Socially responsible funds can give your 401(k) a conscience

It might not happen today or tomorrow, but soon you may get the chance to invest in a socially responsible investment in your 401(k) plan.

That’s because the Labor Department this fall issued guidance easing the fiduciary burden for selecting these funds for 401(k)s, according to a Plansponsor article by Fred Reish, a partner at Drinker Biddle & Reath.

At the moment, most 401(k)s don’t offer socially responsible investment (SRI) funds — those that apply environmental, social and governance (ESG) factors to management — as an option. Offering such funds had been problematic, according to Reish. Investment committee members w could easily get sued by plan participants if the SRI didn’t perform as expected. And, there’s never really been enormous demand for SRI funds from 401(k) participants.

But all that may change now. One, Millennials, who are now starting to save for retirement, might be more interested than Boomers and Gen X in SRIs. And two, SRIs may be consistent with the culture of a socially conscious or environmentally sensitive company, according to Reish.

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So how might you evaluate whether to invest in an SRI fund in your 401(k), and how might you decide if it’s a good investment? Here’s what experts had to say.

• Is it really an SRI fund? Your first order of business: Determine whether the SRI fund is really an SRI fund. Unfortunately, that’s not easy. “Basically, there is no ‘SRI flag’ that funds have to fly to indicate whether they are SRI or not,” says Brooks Herman, head of research for BrightScope in San Diego. “So there are a lot of personal judgment calls and digging through fund prospectuses when looking at the list.”

Others agree. “There is a lot of greenwashing going on out there with all kinds of asset managers claiming to offer ‘green funds’ when they really aren’t,” says Robert G. Eccles, chairman of Arabesque Asset Management in London.

Ask your employee benefits department for the criteria used to select the SRI. “The company will have done some basic due diligence,” says Christine Russell, a consultant with Christine Russell Retirement Consulting in Philadelphia.

Note, too, that methodologies for determining whether a fund qualifies as “sustainable investing” are still being developed, says Eccles. He recommends using Morningstar for research.