Climate-Aligned Retirement Plans

Published: November 11, 2021 by EDF Staff

Sustainable Finance

More than 140 million workers in the U.S. prepare for their retirement through 401(k) investment plans. With nearly $8 trillion in assets under management, these plans are a crucial vehicle for employees to prepare for retirement. They also  offer tremendous potential for employees to  align their values with their investments. 

The rapid growth of ESG investing is evidence of Wall Street’s heightened awareness of climate-related risks. Yet when it comes to employer-sponsored retirement funds, fewer than 3% of 401(k) plans offered actually include  climate-aligned investment options.

A critical change on the horizon for retirement funds

A new proposal by the U.S. Department of Labor would enable fiduciaries to consider climate and other ESG factors when choosing retirement plans. Here’s what this critical change means:

  • For companies: adoption of the proposed rule would help align corporate benefits with growing employee demand for sustainable investing. Nearly 75% of employees at Fortune 1000 companies believe that having socially responsible investment options in their 401(k) plans is important. Making retirement savings accounts more responsive to employee demands can help – but action is needed.
  • For financial advisors: there is an opportunity to better incorporate climate and other environmental factors into their analyses, while also reflecting the values and desires of a growing number of investors. 
  • For climate-aware investors (employees) in 401(k)and ERISA plans: the change would provide more flexibility to achieve their financial goals while supporting the future they want to retire into.

Take Action

Employers and employees should file a comment with the Department of Labor by December 13, 2021 in support of the proposed rule.

Additional Resources