Socially responsible investment not necessarily wise for TSP, report says

GAO says adding SRI to Thrift Savings Plan portfolio ‘presents challenges.’

Giving Thrift Savings Plan beneficiaries a socially responsible investment option would present challenges for TSP’s current stock portfolio, according to a new report.

TSP officials asked the Government Accountability Office to consider the value of adding a socially responsible investment -- investments made on the basis of environmental, social, religious or corporate governance criteria.

GAO interviewed federal officials, SRI experts and representatives of other public retirement plans that had considered adopting SRIs and concluded that adding the increasingly popular investment instrument would not necessarily help TSP.

The hypothetical addition of a fund tracking the best-performing U.S.-based SRI stock index did not increase TSP’s returns and lower volatility at the same time. Such an addition would overlap with TSP’s existing stock portfolio and would not provide a substantial opportunity for additional portfolio diversification, GAO found.

Although officials at public retirement plans that had adopted SRI funds cited short-term benefits, such as providing participants an opportunity to investment in accordance with their values, they could not point to specific long-term benefits to including the investment, according to the report.

If TSP had included an SRI index fund in its existing stock portfolio over the last 20 years, it could have resulted in lower returns and lower volatility; lower returns and higher volatility; or higher returns and higher volatility, GAO’s analysis found.

“The addition of this SRI fund would have resulted in overlap with the TSP’s stock portfolio, and would not have provided a substantial opportunity for additional portfolio diversification,” GAO wrote.