Unlocking the Power of Retirement Plans for Climate Action
In the realm of retirement planning and climate action, an opportunity emerges that urges us to contemplate the lasting impacts of our investment decisions. The recently published legal opinion letter, a collaborative effort between Business Climate Finance and the Wagner Law Group, prompts us to reimagine retirement planning as a conduit for driving climate action.
This guidance comes at a pivotal moment, notably amid a summer rife with climate-related weather disasters and heightened debates surrounding the integration of ESG factors in employer-sponsored retirement plans. Importantly, this guidance paves a clear pathway for the inclusion of climate-aligned investment choices within 401(k) plans and other defined contribution plans.
Importantly, this guidance paves a clear pathway for the inclusion of climate-aligned investment choices within 401(k) plans and other defined contribution plans.
The legal opinion letter’s guidance endorses a discerning approach, supporting funds that conscientiously consider material ESG factors, including climate risks. It draws a distinct demarcation against exclusively prioritizing impact-focused funds that could potentially compromise financial returns. This balanced approach lays the groundwork for corporate financial, legal, and sustainability leaders to collaborate effectively, thus incorporating climate-conscious options as integral components of mainstream retirement plans.
This methodology closely aligns with the objectives of Impact Experience’s Business Climate Finance (BCF). Established by the social impact organization, Impact Experience, BCF is dedicated to the mission of fostering a shift of corporate cash and retirement assets towards climate-friendly financial institutions with a Justice, Equity, Diversity, and Inclusion (JEDI) lens. In collaboration with Mercer and the CFA Institute, BCF also released an extensive report in 2022, delving into the carbon emissions linked to U.S. employer-sponsored retirement plans.
Notably, guidance from the Employee Retirement Income Security Act (ERISA) further reinforces the significance of this legal opinion. ERISA’s validation that prudent climate-aligned funds can coexist within 401(k) menus alongside conventional options empowers individual participants to harmonize their portfolios with their values. Plan sponsors can navigate ethical preferences without concerns about breaching fiduciary duties. This facilitation of climate-conscious retirement planning holds the promise of catalyzing the acceleration toward a net-zero world.
The legal opinion letter’s practical value goes beyond theory. It includes a sample Investment Policy Statement Addendum, providing clarity through definitions and guidelines for evaluating sustainable funds.
Additionally, a Fiduciary Procedural Checklist outlines a step-by-step path for thorough due diligence on specific sustainability options. Equipped with these tools, corporations are poised to drive change by actively engaging financial and legal partners to establish tailored processes that facilitate appropriate sustainability options.
Retirement fiduciaries, likewise, gain a concrete legal basis for embracing these offerings. This authoritative resource effectively provides a framework for leading companies to leverage their retirement plan offerings in furthering their sustainability endeavors.
SEE ALSO:
• Link to Legal Opinion Letter
• ESG Rule Survives Legal Challenge from Red State AGs
Yejide directs the Business Climate Finance Initiative at Impact Experience, a nonprofit organization based in Oakland, CA. Leading a team dedicated to embedding justice, equity, diversity, and inclusion (JEDI) principles into corporate net-zero strategies, her team collaborates with firms to identify the greenhouse gas (GHG) emissions associated with their financial flows (banking, investing, treasury, insurance, etc.) and develop roadmaps for reallocating these assets to climate-friendly, community-centered financial institutions. This approach enables companies to help mitigate climate risk and achieve their climate action goals while prioritizing equity and reducing financed emissions.
Jenna Nicholas is the President of Enlightened Bottomline, an investment and advisory firm. She is also the co-founder and CEO of Impact Experience which is focused on addressing equity across climate, healthcare, education and investments. Jenna is also the Investment Partner of One Planet Group and previously led Corporate Development for One Planet Group which incubates, operates and invests in businesses.
Jenna is also an active angel investor and has invested in over three unicorns including Lyft, Virta Health and Esusu. Jenna has worked with the World Bank Treasury on green bonds and other sustainability projects and with Toniic helping to support an impact investing community. She has worked closely with the Calvert Special Equities team, actively investing in companies and funds in the areas of education technology, financial inclusion, renewable energy, and sustainable agriculture. She previously led Divest-Invest Philanthropy, a coalition of foundations shifting capital from investments in fossil fuels and reinvesting in new economy solutions. Jenna spoke at TedX Portland about this work. She is an advisor to the Nexus Global Youth Summit and Ethic, an online impact investing platform.
