A new initiative is targeting the fossil fuel industry’s relationship with America’s 401(k) accounts.
The Virtual March to Retire Big Oil, a project by non-profit organization the Crane Institute of Sustainability, looks to dismantle funds from U.S. oil, gas, and coal companies as the default investment in U.S. 401(k) accounts by encouraging participants to take their objections online.
Specifically, participants can upload a selfie that utilizes climate-friendly artificial intelligence (AI) to generate an image of them “marching down Wall Street” among thousands of other participants. Demonstrators can post the image on Twitter, Instagram, Facebook, and LinkedIn, along with a watermark that states: “This photo is fake, but the crisis is real.”
As its end goal, the initiative aims to break financial ties with the fossil fuel industry by working with financial institutions to offer climate-friendly funds for retirement accounts.
The project specifically calls on financial advisors, consulting firms, and ERISA lawyers as having the greatest influence in deciding what fund options are made available to retirement plan participants, and claims that “many have prevented employers from offering climate-safe investment options when they have requested them.”
According to As You Sow, a non-profit that promotes corporate social responsibility practices, 19% of the market cap of U.S. fossil fuel companies comes from investments in U.S. 401(k) accounts and individual retirement accounts (IRAs).
The initiative also argues that while participants can obtain an electric car to cut down on pollution, install solar panels in homes and vehicles, and opt for a vegan diet, continuing to invest in fossil fuels won’t cut out their contributions to carbon emissions.
“How you invest your 401(k) has a bigger impact on the climate crisis than every other action you take in your life combined,” march organizers said in a page detailing the event. “That means you can buy an electric car, put solar panels on your car, stop eating beef, and never fly again, and you still will not reduce your footprint as much as if you stop investing in fossil fuel companies.”
The climate protest, taking place online from February 6 to the 12, has since garnered the support of 55 organizations such as Karma Wallet, Green America, Business Climate Finance, and Sphere, along with politicians, celebrities, and influencers that include former New York City Mayor Bill de Blasio and actors Don Cheadle and Elaine Hendrix.
The case (or not) for ESG options
The lack of climate-friendly options in retirement accounts means participants are also limited in building their nest eggs, march organizers state. According to research by Social(k), a platform that offers environmental, social, and governance (ESG)-screened investments, 97% of participants with an employer-sponsored retirement plan don’t have access to invest in an ESG fund. Of the 3% who do, 83% of those funds are likely invested in fossil fuel companies, the research notes.
“Companies have to give employees a limited number of investment options in their retirement plans,” the Crane Institute of Sustainability writes. “Most Americans have no climate-safe option available in that limited list their employer provides.”
While ESG products in defined contribution (DC) plans have declined in past years, other research offers a different picture as to why. Findings from a 2022 study authored by David Blanchett, managing director and head of Retirement Research at PGIM, along with Zhikun Liu, head of Research at MissionSquare Retirement, found interest in ESG funds was “relatively weak” among participants.
Specifically, of the 9,324 participants surveyed, only 8.9% of participants held allocations to ESG funds. Among those holding any ESG Funds, average allocations to ESG strategies came in at only 18.7%. Still, the research notes that ESG allocations were much higher in retirement plans where general ESG usage among participants was greater.
Furthermore, Blanchett and Liu’s research supports findings that participants who self-direct their portfolios have significantly lower expected returns than those using professionally managed investment options, such as target-date funds (TDFs).
Ultimately, plan sponsors who do not want to add ESG investments to their core lineup but have participants who are interested in the funds could offer a brokerage account, Blanchett noted in a separate LinkedIn post detailing the research.
An end to fossil fuels?
Despite reports finding that fossil fuels are again reporting high earnings and revenues, a San Francisco Chronicle opinion piece by environmentalist Bill McKibben, in collaboration with 401(k) climate impact platform Sphere, argues that returns from the oil and gas sector aren’t anywhere as prosperous as years before.
Their statement is supported by the fact that the number of oil and gas companies in the S&P 500 is slowly declining, from 45 fossil fuel companies in 2011 to 19 in 2022.
Both McKibben and Sphere argue that the reason why oil and gas companies are so popular among the American population is because many continue to invest in index funds, which are typically low-cost and low risk. Providing education on the fossil fuel industry, along with climate-safe investment options, is another key goal in the initiative this month.
“When it comes to long-term retirement investing, requiring Americans to put their hard-earned savings into an industry in decline just doesn’t make sense,” McKibben and Sphere wrote in their piece. “If politicians required Americans to invest in the horse-and-buggy industry 100 years ago when automobiles were on the rise, we would see that as insanity. We should wake up to the fact that the same is true for oil and gas companies today.”
More information on the Virtual March to Retire Big Oil can be found here.
Correction: A previous version of this article misstated that 401(k) climate impact platform Sphere was the organizer of the Virtual March to Retire Big Oil. It is not. The online protest is a project from The Crane Institute of Sustainability.
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