What’s the true cost of investing your retirement savings in fossil fuels? Researchers at the University of Waterloo, in partnership with As You Sow, have released a new report finding that 2 million employees from 12 tech-sector companies could have earned an estimated $5.1 billion in additional returns had their companies moved to decarbonize their retirement plan holdings 10 years ago.

Climate risk = portfolio risk

Analyzing the mutual funds offered by the plans, the researchers estimated cumulative 10-year returns with and without fossil fuel energy sector investments. The results: a difference of +8.9%, or +0.86% per year invested in favor of fossil fuel-free portfolios, equating to millions of dollars in missed returns. The full analysis is here.

Company Lost potential 10-year returns
Adobe $129 million
Amazon $570 million
Apple $476 million
Broadcom $207 million
Google $1.15 billion
Intuit $89 million
Meta $304 million
Microsoft $898 million
Netflix $46 million
Oracle $719 million
Qualcomm $230 million
SAP America $271 million

Market trends in recent years have shown that investing in high carbon industries is an increasingly risky bet. Over the past decade, the energy sector has been the worst performing sector in the S&P 500, lagging behind other major indexes as well. As the world rapidly transitions towards renewable energy sources, some experts predict half of the world’s fossil fuels assets could become worthless by 2036.

These results represent a significant missed financial opportunity for tech workers, and it’s likely not uncommon. Many 401(k)s are structured like these plans, with significant exposure to high-carbon industries that contribute to climate change, which means there are millions of U.S. employees vulnerable to these same risks.

Asset managers are using employees’ life savings to fuel the climate crisis

Despite the incontrovertible, absolute need to stop burning fossil fuels and arrest emissions, asset managers continue to invest in fossil fuel stocks and bonds. Vanguard and BlackRock are the world’s largest institutional investor in fossil fuels, and they’re doing it with workers’ life savings. Nearly half of the money in these tech 401(k)s are in target date funds from Vanguard and BlackRock. Target date funds are often used as the default option for 401(k)s, which means many employees may be unknowingly auto-investing in fossil fuels.

Google is the largest 401(k) in this report, with $1.15 billion in potential lost returns, and it has over 90% of plan assets held in Vanguard funds. Google and other companies can use their power as large corporate clients to Vanguard to offer better, climate safe options. It’s a message Vanguard needs to hear: the fund giant recently pulled out of Net Zero Asset Managers (NZAM), an industry initiative focused on tackling climate change. In 2023, Vanguard voted with management 98% of the time against environmental and social shareholder resolutions.

Employees and shareholders are calling for change

Companies aren’t holding asset managers accountable for protecting their employees from climate-related financial risk, and people are beginning to take action. In 2023, nearly 2,000 members of Amazon Employees for Climate Justice staged a walkout demanding that Amazon stand behind its climate commitments and take responsibility for its climate harm, including through its investments. Employees at Microsoft also recently pushed their company to address the climate impacts of its retirement plan investments.

When 401(k) fund options fail to adopt climate risk mitigation practices, they generate financial risk in workers’ portfolios, including transition risk as markets shift towards a low-carbon economy, and long-term systemic portfolio risk. These risks can particularly impact younger employees, who are further from retirement and will spend more time in the market.

It’s not just employees pushing tech companies to take climate action. As You Sow has filed a shareholder resolution on behalf of Google shareholders asking the company to disclose how they are protecting their retirement plan beneficiaries from climate-related financial risk. It’s time for corporations to recognize their obligation to safeguard employees’ life savings from the threats posed by climate change, before it’s too late.

Vanguard and BlackRock customers can take action too

If you have Vanguard or BlackRock funds in your 401(k), like many employees in the U.S., and you’re concerned about how these asset managers are failing to manage and mitigate the impacts that climate change poses to your financial future, you can use our employee action toolkit to shift your employer towards retirement investments that support a safe, just, and sustainable future.

After all, haven’t fossil fuels already cost us enough?