More Retirement Plans Are Getting a Conscience

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Americans may soon get the opportunity to invest more conscientiously in their workplace retirement accounts. A new survey shows that more and more employers are adding socially responsible investment choices to their plans.

Mercer and the US SIF Foundation (formerly known as the Social Investment Forum Foundation) recently predicted that the number of defined-contribution retirement plans in the U.S. -- think 401(k)s and 403(b)s -- offering socially responsible investment (SRI) choices could double in the next three years.

Of survey respondents, 14% already offer at least one SRI choice, and an additional 13% are either planning or discussing adding such options over the next three years. Even more interesting, 84% of the survey respondents believe that demand for socially responsible investment options will either increase or remain the same through 2016.

Beyond Booze, Smokes, and Guns

Socially responsible investing traditionally screens out companies that hurt or damage individuals and society on issues including the environment and overall economic well-being. Although SRI tends to avoid unhealthy "vice" companies like Smith & Wesson (SWHC) or Altria (MO), there are increasing numbers of socially responsible or environmentally conscious companies to direct money into, such as Whole Foods Market (WFM) or Google (GOOG), both of which have plentiful employee-friendly and green initiatives.

Investing for Generations to Come

It makes perfect sense that increasing numbers of Americans would demand investment vehicles that won't require their children and grandchildren to pay too high a price for past mistakes. The last several years have provided plentiful examples of disasters that can stick the rest of society with a big, fat bill. Take the financial crisis, which is still dragging on Americans in various ways.

It's not just arm's-length societal costs on the line when companies make antisocial business decisions: Real financial costs can erode these companies' bottom lines and hurt shareholders, too, and that doesn't always take years to come to pass.

Take the many lawsuits and regulatory changes leveled at tobacco companies like Altria; BP's (BP) costs related to the Deepwater Horizon disaster and subsequent Gulf of Mexico spill, or Goldman Sachs' (GS) many public relations problems tarnishing its brand and helping drum up American ire that results in things like the current Occupy Wall Street campaign.

Future Retirees Getting More of a Conscience

The more socially aware investment approach isn't as obscure or esoteric as you might think; there has been a flood of big money pouring into SRI.

According to US SIF, in early 2010, $3.07 trillion in assets was directed into SRI or sustainable strategies; that's almost five times the level in 1995. This more positive investment philosophy also flourished during the financial crisis, while the rest of the market universe remained flat.

The Mercer and US SIF Foundation report also highlights that this is still a relatively new area for many retirement plan sponsors. Mercer's head of responsible investment, Craig Metrick, said that many of the respondents admitted they still have little or no expertise when it comes to existing SRI products or indices, so education and heightened awareness of the investing philosophy are urgent, given signs of growing demand.

Motley Fool analyst Alyce Lomax owns shares of Whole Foods and runs a real-money portfolio on that focuses on socially responsible investing. See her portfolio here. The Motley Fool owns shares of Google, Altria Group, and Whole Foods. Motley Fool newsletter services have recommended buying shares of Google and Whole Foods.

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