4 Ways to Invest my Retirement Funds in a Socially or Environmentally Responsible Way

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This post is part 3 in a series on responsible investing coming out this month. In this series, we’ll break down the basics and help you learn about socially and environmentally responsible investments and how you can take part no matter your level or how much you have to invest. For the purpose of this series. I’ll be using the term responsible investing as a catch-all to include all of the strategies under this general umbrella such as SRI, ESG and impact investing.

 In the second post of this series, we discussed how to get started with responsible investing. If you haven’t read it, you can do so here.  

 But what about your retirement accounts? Aren’t those investments too? Yes! And can you make more intentional decisions with those investments? Yes! (Most of the time, or at least you can work towards increasing your options!)

 Here are different types of retirement plans and how you can adjust them to invest in socially or environmentally responsible funds: 

IRA/ Roth IRA/ SEP IRA

If you have one of these accounts, you can choose to invest your funds in SRI or ESG investments. Refer to the second blog post in this series for information about where and how to invest your IRA with social or environmental considerations. 

 401k/ Roth 401k/ 403b/ 401a/ and similar plans

If you have a 401k with a previous employer, you can roll that plan into an IRA or Roth IRA to have access to a wide variety of responsible investment options. We recommend working with Capitalize to do your rollover as seamlessly as possible!

If you have a 401k or similar option with your current employer, make sure you review the list of available funds that you can invest in. Do your research and understand if any of the funds available to you are SRI, ESG or align with your values. Most plans will not offer this, but some might!

Let’s say there aren’t any funds available that are socially or environmentally responsible or meet your needs. What can you do? 

1. Find out who at your company or organization selects and approves the funds in your retirement plan

2. Talk to your colleagues about why you’re interested in ESG/ SRI and see if you can get a few people together to put together a proposal

3. Do some research: there are a lot of reports out there that discuss the benefits of ESG or SRI on fiduciary duty and risk mitigation- be prepared to defend your position and give that person plenty of resources and information about why this is in your colleagues and the company’s best interest

4. Make your pitch- ask to include socially and environmentally responsible fund options in addition to the current options, rather than asking to replace current offerings  

5. Be prepared to hear “no” - but know that doesn’t have to be the final answer. Consider revisiting the conversation down the line if your company is creating or increasing its sustainability efforts, DEI, or other socially or environmentally responsible practices 

Here’s a fantastic and detailed toolkit from As You Sow to help you make your case: https://fossilfreefunds.org/fossil-free-action-toolkit

Public Defined Benefit Plan, TSP, or Pension: You might think that because you have a pension and can’t control your own investments, that you have no power to push for responsible investing- but that isn’t true! 

Take this example as motivation: 

Pension funds have been one of the largest historical investors in fossil fuels. Some state pension systems have started to take action towards divesting from fossil fuels. Here is a list of states working towards fossil fuel divestment in their pension plans: 

• Maine: in June, Maine enacted a law requiring their state pension fund and other state treasury funds to divest from all fossil fuel holdings by 2026

• New York City and State: Their pension funds have a goal of divesting from some fossil fuel investments in the next five years, 

• California: The CALPERS pension plan is working to transition to a low carbon portfolio,

• Minnesota: Their pension system divested from coal stocks in 2020.

The most important part of this is understanding who is making the decisions about your investments. Keep in mind that since your pension is run by the government, elected officials can enact or influence changes to how a public pension is invested. One of the most important people making those decisions, or appointing the people making those decisions, is the comptroller in your city, state or local government. (Wait, I can vote for a comptroller? What does a comptroller even do?) Voting for and supporting a comptroller candidate who is interested in ESG and divestment can make a big impact on how your pension funds are invested.   

Private Defined Benefit Plan, Defined Contribution Plan or Pension: If you are on a private pension plan, either through your employer or an insurance plan, it’s important to talk to whoever manages the plan, and follow the steps listed under the 401k plan above.  If you are part of a union, talking to union representatives and leaders can help move the conversation forward and push for attention to responsible investing issues.

Know that even if you can’t invest the money in your retirement plan in a socially or environmentally responsible way, there are likely more changes and opportunities to do so in the future. In Europe, the majority of pension plans take ESG factors into consideration, and regulation across the EU is pushing for requirements for pension managers to add ESG analysis into their investment process. The Biden Administration is expected to make policy changes to encourage interest and investment in ESG funds particularly on climate-related issues, including the potential for US pension plans to consider ESG data in its investment process. 

Remember, your retirement plan is an important part of your investment portfolio. For most people, it’s the biggest portion of your investments, and the longest-term investment you will have, so making a change to how your retirement funds are invested can be a game-changer.