What Is a Climate-Safe Retirement Fund?

Learn what a climate-safe retirement fund includes—and does not include—so you can know what to look for to ensure your retirement funds fuel the clean-energy transition while securing your financial future.

Josie Moore

Whether you’re trying to determine if your retirement fund is climate-safe or you’re preparing to ask your company to offer a climate-safe retirement fund, you need to know: What exactly is a climate-safe retirement fund? 

You may have heard that ESG (Environmental, Social, and Governance) criteria are used to help people know whether investments are sustainable. Looking for the ESG label is a good first step toward investing in companies that are more environmentally and socially responsible than those in a traditional portfolio. 

However, ESG criteria face criticism because they are not regulated by the SEC and are not consistently applied. While steps are being taken to make ESG criteria more clear and consistent, there are other ways to make sure your retirement fund is not funding climate destruction, invests in clean energy, and avoids the risk of future stranded assets in your portfolio jeopardizing your financial future. 

Climate Safe = Not Invested in Fossil Fuels

First and foremost, a climate-safe retirement fund does not invest in fossil fuels. Fossil fuels—including coal, oil, and natural gas—are driving climate change. 

Fossil fuels are petroleum/oil, coal, and natural gas. Right now, the U.S. gets 81% of its energy from fossil fuels and about one-third of its total electricity from coal, the dirtiest of the fossil fuels. And while natural gas is touted as a “clean” fossil fuel, it still produces carbon dioxide when burned, and natural gas itself is methane, a strong greenhouse gas.

To avoid the worst consequences of climate change, including sea-level rise, extreme weather events, biodiversity loss, and species extinction, we must transition as quickly as possible from fossil fuels to truly clean energy sources. To do this, we must shift our investments from fossil fuels to renewable energy technologies, manufacturing, and infrastructure.

A climate-safe retirement fund should not invest in any of the companies in the Carbon Underground 200 or the Global Coal Exit List.  

Climate Safe = Not Invested in Deforestation

A climate-safe retirement fund does not invest in deforestation. Our forests—not just trees but also the rich biodiversity within forests—provide powerhouses of carbon sequestration that no human technology can ever hope to match. 

While fossil fuels are driving global warming, rapid deforestation is destroying our best defense against catastrophic climate change. Deforestation contributes more carbon dioxide to the atmosphere than all the world’s cars and trucks combined.

Big agriculture business (i.e., agribusiness) is responsible for at least 80% of tropical deforestation. But it’s not just the forests themselves that are being wiped out. The felling of the rain forests for palm oil production and grazing cattle threatens Indigenous peoples, local communities, and endangered species. 

One major area to specify: animal agribusiness. Since animal agriculture is such a strong contributor to deforestation—with beef production being the most significant contributor (due to both the space to graze cattle and the mass growing of soy for animal feed)—a climate-safe retirement fund should not invest in animal agribusiness. 

Climate Safe = Invested in Clean Energy

Leveraging your retirement investments is more than not investing in what you don’t want to fund. It’s also about funding the change you want to see in the world. 

It’s estimated that we will need more than $6 trillion globally per year in investments in clean energy to meet our transition goals and avoid the worst impacts of the climate crisis. With $37 trillion in retirement savings in the U.S. in 2020 alone, a market shift in retirement funds toward clean energy could transform the pace of our global climate response. 

There are many companies leading the way in renewable energy technologies, manufacturing, and infrastructure, as well as electric vehicles, sustainable agriculture, energy efficiency, and more. A better world is possible and within reach. It’s time we invest in it.

Climate Safe = Financially Safe for You

Making your retirement funds climate safe also protects your financial future. By investing in the growing industries of the future rather than the declining industries of the past, you will better ensure your financial security during your golden years. 

Almost all investors hold stock in companies that carry a lot of climate risk—that is, the inevitable move away from fossil fuels will be very costly for them, and they are likely to be more negatively affected  by climate impacts than other companies. Climate-safe investing minimizes and even eliminates investments in companies with bleak outlooks for surviving the green transition and climate change.

If your retirement portfolio continues to hold investments in companies that lose significant value in the coming years, those investments are known as “stranded assets,” and they will decrease your retirement savings. Climate-safe investments are less risky as we move to a low-carbon economy. 

There Is No Perfect Climate-Safe Retirement Fund . . . Yet

You know that you should not be investing in climate-destroying companies and you want to be funding the companies that are driving the clean-energy transition. But what about all those other companies in your portfolio in other industries—companies that comprise about 80% of the stock market? These include industries such as banking, consumer goods and services, healthcare, and more.

At this time, most companies fall somewhere on a sustainability spectrum. Some have made climate commitments, some have a climate action plan, and a few are even keeping their promises (i.e., they are not greenwashing) and hitting their benchmarks to become sustainable.

By intentionally remaining invested in companies on the path to decarbonization, you are better able to pressure them to speed up their shift to sustainability by making changes such as using only clean energy and electric vehicles, greening their supply chains, and making their corporate banking as climate-safe as your own retirement funds.

How Do You Make Your Retirement Fund Climate-Safe?

The first step is to make the ask. Meet with your employer’s HR director or portfolio manager to tell them that you—and your colleagues—want your retirement investments to be climate-safe. Ask them to work with your company’s asset manager to provide a climate-safe fund for all employees. And if you really want to make an impact, make that climate-safe fund the default fund for everyone.

Most asset managers have funds that are climate-safer—they’re not perfect, but they’re better than the standard default funds being offered at most companies. But be sure to do your research to make sure the fund they’re offering as climate-safe is acceptable to you. 

Corporate clients of asset managers—like your employer—have the power to push asset managers from offering climate-safer funds to truly climate-safe funds. And employees—like you—have the power to ask their employers to flex their financial muscle to get their asset manager to create the climate-safe funds we all need to ensure a livable planet and secure future.

And remember, at WorkForClimate, we are here to support you with guidance and resources every step of the way. Download our Climate-Safe Retirement Playbook, and when you need us, email us. We are here to help.

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