Putnam Investments has added its first suite of sustainable retirement target-date funds to meet demand for environmental, social and governance investment options within defined contribution plans, the firm announced Friday.
The Putnam Sustainable Retirement Funds invest in actively managed, sustainable and ESG-focused exchange-traded funds managed by Putnam, and are the first target-date fund series with ETFs as underlying investments. The series also use a similar glidepath as the firm’s other target-date offering, called Putnam Retirement Advantage.
“Our goal as we look to bring products to the marketplace is to offer choice to our clients,” says Steven McKay, Putnam’s head of global defined contribution investment only. “If you look at the asset management industry in general, sustainable assets have doubled over the last three years.”
While interest in ESG-focused offerings has grown, McKay says this part of the DC space is still in a nascent stage with the expectation that it will evolve.
“We’re in the early innings of a much longer game here, and we’re looking to innovate for future demand,” he says.
Republican policymakers are pushing back on the movement to consider ESG factors in investing, including in DC retirement plans, with asset manager BlackRock drawing much of the focus. In January, Republican state attorneys general, along with fossil fuel companies and researchers, challenged a ruling by the Department of Labor that ESG considerations can be taken into account when selecting investments for government-regulated retirement plans.
The Putnam Global Asset Allocation team is responsible the fund allocations of the firm’s new sustainable TDF suite, according to the Boston-based firm. McKay says those decisions will be guided by the material-based approach the firm takes with all DC-plan investments, with the goal of a sustainable retirement glide path that will follow the right risk at the right time.
The retirement investing head says Putnam paid close attention to the recent DOL ruling on ESG within plans, but the decision did not necessarily change the firm’s plans to offer what it saw as a client need. He believes the ruling helped provide guidance to fiduciaries on offering ESG-focused investments, and he expects further clarity as the space evolves.
“I think additional guidance and more clear and potential safe harbors down the road will help as demand grows and the needs of participants grow for these types of options,” he says.
Beyond the sustainable TDFs, Putnam is working on further innovations to the popular retirement vehicle, according to McKay.
A key part of that focus will be in personalization of the glidepath for individual participants beyond just age. Putnam is looking at products that take into account a host of factors to create an even more precise glidepath, including age, plan balances and contribution levels.
“To me, that’s an offering that I think participants would really gravitate toward and that plan sponsors would gravitate toward,” McKay says.