Sustainability should be the standard
Making the default investment option sustainable is the best way to protect employees from the financial risks of unsustainable investments.
Retirement plan default options carry sustainability risks
If climate and other sustainability risks are embedded in a fund, retirement plan investors aren't just directing trillions of dollars of capital to carbon polluters and weapons makers - they could also be exposed to financial risks from unsustainable investments.
Given the scale of the world’s sustainability challenges, employee investors need to make sustainability the default. Retirement plan default options should, at minimum, exclude fossil fuel companies, deforestation-risk agribusiness, gun manufacturers, and high-risk prison industrial complex companies.
Just because the default option is the easiest plan to choose does not mean that it is a safe choice. The default option generally commands the majority of the plan assets: new plan participants often have their contributions automatically allocated to the default, and many never switch.
Evidence indicates sustainability-related risk can negatively impact a company’s stock price as well as its reputation. Asset managers have a fiduciary duty to mitigate the financial risks of climate change and other sustainability issues that could impact performance of the companies held in the default fund.
Invest Your Values is a project of As You Sow, the nation’s non-profit leader in shareholder advocacy. Founded in 1992, we harness shareholder power to create lasting change that benefits people, planet, and profit.