Fossil Fuel Bonds in 401(k)s
Retirement plans don't just invest in stocks of high-carbon companies. They also hold corporate bonds issued by those same companies. Corporate bonds are one of the main ways fossil fuel companies raise money to expand their operations.
If there are fossil fuel bonds in your 401(k), you're effectively lending your retirement savings to companies so they can mine for coal and drill for oil.
The bond problem
As many banks start to limit their lending to carbon intensive industries, companies in the coal, oil, and gas value chain are turning more to the bond market to access cheap debt. Every time retirement plan participants invest in fossil fuel corporate bonds, they are helping new coal plants, new oil and gas pipelines, and other new fossil fuel infrastructure get built.
While retirement plans have lower exposure to fossil fuel bonds than fossil fuel stocks, the concentration of fossil fuels is higher within corporate bond holdings than within stocks.
In U.S. 401(k)s and similar retirement plans, any given dollar invested in corporate bonds is almost twice as likely to be fossil fuel compared to a dollar invested in stocks.
Exposure: The percentage of plan assets invested in fossil fuel bonds or fossil fuel stocks. Most plans have over 10 times more invested in fossil fuel stocks than fossil fuel bonds.
Concentration: The percentage of plan assets classified as fossil fuel within each asset class. In other words, for most retirement plans, a dollar invested in corporate bonds is about twice as likely to be fossil fuel compared to any given dollar invested in stocks.
Figures in the chart and table represent the average of the 43 retirement plans analyzed below.
|Avg. fossil fuel exposure||0.5%||6.2%|
|Avg. fossil fuel concentration||15%||8.6%|
With $9.3 trillion invested in U.S. 401(k)s and similar retirement plans, an average fossil fuel bond exposure of 0.5% would amount to an estimated $46.5 billion invested in fossil fuel bonds by U.S. defined contribution plan participants.
Use the dropdown or click a row on the table to see details on how much that retirement plan has invested in fossil fuel bonds and stocks, as well as details on each plan option.
Target date fund series
Many 401(k)s are based around target date fund series as the default investment option. Select a target date series to see how much it has invested in fossil fuel bonds and stocks across the different dates.
2025 FUNDS OF POPULAR TARGET DATE SERIES
This chart compares 10 popular target date series using the 2025 fund. Those towards the top of the chart have more fossil fuel exposure in the 2025 fund, and those towards the bottom have less exposure. The 2025 fund is used for the comparison as it is more bond-heavy, being marketed to people who are nearing retirement.
The steps retirement plan administrators should take to address the risk of fossil fuel corporate bonds in their plans are similar to the steps they should take to address the risk of fossil fuel stocks. It is the responsibility of every company to ensure that the retirement plan offers sustainable investments.
If you have questions about your company's retirement plan, get in touch.
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The results above are based on an analysis of the holdings of mutual funds found in retirement plans of major companies, as well as popular target date funds series used as the default investment option in hundreds of other retirement plans.