If you have a 401(k), it's almost guaranteed that your retirement account is invested in fossil fuel companies, which is probably costing you returns on your money. 

In fact, 99% of people with retirement savings are invested in fossil fuels through their 401(k) plan, most without even knowing it. By removing those fossil-fueled funds from your portfolio, which are among the worst-performing stocks, you can make more money and contribute to less fossil fuel pollution. 

It may sound complicated, but new solutions are making it much easier, without even switching your 401(k) plan — and even big companies like Google are making the switch for their employees. 

The Cool Down has put together a step-by-step guide to help you change your 401(k) — which could ultimately earn you more money and make an even bigger climate impact than installing solar panels or switching to an electric vehicle. 

Why is it beneficial — and impactful — to add a 'climate-friendly fund' to your 401(k)? 

We asked Alexandra Wright-Gladstein, the founder of Sphere, a company that makes it easy for employers to offer climate-friendly investment options to employees, why employees should consider making the change.

"One is to protect their savings from an industry that is in decline," she explains. "The fossil fuel industry has had the worst returns of any sector of the economy for the past two decades, and everyone should have the option to avoid that poorly performing industry."

Historical data shows that investing in oil and gas over the past 10, 15, and even 20 years has had the worst returns of any sector of the economy. For example, if you had invested $10,000 in the S&P 500 with fossil fuel companies removed in 2014, you'd have wound up with $34,900 versus $32,800 with the fossil fuel companies included, according to Sphere's most recent data. 

And beyond costing you money in your retirement investments, investing in fossil fuel expansion contributes to the warming of our planet, which means you're funding pollution, including new drilling ventures and generally helping the industry remain more solvent, instead of climate solutions. 

"Equally important is protecting the planet," Wright-Gladstein says. "There's about $1 trillion invested in fossil fuel companies just from U.S. retirement savings, and that makes up one-fifth of the market cap of the fossil fuel industry."

That means that if a lot of people chose to "divest" or sell off investments in the fossil fuel industry, it could send a big message.

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"Just giving everyone the option to not invest in this industry in decline could move a really significant amount of money out of the fossil fuel industry, which creates a clear statement to this industry that we're not OK with the status quo," she says.

Many climate activists — even actress Jane Fonda, who has been heavily involved in environmental causes — didn't even know their retirement accounts are investing in fossil fuels (in Fonda's case, her SAG-AFTRA union pension, as reported here). Or that switching where your money is invested could have a bigger impact on the planet than putting solar panels on your roof, reducing your air travel, or planting 100 trees, according to data from RetireBigOil.org. 

Big institutions like the University of California, three of New York City's pension funds, and the Rockefeller Foundation have already divested pension funds from oil and gas not just to make more responsible investing choices but because oil and gas have been just plain bad financial investments. 

And some big companies, like Google, have recently added a fossil-free fund from Parnassus to their 401(k) options after their regular review process revealed underperformance of one of their actively managed funds.

"In looking at alternatives, they found that the Parnassus US large cap fund had been performing very well, and it also happens to be climate-friendly," Wright-Gladstein says. "By doing it that way, they also made some employees happy."

An analysis by AsYouSow showed that Google employees could have earned an estimated $1.15 billion collectively in additional returns and that their retirement plan holdings could have been 9.15% higher if the company had divested from the oil and gas industry 10 years ago, on an absolute and risk-adjusted basis. 

What is a 'climate-friendly fund'?

Wright-Gladstein says it means "that they don't invest in companies whose core lines of business is to keep the climate changing, to keep pumping greenhouse gasses into the air, and whose core line of business is not compatible with a climate-safe future." 

There are about 52 companies that fall into that category in the list of the top 500 biggest publicly traded U.S. companies.

One caution: If your company or adviser says they already invest in "ESG" or "sustainable" funds, do a little more research before accepting that answer. "There are a lot of 'ESG' or 'sustainable' funds that are still invested in fossil fuels," she says. "A good way to check that is to just type their name into FossilFreeFunds.org."

On top of that, Sphere's online tool AtmoSphere will let you search your company's 401(k) to see what your company is invested in as well. 

Where to start: How can you switch your 401(k)? 

The first step, Wright-Gladstein says, is emailing your HR person, or if you work at a smaller company, you may be able to email your 401(k) provider directly. 

"Email HR, and also let us know that you're doing it by emailing us at hello@oursphere.org, because we are happy to help [employees] respond to anything employees aren't quite sure how to respond to," Wright-Gladstein says. "We've worked with lots of employees helping them successfully get climate-friendly options on their plans."

