Sphere and Reflection Asset Management launch SPFFX, the first index fund to get fossil fuels out of any 401(k) plan

The competitively-priced fund invests in the top 500 US companies minus ~40 fossil fuel companies, with its index historically outperforming the SPDR S&P 500 ETF
November 16, 2021

WALNUT, Calif. - California-based startup Sphere announced today that it has partnered with SEC-registered investment advisory firm Reflection Asset Management (RAM) to launch the Sphere 500 Fossil-Free Index Fund (SPFFX), a mutual fund designed to remove the barriers that have kept fossil-free options out of 401(k) retirement plans until now.

The fund is the first U.S.-based option of its kind and launches as over 80 percent of Americans report seeing climate change as a threat, according to Pew Research, and yet 99 percent of Americans with 401(k) retirement savings are not invested in climate funds, or funds that avoid owning fossil fuel companies. While climate change is a topic that individuals often feel helpless to solve, SPFFX offers a concrete way for investors to make an impact, without giving up quality of life or expected returns on retirement savings.

The fund is available on brokerage platforms, including Interactive Brokers, with Vanguard and Vestwell in the process of onboarding, and on 401(k) platforms such as Matrix and Mid Atlantic Capital Group.  Additional platforms are being added. Financial firms Green Retirement and Carbon Collective plan to offer the fund to 401(k) clients.

SPFFX has already found traction beyond its target market of 401(k)s, with launching investments from Eliot Horowitz, co-founder of tech unicorn MongoDB, and Clay Rockefeller, great-great-grandson of John D. Rockefeller. 

“We could not be more thrilled to be partnering with the team at RAM to launch this fund,” said Sphere founder and CEO Alex Wright-Gladstein. “By offering this product, RAM is demonstrating their commitment to making a difference on climate change by making a values-aligned investment product available not only to wealthy investors, but also to everyday people in their retirement plans.”

The Sphere 500 Fossil-Free Index Fund (SPFFX) tracks the Sphere 500 Fossil-Free Index (SPFFXI), which is comprised of the largest 500 US companies by market capitalization, minus approximately forty companies whose primary lines of business are in the fossil fuel industry, as defined by the non-profit As You Sow on their website fossilfreefunds.org.

The SPFFXI index was calculated by independent third-party index calculation agent BITA. The 40 or so companies that are excluded make up about five percent of the total market capitalization of the top 500 group.

“As I write this, drought-parched California is welcoming rain after another record-breaking fire season,” said Timothy Yee, President of Green Retirement. “This investment, reflecting our common desire to live in a healthy world, is one of the easiest ways for the average consumer to bring about change.”

RAM is offering the fund as a single share class with a management fee of seven (7) basis points. This focus on transparent and low pricing aims to enable investors and 401(k) managers to compare this fund’s pricing to that of other large-cap index replication funds, rather than the higher price points that Environmental, Social, and Governance (ESG)-focused funds often charge.

“In my almost 20 years of designing and building ESG and values-aligned investment products for individuals and institutions, overcoming the challenges of bringing values-aligned products to retirement accounts has been a personal goal,” said Jason Britton, CEO of RAM. “With Sphere’s leadership, SPFFX represents a breakthrough, offering employees the option to have their retirement investments aligned with their vision of a fossil fuel-free tomorrow.”

Avoiding the ESG price premium is a key factor in making a fossil-free option available in 401(k) plans, where employers often face lawsuits for offering 401(k) fund options that are too expensive. Sphere founder Alex Wright-Gladstein experienced firsthand the difficulties of offering expensive fossil-free funds in 401(k)s when running her prior cleantech company, Ayar Labs, where it took years to get a fossil-free option in the company’s retirement plan. Sphere was founded with the intention of providing employers with an easier way to provide their employees with a fossil-free 401(k) option.

Sphere has selected U.S. Bank to provide its comprehensive suite of industry leading multi-series trust services for the fund. They have selected Vigilant Distributors LLC as the distributor for the fund. 

