Finance Friday – October 7, 2016


76%.  20%.  

No matter how small, when we add speed bumps to a process, they tend to work.  This is especially true when we craft opt-in versus opt-out action plans. In the case above, for young workers presented with an opt-in retirement savings plan, just 20% signed up to participate.  When participation was set as the default, however, 76% stayed in the plan.

Even more extreme results have been found in organ donation, where 90% stay in the donation program when it’s set as the default, vs. only about 15% who take the trouble to opt-in proactively.

This idea anchors of one of the provocative proposals coming out of the recent SOCAP conference, via Caprock’s Matthew Weatherley-White.  What if the time has come to consider ESG investing the default, instead of a quirky opt-in possibility? * After all, $62 trillion of global assets have signed on to the United Nations Principles for Responsible Investing (UN PRI). What if asset managers assumed that clients who have signed on have already opted in to ESG integration in decision-making, as indeed is stated in the PRI principles?

Even more broadly, another UN report concluded,

Failing to consider long-term investment value drivers, which include environmental, social and governance issues, in investment practice is a failure of fiduciary duty.

If that’s the case, surely the opt-out choice for all investors – the choice with a little more paperwork, a longer risk disclosure section – should be ESG ignorance, not ESG incorporation.

Aside from the obvious implications for ESG investing, this powerful leverage point – selecting the opt-in versus opt-in defaults – begs us to consider in all sorts of contexts, What “normal” are we choosing? Does the default setting match our intentions? It’s not just the paperwork that influences decisions – it’s the message about expectations and social norms that’s baked into how we design our choices.

If you see an outcome that appears senseless, check under the hood – the odds are good that an opt-out mechanism of some sort is involved.


You can see Matthew’s whole talk here, and further commentary on the SOCAP gathering here and here.

 * ESG = environmental, social, governance

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