Beyond your personal finances, there’s a good chance you have some sort of retirement account – whether it be a 401k account or something else – through your employer. Usually, your employer pre-determines your portfolio investments. With your personal investments, you don’t need approval from anyone else to switch your investments. With investments tied to an employer or other external entity, you do.
Many employees want climate-friendly investing options in their retirement plans. But few have that option. Recent research from the Plan Sponsor Council of America found that only 3% of plans offer an ESG fund as an investment option for employees and an even smaller fraction (a tenth of 1%) of total retirement plan assets are held in such funds.
A recent Department of Labor decision might change that. Starting in January 2023, a new retirement investing rule will allow employers to consider “participants’ preferences” in selecting and monitoring 401(k) menu options. This participant choice provision could enable employers to incorporate ESG factors and other responsible investing into retirement plans for current and retired employees.
Crucially, this new guidance may increase employee participation in workplace retirement plans. A recent T. Rowe Price study showed younger workers were more likely to base their level of participation in a workplace retirement plan on access to socially conscious investment options. Since the success of a retirement plan often depends on funding from participants, this might help socially conscious retirement plans be both more popular and more lucrative for participants.
If your employer doesn’t offer climate-friendly retirement plan options, you and your coworkers can petition in unison for those options. If your company has a sustainability committee, a chief sustainability officer, or some sort of department that addresses the company’s social impact, you can point to the need for alignment between what the company says its values are and what options it offers for employee retirement plans.