LeafHouse, a Social(k) partner, shines!!
By Michael Garberich
As a follow up to the post, “RIA Opens Up About DOL ESG Inquiries,” LeafHouse Financial has officially concluded its DOL investigation surrounding environmental, social, and governance (ESG) investment options in ERISA plans. The following provides a perspective on that experience—and some takeaways for fiduciaries generally.
NOTE: The DOL determined there were no findings and no further action was necessary after LeafHouse provided the requested information and documentation.
LeafHouse is one of the first national third-party investment fiduciaries to integrate ESG investments into retirement plans for those who value ESG strategies. This proprietary screening algorithm and process is called the LeafHouse Investment Sustainability Technology™ (LIST™). The DOL’s conclusion provided LeafHouse with important details that we view as critical to providing adequate fiduciary oversight to clients.
It is important to have a clear and repeatable process and to always look at ESG through the lens of a fiduciary. All ESG investments get additional layers of scrutiny and must pass multiple screening processes.
Among LeafHouse’s crucial takeaways is the importance of having a process. We believe fiduciaries must have a clear and repeatable process when selecting any type of investment, including ESG, for their client’s ERISA plans. At LeafHouse, we work to achieve that by screening investments using our proprietary LeafHouse Grade Point Average® (GPA) system, to score funds based on a peer-to-peer ranking system, accounting for performance, risk and expense.
The algorithm, in conjunction with the other metrics, is designed to incorporate fiduciary management principles and ERISA best practices to ensure that LeafHouse meets our fiduciary obligations to plan participants. When we look at ESG-type investments, LeafHouse implements LIST™. This process adds an additional layer of screens looking at the prospectus to determine if ESG processes are mentioned specifically, utilizing third-party sustainable metrics, and qualitative metrics through investment committee due diligence. All these steps are critical to the LeafHouse investment process, and we believe we fulfill our fiduciary responsibilities.
Another important finding is to always begin investing in ESG through the lens of a fiduciary. By using a fiduciary framework to identify and select ESG investments, it will help plan sponsors avoid scrutiny and identify funds without adequate track records, those that are prone to greenwashing, and many other details that can be missed during standard research processes. Identifying these details prior to adding them as investment options, can help provide ESG solutions that perform well relative to their peer group and have documented ESG integration within their investment processes. This will help provide participants with a clear understanding of why and how a specific fund ends up as an investment option in their plan.
LeafHouse is thankful for the ability to share these insights with plan sponsors around the nation. Process and fiduciary protection are key to researching and selecting ESG investment options within retirement plans.
Michael Garberich is the Senior Investment Officer and Director of Analytics at LeafHouse Financial®.
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