Historic update to the GHG Protocol likely to shine a spotlight on the 401(k) emissions problem

Why do sustainability managers not feel that it is their job to reduce the emissions from their 401(k)s?

November 3, 2023
Shlomo Bernartzi

“Climate-safe investment options in 401(k)s! That is such an important issue - I wish I could spend time on it” – this is a sentence I have heard from sustainability managers a surprising number of times. Why is that? Why don’t they feel that it is their job to reduce the emissions from their 401(k)s?

Sustainability managers spend their days quantifying, reducing, and offsetting company emissions. I know sustainability teams that have procured all-renewable energy for their facilities, who have worked with their suppliers to get all-renewable energy for their factories, and who have made net zero products. But I’ve never met a sustainability team that has pushed for climate-safe investment options in their company’s retirement plan. Why is that?

It turns out the answer is simple: 

You manage what you measure. 

What emissions do sustainability teams measure? Most often, the emissions that the Greenhouse Gas Protocol tells them to measure. The Greenhouse Gas Protocol, often called the GHG Protocol, is the gold standard methodology for measuring emissions. If you’ve ever heard someone talk about Scope 1, 2, and 3, emissions, they’re referencing the GHG Protocol. Until now, the GHG Protocol has not required companies to measure the financed emissions from 401(k)s.

In fact, the GHG Protocol has not required companies to measure the emissions from any of their financial supply chain. That means the Apple sustainability staff is not told to pay attention to whether Apple’s $62B in banking deposits are loaned out to finance new solar farms or new fossil fuel development projects. And they’re not told to measure how much of Apple’s 401(k) plan is invested in fossil fuel companies.

401(k) plans on average finance emissions that are 33x greater than their company’s direct emissions, according to a study released by Mercer last year.

We’ve looked at Apple’s retirement plan, and it has $1.3 Billion invested in fossil fuel companies like Chevron and Exxon. What could that money enable if it were instead invested in companies that are leading the climate tech revolution, rather than those that are obstructing it? Not only could it enable a livable future for us to retire in, but it could help protect employee savings from the risks associated with the fossil fuel industry, which has been the lowest-performing and most volatile sector of the S&P 500 in the past decade.

The GHG Protocol is being updated right now for the first time in ten years, and it looks likely to start including the financial supply chain, including pensions and retirement plans, in its revised version. 

That means sustainability teams that follow the GHG Protocol methodology to measure and report their emissions will likely soon start reporting 401(k) emissions. As a result, for the first time they may shine a spotlight on the lack of climate-safe investment options in 401(k)s and start working much more closely with benefits teams than they have until now. 

For any sustainability teams that want to start getting an understanding of their financed supply chain emissions and how to reduce those emissions before they start being required to report them, we are here to help. Reach out at

How do you measure financed emissions?

The GHG Protocol Scope 3 Category 15 describes how to measure financed emissions. It currently only applies this methodology to financial products such as mutual funds and exchange traded funds for companies that offer those as products. The proposed update would apply a similar methodology to the financial supply chain. 

The high-level concept is simple: let’s say American Airlines has 100 tons of CO2 emissions and you own 1% of American Airlines. That means you have 1 ton of financed emissions. The same reasoning can be applied to 401(k) plans: if Apple employees in aggregate own 10% of American Airlines through the Apple 401(k), Apple has 10 tons of financed emissions. 

Should employers be held responsible for retirement plan emissions?

After all, employees own the money in the retirement plans, not employers. The GHG Protocol Scope 3 Standard holds as a core tenet that “companies should prioritize activities in the value chain where the reporting company has the potential to influence GHG reductions.” 

ERISA law, which governs employer-sponsored retirement plans like 401(k)s and 403(b)s in the United States, places the responsibility for selecting a limited menu of investment options on employers. As a result, participants in retirement plans have little to no control over how their funds are invested. Employers have the most influence of any entity in determining how retirement savings are invested.

Since employers have the most control of any entity over how retirement savings are invested, they will soon likely be responsible for measuring and reporting the financed emissions from those investments according to the GHG Protocol. 

Given the recent news out of California requiring 5,000 companies to report their emissions, the time is now for sustainability teams to start understanding and reducing their financed emissions. We’re here to help - reach out to learn more at

17423366-UFD 10/26/2023