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Commons’ Guide to Green Retirement Savings

When you think of climate action, building green retirement savings may not be the first thing that comes to mind. But if you don’t know what your 401(k) is funding, you might just be financing fossil fuels.

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The average American has a 401(k) balance of $160,000 by their fifties. And since about half of us invest in our retirement accounts and not much else, these assets are a major part of our lifetime financial influence.

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Unfortunately, only a tenth of one percent of 401(k) funds are invested in socially and environmentally responsible companies. The average person has invested $6,000 in fossil fuels through their 401(k), according to the climate defender network Sphere.

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Divesting your 401(k) can be a bit of a task, but it’s really worth it. Plus, if we don’t take rapid action to divest from fossil fuels, we won’t have a retirement to look forward to anyways. This guide to green retirement savings will tell you everything you need to know.

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The following does not constitute investment advice.

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1. Green Your Current 401(k)

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Your first step is to evaluate your active investments. This means assessing your existing 401(k) to understand what you’re investing in and how to better align your portfolio with your values.

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Unfortunately, since only 2.8% of 401(k) accounts offer sustainable investing options, this can get tricky. That’s why we’re here to help!

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Investigate Your Current 401(k)

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First, you want to understand what your 401(k) payments are funding. If you’re not sure who manages your account, contact your HR department to find out. You can access information about your specific 401(k) through that institution’s employee portal.

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Next, use fossilfreefunds.org to check the fossil fuel exposure of each fund in your account. This helpful free tool rates individual funds from A to F. Just like in school, you don’t want to see a failing grade.

If you don’t like what you find, you have three main options: You can:

Move to a fossil-free option within your current plan if it’s available;
Switch to a self-managed brokerage fund; or
Choose a “greener” fund within your current plan.

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Your best option depends on your investing background and the plans available to you. But any action towards green retirement savings is a step in the right direction. Every bit of change matters!

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Move to a Fossil-Free Option

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Your biggest power move is to divest your 401(k) from fossil fuels completely. Ask your plan manager if your plan has any fossil fuel-free funds. If it does, you’re in luck! Initiate a transfer.

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If your plan doesn’t offer fossil-free funds, ask about sustainable funds or Environmental, Social, and Governance (ESG)-oriented alternatives. Although the term ESG is questionably regulated, these funds are often better than the status quo.

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Switch to Self-Managed Brokerage

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If your plan doesn’t offer a fossil-free option, they may offer a “brokerage window” that gives you the flexibility to pick fossil-fuel-free, sustainable, or ESG funds at your own discretion, using tools like fossilfreefunds.org as a guide.

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This flexibility comes with greater risk, and self-directed funds are better suited for experienced investors. If you’re not confident in picking the funds yourself, you could work with a personal advisor to determine which funds are best for your future and the planet’s.

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Pick a Greener Fund in Your Current Plant

Unfortunately, where you work limits your options for green retirement savings. And some of us just don’t have the background or financial capacity to opt for self-brokerage. But all of us can investigate our options and choose ones that do less damage.

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For instance, with a little digging, you can uncover which funds invest in green energy or other sustainable industries, even if they also fund fossil fuels. Another tactic is to switch to the funds within your plan that are the least bad. Simply check which scores highest on fossil fuel-free funds.

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2. Find and Transfer Your Old 401(k)s

Nowadays, most of us work multiple jobs throughout our careers. In fact, research indicates we switch employers 12 times on average by the time we’re fifty.

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This means you probably have an old 401(k) or two floating around somewhere. Since neither you nor your past employer is actively contributing to these accounts, you’re free to send these investments to “greener” pasture.

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First, locate any inactive 401(k) accounts from past employers. If you’re not sure where they live, the easiest way to find them is to contact the HR department from your old job. Have your social security number and dates of employment on hand so they can check your records.

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Once you’ve located your accounts, it’s time to get your retirement savings working for the planet. The good news: outside of your employer-sponsored plan, you have more freedom to match your investments with your values.

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While it’s important to do your own research, organizations like Carbon Collective and Aspiration Bank make it easy to roll over your 401(k)s into fossil fuel-free investment portfolios.

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Click the links above to learn more about each company, and follow the steps below if you’re ready to make the switch.

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Carbon Collective

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To transfer your 401(k) to Carbon Collective, you’ll need to sign up with their investment platform.
First, you’ll answer a few questions about your investing goals to help you choose the right account type.
Then, you’ll get an invite to set up an account on Altruist, Carbon Collective’s brokerage software partner.
Lastly, you can make an initial deposit by contacting your 401(k) institution and initiating a “direct rollover” to that account.

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3. Advocate for Green Retirement Savings

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The small changes we make in our personal lives are important. But with nearly $7 trillion held in 401(k)s in the United States, changing the system could change the world.

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When you lobby your current employer to offer sustainable 401(k) options, you help make green retirement savings accessible to every person in your workplace.

Try this plan of action:

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Identify Decision-Makers: Contact your plan administrator and chief sustainability officer, or even your CEO if you work at a smaller company, and ask to start a conversation about green investment options.
Call in Backup: There’s power in numbers, so share what you’ve learned and round up like-minded colleagues. If your company has a green team, bring your concerns to them. If not, it might be time to start one!
Prepare Your Argument: Employers want to limit risk, but investing in fossil fuels is a poor long-term bet for their employees and the planet. Plus, there’s compelling evidence that ESG funds are actually more stable than traditional funds, according to a 2019 analysis by Morgan Stanley.
Come with a Solution: Getting green retirement savings funds can take time, but offering solutions can speed up the process. For instance, you can suggest Sphere’s fossil-free index, which employers can offer in a 401(k). Or, if there’s a fund in your current plan that’s nearly fossil-free, encourage your plan administrator to contact the fund’s manager and request they swap out their dirty investments.

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