“We are excited to partner with Reflection Asset Management and Sphere, as we see a real need in the marketplace for a simple, transparent, low-cost fossil-free fund for 401(k) plans,” said Patrick Chism, CEO of Vigilant Distributors.

About Sphere

Sphere is a registered public benefit corporation that is amplifying a social movement to get 401(k) money out of fossil fuel companies. The company helps employees, employers, and investors take a stand on climate change by providing financial products that are designed for 401(k) plans, and allows HR managers and their advisors to maintain their commitment to fiduciary duty without having to compromise on climate. Learn more at www.oursphere.org. For more information reach out to hello@oursphere.org

About Reflection Asset Management

Reflection Asset Management is an SEC registered investment advisor specializing in creating ESG strategies and Registered Funds that allow asset owners to align their values with their portfolios. Learn more at www.reflectionam.com. For more information reach out to info@reflectionam.com

Learn more: https://www.reflectionam.com/sphere 


Before investing in the Sphere 500 Fossil-Free Index Fund (“SPFFX”), consider the index’s investment objectives, risks, charges and expenses. To obtain a prospectus or summary prospectus which contains this and other information, please visit https://www.reflectionam.com/sphere, call 844-2-SPHERE, or talk to your financial advisor. Read the prospectus carefully before investing. The Sphere 500 Fossil Free Index tracks the S&P 500 and excludes the ~40 fossil fuel companies that are in the top 500 list. The Sphere 500 Fossil Free Index will not invest in companies whose main lines of business include producing, distributing, or refining fossil fuels, holding reserves of fossil fuels, utilities that are primarily fossil fuel-powered, and producers of equipment for any of the above. However, the fund may invest in companies that use fossil fuel as a part of their business or have used fossil fuels in the past. The performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Index returns do not reflect the effects of fees or expenses. It is not possible to invest directly in an index. Current performance may be lower or higher than the performance data quoted. For the most recent month-end performance, please call 844-2-SPHERE or visit the Fund’s website at https://www.reflectionam.com/sphere. Index performance is discussed for illustrative purposes only as a benchmark for each strategy’s performance and does not predict or depict performance of that strategy. While index comparisons may be useful to provide a benchmark for a strategy’s performance, it must be noted that investments are not limited to the investments comprising the indices. Each of the strategy benchmark indices are unmanaged and cannot be purchased directly by investors. Past performance does not guarantee future results. No portion of the content should be considered a solicitation to buy or an offer to sell shares of the fund in any jurisdiction where the solicitation or offer would be deemed unlawful under the securities laws of such jurisdiction. The Sphere 500 Fossil-Free Index Fund is distributed by Vigilant Distributors, LLC, member of FINRA and SIPC. NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE

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Talking to your employer about divesting your 401(k)

November 15, 2021

WHY SHOULD YOU TALK TO YOUR EMPLOYER ABOUT DIVESTING?

Our planet is in trouble. And we know the solution - binding global legislation that limits global warming to 1.5°C above pre-industrial levels. Fossil fuel companies - the ones who extract, process or burn fossil fuels like coal, oil and gas - are fighting against that global legislation.

Divestment is the action of removing your money from a company. Your 401(k) or other retirement savings are likely invested in one or a few mutual funds which themselves are invested in lots of companies, including fossil fuel companies. Divestment can be a form of activism. It can send a message to fossil fuel companies that you don’t want them to keep polluting our planet and stonewalling legislation that would keep us safe. At Sphere, our message is simple: 


STOP LOBBYING AGAINST CLIMATE LEGISLATION THAT KEEPS US SAFE.

COME TO THE TABLE.

JOIN US ON THE RIGHT SIDE OF HISTORY.

PARTICIPATE IN THE CONVERSATION ABOUT WHAT A WORLD THAT DOES NOT EXCEED 1.5°C OF WARMING LOOKS LIKE.

WE NEED YOUR INPUT IF WE ARE GOING TO BE SUCCESSFUL IN CREATING A REALISTIC FRAMEWORK.

