Employees know they’re making 401(k) contributions, but do they know where their money is going? Probably not.
Employees may be inadvertently investing in companies that directly contradict publicly-stated corporate sustainability goals on issues like climate change and racial justice, according to a press release from California-based non-profit As You Sow. To help employees understand how their money is invested, they’ve released a corporate 401(k) sustainability scorecard that grades companies on their retirement plan investments so that employees know exactly what they own — and whether or not it lines up with their own values.
More than 100 million people are invested in retirement plans with assets exceeding $10 trillion — much of it in funds managed by major asset managers such as Vanguard, BlackRock, Fidelity, and TIAA, according to the press release. But the knowledge often ends there, says Andrew Behar, CEO of As You Sow.
“People may say climate change is destroying their future and that private prisons are unjust and that we're burning down the rainforest, without realizing that they are profiting from all of that,” Behar says. “The point of this whole campaign is to educate people to say, ‘I am part of this and I want to change it.’”
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The scorecard analyzes the fund’s investments from poor to good across both environmental and social metrics, and includes insights on fossil fuels, deforestation, gender equality, civilian firearms, the prison industrial complex, military weapons and tobacco. Then, these results are compared to a company’s public stance on those topics.
Amazon and Comcast are the only two companies as of yet to be analyzed in the new 401(k) scorecard — both of which have retirement plans with tens of millions of dollars in investments in companies that are contributing to the destruction of the Amazon and Indonesian rainforests, according to the press release. These investments go against Amazon's recent dedication to purchasing 100,000 electric vehicles and powering their data centers with renewable energy.
“We interviewed a lot of Amazon employees and they are all really concerned about climate change and racial justice,” Behar says. “They just had no idea that they were profiting from any of it.”
Additional companies from the S&P 500 will be added on a rolling basis throughout the year, according to Behar.
But making changes so that 401(k) investments align more closely to an employee’s values is not easy: not only do employees tend to automatically enroll in companies’ default 401(k) retirement plan option, many companies have yet to offer more sustainable fund options, Behar says.
Out of the 3,000 funds that As We Sow rank and rate, only 88 have ESG — which measures funds against environmental, social, and governance factors — in their name, and of those 88, 51 fail one one or more of their listed issues. And the problem is much more widespread than that. According to data collected by the non-profit, of 279 funds the S&P considered “sustainable,” 150 will fail on one or several sustainable issues.
“The names are meaningless,” Behar says. “The rankings are misleading and there's no glossary of agreed upon terms that everybody is required to use.”
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Although previous research has found that few retirement plans offer genuine sustainable investment options that avoid risk sectors, companies that offer employees these options see a greater number of people investing and saving for the long-term.
“There are smaller companies that have asked their employees what they want to invest in and they said climate and gender,” Behar says. “So the company added [funds that score high in] climate and gender, they educated their staff, and over the first year the number of people saving doubled.”
For employers who want to make these changes, Behar believes the solutions are actually quite simple; either change default plans to sustainable ones, or offer a fossil free fund or a deforestation free fund or a gender lens fund. This way, companies can have it all — investments that align with their sustainability goals, high 401(k) contribution rates and satisfied employees.
“Now you've got a holistic sense of your sustainability goals that go across the whole company, which creates a culture where people feel secure,” he says. “They're not getting this cognitive dissonance where the company is saying one thing, but they're doing another. What you gain is a massive cultural boost, retaining the best and the brightest and attracting better employees.”
