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You are here: Home / 401K / ESG Investments in Your 401(k)? Make Sure They Are What They Claim To Be

ESG Investments in Your 401(k)? Make Sure They Are What They Claim To Be

August 12, 2021 by Retirement

Tinnakorn Jorruang / iStock.com

With more and more demand for retirement plans to increase environmental, social and governance (ESG) investing, a recent study notes that savings in these plans are invested in companies which directly contradict publicly stated corporate sustainability goals on climate change and racial justice.

See: Could ESG Investing Change the Business World?
Discover: 8 Ways To Invest In ESG Companies

“Amazon is working to address climate risk in their operations by purchasing 100,000 electric vehicles and powering their data centers with renewables. Given all of that work, it is very strange that Amazon employee’s savings are invested in companies literally burning down the Amazon rainforest,” Andrew Behar, CEO of As You Sow, said in a statement.

“I’m sure when Jeff Bezos gazed down at planet Earth during his space junket and saw the Amazon Rainforest on fire, he did not say to himself, ‘I see that our 401(k) plan must be making terrific returns.’ That’s the point: no one knows what investments they own or understands that we are profiting from our own destruction and adding risk to our portfolios. Once people know what they own, they will demand change. Our new scorecard shines a bright light on this.”

Related: 8 Brilliant Ways People Would Use Jeff Bezos’ Vast Fortune

Most employees across the nation are unaware their retirement plan investments are profiting from environmentally and socially risky companies, according to As You Sow. The financial risks include stranded assets, reputational risk and other negative impacts of unsustainable business practices that can destroy shareholder value.

ESG investing in retirement plans is beginning to gain greater scrutiny as lawmakers seek to expand 401(k) investment options with strategies that adhere to a more 21st-century mindset, according to ETF Trends.

Last month, Congressman Andy Levin (MI-09), Congresswoman Cindy Axne (IA-03), Congresswoman Suzan DelBene (WA-01) and Congressman Jesús G. “Chuy” García (IL-04) led their colleagues in a letter to Secretary of Labor Marty Walsh inquiring about the Department of Labor’s plans regarding ESG investing.

Find Out: How Will Teens and Gen Z Invest Their Money? Think Low-Risk, ESG and Roboadvisors
Learn: 10 Best ETFs for Easy ESG Investing

“ESG investing is growing at a tremendous rate. In 2020 alone, $51.1 billion in net investments went into sustainable funds, nearly double the previous annual record,” the lawmakers wrote. “We believe this is evidence of workers’ desire to make sure that their retirement investments reflect their values. This desire is backed up by evidence that shows that investments that consider ESG principles generally performed as well as or better than comparable conventional investments. Workers do not have to make a trade-off between getting a return on their investments and their principles, and the rules and regulations governing pension investments should not force them to. Instead, those rules should provide clarity so that sustainable investing is not burdensome.”

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Last updated: August 12, 2021

This article originally appeared on GOBankingRates.com: ESG Investments in Your 401(k)? Make Sure They Are What They Claim To Be

Filed Under: 401K

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