Over the past year, shareholders at Microsoft, Amazon, Netflix, Comcast, and Campbell’s Soup have voted on proposals from As You Sow asking for information on how these companies are protecting employees from climate-related investment risk in their 401(k) retirement plans. These companies are making net-zero commitments for their operations and value chains, demonstrating that they understand the economic risks of rising temperatures. But As You Sow’s analysis finds they are directing billions of employee dollars into high-carbon investments like fossil fuels and companies responsible for rainforest destruction.
The economic effects of climate change are expected to grow over time, disproportionally harming younger workers saving for retirement, who are exposed to this risk over a longer time horizon. Yet most companies are not actively addressing this risk, exposing not only their employees’ life savings to the economic consequences of climate change, but also risking their own reputation on climate action. Less than 5 percent of 401(k) plans offer climate-safe sustainable fund options.
Employees want climate-safe 401(k)s
Polling has found that nearly three-in-four retirement plan participants said they would or might increase their overall contribution rate if offered sustainable, climate-safe options. Employees want to improve returns and reduce financial risk: 78 percent believe companies that are socially responsible will have better results over time than companies not socially responsible.
In the increasingly competitive employee retention and recruitment landscape, companies should be looking at sustainable 401(k)s as a way to engage and retain top talent by appealing to the values and interest of the workforce. 40 percent report that having the ability to invest in climate-safe options in their 401(k) would improve how they view their employer. A recent Gallup poll found that “70 percent of U.S. workers said that a firm’s environmental record is important to them and is a consideration when deciding whether to take a job with a company.”
Other institutional investors are addressing climate risk, but 401(k)s lag behind
Bloomberg found that as of September 2022, 1,500 institutions representing more than $40 trillion in assets had committed to reducing exposure to investments in high-carbon industries. These include commitments to sell billions of dollars of existing holdings in high-carbon industries from prominent employee retirement funds in New York City, Maine, and New York State. The University of California Retirement Savings Program, which holds $168 billion in assets under management for more than 300,000 participants, has also moved to sell existing holdings and make no future investments in high-carbon industries, citing “long term financial risk” and the expectation that this decision will “have a positive financial and risk-reducing impact on fund performance in the long run.”
As You Sow will continue to file proposals with additional companies this year asking them to address retirement plan climate risk. These shareholder proposals are part of a growing investor movement to raise awareness and promote sustainable investing practices that support the transition toward a low-carbon economy. Corporations have a responsibility to protect employees from the threat that climate change poses to their life savings. It’s time for them to take that responsibility seriously.
