Retirement capital is a financial lifeline for the oil, gas and coal industries — roughly $1 trillion is invested in fossil fuel companies through Americans’ retirement plans.
That’s at odds with the interests of future retirees: Most employees want their employer to offer 401(k) investment options that align with the goal of the Paris Agreement to hold global temperature increases below 1.5 degrees Celsius.
Companies that want to lead on this can do so, thanks in large part to President Joe Biden’s 2023 veto overturning a Trump-era resolution to restrict retirement funds from considering climate change and ESG factors in their administration.
Still, they’ll need to proceed with caution: The 401(k) world is the strictest and most litigious in the U.S. investment space.
High bar for vetting credibility
“Target date funds” such as Vanguard’s Target Retirement series, the largest in the United States, or equivalents from T. Rowe Price, BlackRock and Fidelity are structured to maximize returns by specified deadlines or timeframes.
Funds of this type make up most options invested in 401(k) plans, as they meet the Department of Labor’s fiduciary expectation that 401(k) sponsors (a.k.a. employers) offer diversified options that reduce employees’ exposure to potentially large losses.
But target date funds are among the biggest financial contributors to fossil fuel expansion. That’s largely because they include a high concentration of fossil fuel bonds, which oil and gas companies use to finance new project development.
Established managers including BlackRock and Fidelity offer target date funds in the U.S. marketed with terms such as “sustainable” or “ESG,” but for employees vetting fund choices for climate credibility, a good fund name may not suffice.
BlackRock’s LifePath ESG Index 2065 Fund, for example, earns a D for fossil fuel financing and exposure. The fund’s AA MSCI ESG Fund Rating doesn’t provide much consolation for a 32-year-old GreenFin Weekly author contemplating retirement in the 2060s and interested in stable retirement savings and a stable climate to retire in.
Options for taking action
With this in mind, there are ways companies can begin updating 401(k) offerings so they align with high-level climate mitigation or adaptation goals. Here are some steps for getting started.
Ask about plan options that avoid companies contributing most to climate change and at high risk of disruption from transition risks. If you’re a decision-maker in your company — a chief financial officer, a human resources person or benefits manager — that might mean directing your 401(k) provider to research options that eschew fossil fuel financing, s