Environmental 401k investment opportunities are heating up.
Carbon Collective, a firm that touts that it is fully focused on solving climate change via its investment offerings, is launching climate-focused 401k plans for employers with 300 or less employees.
While sustainable investing options have steadily become the “it” product in recent years, employers have been challenged to find truly green funds, and yet the staggering growth continues.
Environmental, social, and governance (ESG) assets have been on a steady march with total US assets under management between 2018 and 2020 (both institutional and retail) growing 42% to $17.1 trillion, up from $12 trillion, according to the Forum for Sustainable and Responsible Investment.
Adding to the rapid pace of ESG growth is a jaw-dropping series of records broken in 2020 as reported by Natixis Investment Managers. They recorded inflows of $152 billion, asset levels of $1.6 trillion and 196 new ESG fund products launched in what was called a “watershed” year. Another recent report predicts that ESG investment assets will grow from $8 trillion today to as much as $30 trillion by 2030.
Among other changes brought on by the COVID-19 pandemic, introspective investors began embracing more investment options that strive to improve the world in some way. A 2021 Schroders survey found that 90% of participants who are aware of ESG-related investments offered by their employer said they invest in them.
San Francisco-based Carbon Collective’s climate-focused 401k portfolios seek to capitalize on this trend. In announcing the products, the firm says the plans are best suited for small businesses and that the portfolios are diversified and feature low fees. They are also fully integrated across all major cloud-based payroll providers such as TriNet, ADP, Gusto, Intuit, and JustWorks. The company will offer three plan options with administration handled by Vestwell or Ubiquity:
- The Core Climate portfolio, which is built around a “theory of change” and seeks to divest from fossil fuels and reinvest in climate solutions and also features higher historical returns and slightly higher standard deviation;
- An ESG option with less impact and lower tracking error; and
- A traditional index portfolio.
According to Zach Stein, Carbon Collective’ co-founder, employees care about where they work and how the company they work for aligns with their values.
“We wanted to make sure that mission-driven companies can offer their employees benefits like expanded 401k options which are aligned with climate initiatives, said Stein, adding that ESG and socially conscious benefits are “a critical component to attracting and keeping top talent.”
Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.