In fact, she says, "They're used to seeing requests from employees. Sometimes it's for religious reasons," she explains. "They [HR teams] like to honor them; they like to listen to employee feedback and requests. And oftentimes, one request is all it takes. Sometimes it's not enough, and we've seen employees kind of rally colleagues to show that there's a lot of demand, and that often works."

That could even happen on a company Slack board. "Sometimes the message gets so many hearts and likes and applause and thumbs-ups just on Slack that senior management notices, and then they push HR to do it quickly," Wright-Gladstein says.

You could also see if your company has a green team that might help to champion the idea. 

What should you say? If you're looking for a template letter, Sphere has a concise draft you can use here, but if you think your situation will require more persuading, it could go something like this: 

Dear [HR Contact or 401(k) Provider],

I'm writing to ask whether you would consider adding a climate-friendly (and in particular, fossil fuel-free option) to our company's 401(k) lineup. 

I would like to have a climate-friendly investment option that is similar to the S&P 500 in risk and return. Given that 80% of Americans are worried about climate change, it is likely that a number of other employees would like the same thing.  

One affordable option that is similar to the S&P 500 in risk and return without high fees, that doesn't require changing our company's 401(k) provider, is simply adding the Sphere 500 Climate Fund (SPFFX) to our plan. Other options could include the Green Century Funds or the Parnassus Fund, which is used by Google's 401(k) plan.

I believe that this would be a significant step in the right direction for the returns of our employee retirement accounts and would align with our company and employee values.

Thank you for considering my proposal. Please let me know what the best next steps are and if you have any questions. 

Sincerely, [Your Name]

"A really important thing to note — and you can even note this in your email to HR, is that they don't have to change their 401(k) provider, which can be much more complicated," Wright-Gladstein says. 

Since this is a benefits issue, there's no obligation or need to talk to your manager about it. Could there be repercussions for even making the request if your company isn't necessarily a climate-friendly company? Unless your company is directly in the oil or gas industry, that seems unlikely, and Wright-Gladstein says she has "yet to see anyone have negative repercussions." 

What happens once you submit the email? Wright-Gladstein says that most medium- to large-size companies have a 401(k) committee, which typically includes HR leaders, the head of finance, and an external 401(k) adviser, already meeting periodically to discuss changes to the plan. In this meeting, the committee would discuss employee requests and decide on next steps. Employees should be notified when and if new funds are added. 

What options are there for 'fossil-free funds'? 

Wright-Gladstein says that financial advisers and 401(k) advisors tend to categorize the world of fund options into "active" and "passive." 

"Active is where there's a fund manager actively picking stocks and traditionally — this means trying to beat the stock market and be smarter than the stock market at large to get you better returns, and they charge higher fees for that," she says. 

"Then there's passive, which are index funds. It's just trying to track the index, the market at large. 401(k) plans in general have been moving away from actively managed funds and towards passive funds," she says. 

When it comes to "actively" managed 401(k) funds, there are several options including the Parnassus fund that Google opted for, as well as Green Century Funds. 

Sphere is a good choice for an affordable mutual fund that fits into a passively managed 401(k) plan. They simply invest in the 500 biggest publicly traded U.S. companies while excluding about 40 fossil fuel companies that make up only about 5% of the market capitalization of that group. It's now an option on several of the biggest 401(k) plans, including Schwab and Fidelity, and has been added to 250 company plans. 

The Vanguard FTSE Social Index is another index fund that is not invested in fossil fuel companies, but Wright-Gladstein says they vote against climate change-related shareholder proposals 98% of the time. 

If a company does want to switch 401(k) plans or start a new 401(k) plan, Carbon Collective works with individuals, companies, and organizations to create "climate-smart" investment plans. 

Will 'climate-friendly' funds continue to outperform?

With a refocus on the oil and gas industry and pushback around climate solutions coming from Washington, will that affect the performance of climate-friendly funds? 

It's impossible to predict the future, but Wright-Gladstein says, "At the end of the day, it's about economics — it's about supply and demand. No matter what people in Washington do and what policies are put in place, we've hit that inflection point where the combination of solar, wind, and batteries is less expensive than fossil fuel power generation, and that's just pure market mechanics. So at this point, it doesn't really matter who is president and who's setting the policies, because the dynamics have arrived at that point."

If you're motivated to help stop the expansion of the fossil fuel industry, it's also an impactful way to make a statement.

"Fossil fuel lobbyists have been the most powerful lobbyists around the world for the past few decades, and we need to take away their power if we want to be able to put common-sense policies in place that protect the planet," she says. "It's equally important both to protect people's savings, but also to create the systems change that we need to see to be able to move our economy to solutions."

If you decide to ask your employer about a climate-friendly 401(k) plan, we want to hear about your experience! Email us at hello@thecooldown.com.

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