When the Google 401(k) added a fossil-free fund, it didn’t just give employees a climate-conscious sustainable investment option with comparable returns. It gave employees a way to directly reduce their fossil fuel investments, as well as their financed emissions.

Just how much have Googlers moved out of fossil fuel investments by choosing this sustainable option? We decided to do the math and find out.

Goodbye, fossil fuel investments

The Google 401(k) administrators added the sustainability-focused Parnassus Core Equity fund for a straightforward reason: financial returns. They wanted to replace an existing fund that was underperforming, and they found that a fossil-free fund was a better replacement from a financial standpoint. They were doing their due diligence to maintain their fiduciary duty.

Since it was added, Googlers have allocated over $710 million to that Parnassus fund, which has 0% in fossil fuels. If that $710 million had instead gone into a basic index fund with 9% fossil fuels, it would have resulted in an additional $63 million in fossil fuel investments. That’s $63 million not invested in oil majors, coal miners, and gas plants, because of a simple change to one company’s retirement plan.

Financed emissions cut in half

The switch also reduced employees’ “financed emissions”, a practical tool for accountability of ownership of GHG emissions from a company. Compared to an S&P 500 index fund, the Parnassus fund has nearly 50% lower financed emissions (Scope 1+2).

Reducing financed emissions is not the same as reducing real-world emissions. But capital allocation signals market demand, and systemic change happens through aggregation. Also, holding high-emitting companies exposes portfolios to policy risk, legal risk, stranded asset risk, and reputation risk. By choosing the sustainable option and moving money out of fossil fuel investments, these Googlers helped make their nest egg a little bit safer.

Table 1: Investment amount: $710 million

Fossil fuel financial losses

Of course, the numbers most people think about with 401(k) investments are financial returns. We previously found that because of the fossil fuel sector’s consistent financial underperformance – it has underperformed the S&P 500 in seven of the last 10 years – Google employees could have earned an estimated $1.15 billion in additional returns. The financial performance of Google’s retirement plan holdings was estimated to have been 9.15% higher if they had divested from the Energy Sector ten years ago on an absolute and risk adjusted basis.

But providing one fossil free fund won’t solve the climate problem. There’s still more for Google to do. Two-thirds of Google plan assets are in the company’s default option, the Vanguard Target Retirement Fund series, which deliberately ignores climate change as an investment factor. In 2024, over 1,200 Google employees requested that a fossil fuel-free target date index fund be added to the lineup. To date, the company hasn’t responded.

Looking at other sustainable funds

Google’s not the only company that has helped their employees shift savings out of fossil fuels and lower their financed emissions. Every company with a sustainable fund option that adopts basic climate-risk reduction practices means less money invested in fossil fuel companies compared to a basic index fund, and less financed emissions by their employees.

It makes sense – if you invest less in high-carbon companies, you own less of their emissions. It also means that your portfolio has less exposure to the fossil fuel industry and its decades-long declining performance. The table below shows the reduction in financed emissions for five sustainable portfolios compared to the S&P 500 benchmark.

Table 2: Investment amount: $1 million

How you can cut your own financed emissions

If your 401(k) plan has a sustainable fund, use our Fossil Free Funds database to see if it’s fully fossil-free. If it is, take the amount you have in that fund and multiply by 9%. That’s roughly how much you’ve kept out of fossil fuel investments compared to a basic index fund.

If your 401(k) doesn’t have a fossil-free sustainable option, don’t give up. If you work together with your colleagues and ask the plan administrators to satisfy their fiduciary duty by offering investment options that mitigate climate-related financial risk, you could be cutting your financed emissions soon enough. Our action toolkit helps walk you through it step-by-step.

Financed emissions methodology

At the fund holding level, financed emissions are calculated as:

Financed Emissions = (Portfolio Investment ÷ Enterprise Value Including Cash) × Company Emissions

This approach to calculating financed emissions follows the guidance of the Partnership for Carbon Accounting Financials (PCAF), which is designed to estimate an investor’s share of a company’s emissions based on the size of their investment.

To get portfolio-level emissions, we summed the financed emissions across all companies in the fund. That means we looked at the total emissions for each company in the portfolio, determined the investor’s fraction of ownership, and added it all up.

For table 1, we used an investment amount of $710 million, the amount that Google employees have invested in the Parnassus fund, as of the most recent Form 5500 filing data available. For table 2, we assumed a $1 million investment in each fund. E.g. if a fund had $10 billion in total assets, we calculated that a $1 million investment represented 0.01% ownership of the fund’s emissions. We then applied that ownership share to the fund’s total reported Scope 1 and 2 emissions. Finally, we compared each fund’s financed emissions to the baseline of the S&P 500 index.

We used Bloomberg emissions data, using company-reported emissions when available, and Bloomberg’s estimated values where reported data was unavailable. All emissions data are annualized, though the time periods covered can vary slightly between companies. A handful of companies were missing data, but all portfolios analyzed had emissions data for >95% of holdings.

We focused on Scope 1 and 2 emissions (direct operational and energy-related emissions), which are more consistently reported. Scope 3 emissions (from supply chains and product use) are significant, but currently too inconsistent to rely on across a portfolio. It’s important to note this leaves out a big part of the story – the Scope 3 emissions from oil and gas companies are a huge part of their environmental impact. Below are the figures if Scope 3 is included. These results should be interpreted with caution – in addition to inconsistent reporting, some companies are missing Scope 3 data entirely.

Table 3: Investment amount: $1 million

* Results Limited by Data Quality

One sustainable fund (ESGU) showed higher emissions compared to the S&P 500 benchmark when Scope 3 emissions were included. While this may be the result of imperfect data, it’s also worth noting this is a portfolio that still maintains 6.6% invested in fossil fuels (compared to the benchmark’s 9%). These results suggest the importance of confirming that sustainable funds are truly reducing exposure to climate-risk sectors in order to prevent “greenwashing”.

Andrew Montes

Director of Digital Strategies, As You Sow