Latest News

Brett Arends’s ROI: How can I use my 401(k) to save the planet?

California is burning.

The West is baking.

Southern Europe, ditto.

China is flooded.

The last four decades have been the hottest since at least 1850, and each has been hotter than the one before, reports the latest Intergovernmental Panel on Climate Change.

In these circumstances it’s getting increasingly harder to pretend there isn’t a climate emergency. And to me it is impossible—literally, not possible—to argue rationally that there isn’t even a major risk.

So shouldn’t it be easier for me to use my retirement savings to help save the planet?

Read: ESG investors struggle to find the right balance in doing good — and solar panels show why

Instead, just 2.8% of 401(k) plans offer so-called “socially responsible” funds, according to a 2018 study. Morningstar, the mutual fund analysis company, reported recently that the amount invested in so-called “sustainable” mutual funds just topped $300 billion for the first time.

Good news, right? Well, sort of.

By contrast, the Investment Company Institute reports that the total amount of money we have invested in U.S. stock mutual funds is $9.5 trillion.

Look, I know this is a contentious political topic, so let me make a few things clear up front for the benefit of climate-change skeptics. (Apparently that’s at least 20% of our fellow citizens.) Indeed, despite what you read in the media, apparently only about half of us are “alarmed” or even “concerned” about the climate.

When it comes to politics I’m not on Team Blue or Team Red (oh, and I get why each team dislikes the other). I understand why so many ordinary Americans today mistrust so-called “elites,” and especially the media. And I can respect a healthy skepticism about groupthink and “expert forecasts.” I’ve been reporting on both for 25 years. Healthy skepticism is generally a good thing.

Read: Here’s how you can add sustainable investments into your 401(k) holdings — even if your plan doesn’t include ESG funds

But surely the issue of “climate change”—which might better be called “global frying” — isn’t merely about certainties. It is, much more, about risks.

Those who have been saying for years that we don’t need to do anything because it might turn out OK have had the argument the wrong way round. It would be continuing to smoke because, after all, you might not get cancer. The same things that make me a skeptic of long-term expert forecasts also give me a healthy respect for risk. Especially risks of potential disaster.

It’s interesting that pollution has become a partisan issue. Presidents Nixon and Ford began the phase out of leaded gasoline, and Reagan CFCs. But I guess that was then, this is now.

So I don’t have to put 100% of my faith in long-term forecasts. Climate disaster is clearly a significant and rising danger. The IPCC just published its sixth, scariest climate change forecasts yet. Even their best-case scenarios look pretty bad for all of us, and especially for today’s children — and their children.

Incidentally, in a recent survey 84% of world-wide pension fund managers cited “risk” as the number one reason to take account of ESG factors in investing.

Some of the world’s biggest pension funds, from California to London, have recently started making environmental and other social issues an integral part of their investment decisions.

As a consumer, I already act in ways that minimize the amount I pollute and the damage I cause to the planet’s ecosystem. I want to do much more through my retirement savings.

I asked Matt Patsky, the CEO of responsible investing company Trillium Asset Management, what individual investors can do. His response? “Know what you own. Take responsibility for the impacts your investments are having on the world. Divest from negative impacts. Invest in positive impacts… All investments have impact. If you haven’t thought about the impacts or don’t know where your money is invested — in all likelihood you are having negative impact.”

And there’s much more we can do. Fund companies and 401(k) plan providers could make it easier for people to find out what they own, and how to push for change in companies where there funds are invested.

Incidentally, the Investment Company Institute, which represents the mutual-fund industry, wants all companies on the stock market to be required by regulators to disclose their carbon footprint.

It’s easy to forget: We own the companies and we can make them change. Based on the ICI’s mutual-fund industry data, about 30% of the stock of U.S. companies is owned by mutual-fund investors, mostly through individual retirement accounts and through 401(k) plans (and equivalents such as 403(b) and 457 plans). That’s a lot of economic clout, and a lot of votes. Nearly half of all American households own mutual funds.

Granted, until recently there have been some regulatory hurdles to ESG funds within 401(k) plans. But the Biden administration has already said it won’t enforce a Trump-era rule that made it harder to offer ESG funds in retirement plans, and is now trying to repeal the rule completely.

The rule was overstated anyway. It didn’t affect IRAs. It didn’t affect 401(k) plans that let you choose investments through a brokerage account, as ours does at News Corp. It didn’t even clearly preclude ESG funds.

Oh, and above all: It didn’t stop regular investment funds from voting responsibly at company stockholder meetings.

Until recently their record has been lamentable, says Andrew Behar, CEO of the responsible investing nonprofit As You Sow. “The $10 trillion being saved in U.S. 401(k) plans for the future is invested in every company that seems intent on destroying the future,” he says. “Then the asset managers use our money to vote against the shareholder proposals asking for change.”

But there was a landmark moment a few months ago, when big fund companies allied themselves with an activist investor and elected three rebel greens to the board of Exxon Mobil
XOM,
+0.02%
.

I don’t just want specialized “ESG” funds. I also want my regular funds to use their proxy votes to make companies change. (And I’m an unabashed capitalist. I want to make money from fixing the problems—a simple reality embraced at times by some of the most successful companies, including Walmart
WMT,
+0.89%

and McDonald’s
MCD,
+0.53%
.
) I want them to do this systematically, and I want to declare their strategy clearly upfront.

About 92% of the S&P 500 consists of companies outside the energy, utilities and mining sectors. To save the planet I want to make all of them go as green as possible as fast as possible. Or I guess we could just go with Plan B—which is apparently to cross our fingers and hope that nearly all of the world’s scientists are completely wrong.

You may also like

Leave a reply

Your email address will not be published. Required fields are marked *

More in Latest News