to DALBAR in developing the ESG certification, Voya plays no role in the evaluation process. This fact has been disclosed to the extent it may be perceived as a possible conflict of interest
  5. Consumer Sentiment during COVID-19, Voya Consumer Insights and Research, July, 2020
  6. DALBAR, Inc., Financial Success Drivers of DC Plans, 2020