ISN’T THIS MY EMPLOYER’S JOB?


If they offer a retirement savings plan, your employer has a duty to provide you with options that align with your best interests. Historically, most people have taken this to mean only financial interests, so 401(k) plans are chosen almost solely based on what will provide the best financial outcome for the employee. However, more and more people have realised that ethical and sustainability issues can be inextricably linked with risk and return. Not only do people want to invest their money aligned with their values and lifestyle, but many believe that unethical or unsustainable companies will have worse financial performance in the long-run.

This year the Biden administration has been making it easier to invest in ESG (Environmental, Social, Governance) retirement options. Speaking about a proposed bill that would provide legal certainty to retirement plans considering ESG options, Senator Tina Smith summarised “​​Sustainable investment options are good for retirees and good for our environment - that’s a win-win”.


HOW SHOULD I START TALKING TO MY EMPLOYER ABOUT ADDING SPHERE AS A 401(K) OPTION?

First, we would recommend joining the Atmosphere, our network of game-changers working from within their companies to get a fossil-free option on their 401(k) plans. You can sign up here: oursphere.org/join-us. Over time we’ll be helping this network help each other, by sharing useful strategies and advice, as well as case studies of where employees and leaders have been successful in offering fossil-free options in 401(k) plans.

Second, gather a group of friends or co-workers at your company that care about climate change. Work together to form ideas and avenues to reach more employees, HR and management. There’s power in numbers - lots of people at your company likely want a fossil-free option to invest their retirement savings into.

Third, prepare to speak to HR, who are often one of the key decision makers on 401(k) plans in an organization. Write down a list of key arguments and have some data and numbers ready to back them up. For more information on all of this, and an email template to help you, visit our ‘Take Action’ page: oursphere.org/take-action.

If HR needs more information, you can direct them to speak to someone at Sphere and we can fully explain why fossil free investing would be beneficial for them. You can give them our email: hello@oursphere.org.

Oftentimes companies have a 401(k) committee that is made up of the CFO, representatives from HR, an external 401(k) advisor, and sometimes the CEO and/or employee representatives. This committee meets monthly or quarterly, and will discuss adding a fossil-free option to the 401(k) fund lineup in that meeting. They will discuss factors that are important in maintaining their fiduciary duty, such as how expensive a fund is, how it performs, and how risky it is. They also usually really care about keeping employees happy, so sharing your opinions will likely have a big impact on their discussions. Once a 401(k) committee votes to add a fund to a 401(k) lineup, the 401(k) advisor or HR typically emails information about the new fund to all employees, and one month later, the fund is made available to employees.


WHAT DATA DO YOU HAVE ON FINANCIAL PERFORMANCE?

The Sphere 500 Fossil-Free Index (SPFFXI), the top 500 companies in the US excluding ~40 fossil fuel companies, just launched in 2021. When we launched it, we did something called a “back test”, which calculates how it would have performed over the last 10 years. The below chart shows that returns over its 10-year back-test period are 46% higher than the returns of the SPDR S&P 500 ETF.


SPFFXI 10 year back test
Note: Indexes are not investable and do not have fees or trading costs.

You can see more details on this back test on our “The Index” page: https://www.oursphere.org/the-index. We can’t tell you how any given stock or index will perform in the future - but historically, divesting from fossil fuel companies has been a smart financial decision since the value of shares in fossil fuel companies has dropped about 20% since 2012. 


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Why Fossil-Free Investing is Better for Your Portfolio

November 11, 2021

WHAT ARE FOSSIL-FREE INVESTMENTS?

Fossil-free investing means avoiding giving your money to the biggest polluters in the world: companies whose main lines of business are in extracting, processing or burning fossil fuels like coal, oil and gas. These companies aren’t just contributing to climate change and polluting our natural world, but they also plan to continue. Exxon, the United States’ biggest fossil fuel producer, has only pledged to cut CO2 emissions by 15-20% by 2025, which is far below what is needed to limit global warming to 1.5°C. 

