Talking to your employer about divesting your 401(k)

November 15, 2021
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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.