Pandemic Accelerates Social Risks to Investment Portfolios

State Street Global Advisors report says 2020 increased the importance of the ‘S’ in ESG.


According to State Street Global Advisors (SSGA)’s annual stewardship report, the COVID-19 pandemic has accelerated the trend of the increasing significance of social risks within environmental, social, and governance (ESG) risk management.

“Insufficient data remains a challenge, but the ‘S’ is undeniably more important than ever to investors and other stakeholders,” according to the report. “As a result, companies are more focused on social issues, which will likely lead to a proliferation in data over the coming years.”

The firm said it is working with the Sustainability Accounting Standards Board (SASB) and others to develop relevant key performance indicators and is refining its approach to social issues such as human capital management.

“One dimension of the ‘S’ that has rightfully received increased attention this year is racial and ethnic diversity and inclusion,” the report said. “Tragic incidents of police violence highlighted the longstanding legacy of systemic racism that plagues the United States and other markets around the globe.”

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SSGA said this motivated the firm to re-examine its focus on diversity and expand its efforts to include race and ethnicity. The firm said it has incorporated racial and ethnic diversity into its voting guidelines, and it will be voting against US and UK companies that do not disclose the racial and ethnic diversity of their boards. SSGA said it engaged with 88 companies on racial and ethnic diversity last year and will be “proactively engaging” with the largest US and UK employers this year to improve their human capital management disclosures and practices.

In its annual report, SSGA said it engaged with 1,721 companies in 2020, which account for 78% of the firm’s equity assets under management (AUM). Of those companies, 672 were “comprehensive engagements” based on in-person meetings or via conference calls.

“We also further elevated our focus on climate change and enhanced our reporting by launching a new annual report and web hub dedicated to climate stewardship,” said report, which also noted that in 2020 the firm became a signatory to Climate Action 100+.

In 2017, SSGA launched what it calls its “Fearless Girl” campaign in support of gender diversity and equality. The firm said that as of end of February, more than half, or 862 of the 1,486 companies identified as part of the campaign, responded to the firm’s call by either adding a female director or committing to do so. The company also said that of the nearly 1,500 companies it voted against, 313—or more than 20%—were due to a lack of board diversity.

As part of the firm’s increased focus on ESG matters, SSGA Global CIO Rick Lacaille will assume a newly created role to lead the company’s ESG solutions, services, and thought leadership across all of State Street’s businesses. Deputy CIO Lori Heinel will take over as global CIO at the end of March.

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Auto-Enrollment Triples New Hire Participation

Vanguard report finds DC plan take-up rates surge to 91% from 28% under automatic enrollment.


Automatic enrollment in defined contribution (DC) plans has led to a huge boost in retirement plan participation rates, according to a report from Vanguard that also found the feature leads to an increase in deferral rates over time.

“Automatic enrollment has emerged as a pivotal strategy to improve plan participation and employee saving rates in 401(k) and other DC retirement plans,” according to the report. 

The report said that under auto-enrollment, DC plan sponsors have seen participation rates among new hires more than triple to 91%, compared with 28% under voluntary enrollment. Additionally, after three years, 92% of participants hired under auto-enrollment were still participating in the plan, compared with 29% of participants under voluntary enrollment.

The report was based on a study of more than 810,000 newly eligible employees in 520 plans hired between Jan. 1, 2017, and Dec. 31, 2019, and who were still employed by the plan sponsor as of June 30, 2020. Participants in the sample skew younger, have a shorter tenure than the general participant population, and have median account balances of $6,500. All the plans in the sample selected a balanced investment strategy as the default investment, with 99% choosing target-date funds (TDFs).

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Vanguard’s research found that auto-enrollment raises plan participation rates most dramatically among young and low-income workers, who have historically had very low participation rates under voluntary enrollment plans. Employees earning less than $15,000 had a participation rate of 82% under automatic enrollment, compared with just 4% under voluntary enrollment.  Likewise, nine of 10 employees younger than 25 were plan participants under automatic enrollment, versus fewer than two in 10 under voluntary enrollment.

Although lower-income workers gained the most from auto-enrollment, the study found that wealthier participants also benefited from the program. Among employees making more than $150,000 a year, new-hire participation rates were also higher under automatic enrollment than under voluntary enrollment.

Additionally, auto-enrollment raises the “floor” contribution rate in a DC plan by replacing non-contributors with participants saving generally at 4% or higher.

“Sponsors can seek to improve retirement outcomes through automatic enrollment combined with higher initial deferral rates, an automatic increase feature, and a total automatic increase cap of at least 10%,” said the report, which added that another way to improve outcomes is to extend the automatic enrollment design from only new hires to all eligible nonparticipants. “Plan sponsors should consider using the power of inertia by employing various types of sweeps, such as re-enrollment, under-saver, and automatic increase sweeps.”

Vanguard said its analysis emphasizes the importance of plan design defaults, the role of inertia in retirement savings decisions, and the impact of employer plan design decisions on retirement adequacy among DC plan participants.

“All things being equal, stronger default designs will help improve retirement outcomes because of the effect of inertia,” the report said. “Sponsors should seek to take advantage of this behavioral bias when designing their DC retirement programs.”

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