By refusing to invest in these companies, we’re sending them a message: stop lobbying against climate legislation that keeps us safe and start participating in the conversation about what a world that does not exceed 1.5°C of warming looks like.

HOW DO I KNOW IF MY 401(K) IS INVESTED IN FOSSIL FUELS?

You may be thinking - surely I don’t have any money invested in these companies? 

But you likely do, through your 401(k) or other retirement plan. Often, 401(k)’s are made up of stocks from a wide range of companies. Retirement investment advisors usually recommend not to concentrate retirement savings in a small number of stocks, as these can change value rapidly, which is bad for long-term investing like retirement savings. But diversifying investments does mean you likely have your retirement savings invested, at least partially, in fossil fuel companies. 

The best way to find out whether your 401(k) is invested in fossil fuel companies is to use a free online tool like https://fossilfreefunds.org/.

A screenshot of fossilfreefunds.org

On Fossil Free Funds, you can look up the specific fund that your 401(k) is invested in by ticker or name, or you can look at the most popular index funds or target date funds. Each fund is given a rating from A to F based on what % of their portfolio is invested into fossil fuel companies. The average fund is about 5% invested in fossil fuel companies, and this tool gives a C to funds that fall in that range.

A D rating from fossilfreeunds.org

Let’s look at one of the most popular 401(k) funds, the Vanguard Target Retirement 2050 Fund.

While its title would not flag it as being especially invested in fossil fuel companies, it actually has more than the average investment in them, at over 6%, resulting in it getting a D rating. The fund has investments in Exxon Mobil, Chevron and Berkshire Hathaway (which plans to keep at least 14 coal fired power stations running after 2030). 

If 6% doesn’t sound like a lot to you, this represents $1.4 Billion that could be going towards companies that aren’t actively fighting against saving our planet.   

HOW WILL SPHERE’S PERFORMANCE COMPARE TO MY EXISTING FUND?

Sometimes, ‘impact’ investments in environmental or social companies can get a bad reputation for having worse performance or being more expensive than ‘normal’ investments. Sphere has been specifically designed to be as low cost as possible, saving you money on fees that could detract from your total retirement savings.

And while no one can predict the future of the stock market, divesting from fossil fuel companies has been a smart financial decision over the last 10 years. The Sphere 500 Fossil-Free Index (SPFFXI) contains the top 500 companies in the US, excluding ~40 fossil fuel companies. The below chart shows that returns over its 10-year back-test period are 46% higher than the returns of the SPDR S&P 500 ETF.


SPFFXI 10 year back test
Note: Indexes are not investable and do not have fees or trading costs.


There are plenty of reasons for this. The value of shares in fossil fuel companies has dropped about 20% since 2012 and cut back on new big projects by 34% in 2020. With more people getting their money out of fossil fuels, we want these companies to soon realize that they have no other option than to change their operations.


IS THIS ESG INVESTING?

“ESG”, or “Environmental, Social, and Governance” is a general set of criteria that is used to evaluate how much positive or negative impact a company has. Impact investors can use these standards to pick which companies to invest more heavily in, or ‘screen out,’ of their investments. Generally, ESG Investing, Sustainable Investing, Socially Responsible Investing (SRI) and Impact Investing are terms that are used fairly interchangeably.

SPFFXI does not use broad-based ESG criteria in its investment strategy. Instead, it uses one piece of simple criteria to screen out roughly 40 fossil fuel companies from our index. We keep this simple because we have a simple mission: to convince these companies to help create global, binding legislation that limits warming to 1.5°C (450 ppm of CO2 equivalent).

The index is still exposed to carbon-intensive industries (such as airlines, shipping and logistics) because their business models are not necessarily dependent on fossil fuels and with technology innovation they could change their practices to be less carbon intensive. This is different than the ESG funds that underweight companies that pollute more and overweight companies that pollute less.  

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