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Here's why you should consider a green 401(k) — and how to make the change

With enough voices, companies will listen.

With enough voices, companies will listen.

Photo Credit: iStock

If your retirement account includes investments in companies that contribute to our planet's demise, you may not have a retirement to enjoy. Here's how you can advocate for eco-friendly 401(k) options at your company.

What is a green 401(k)?

A green 401(k) offers investment options like mutual funds and ETFs in companies with a favorable environmental impact, avoiding companies with hefty carbon and nitrous oxide outputs. This aligns your retirement plans with your values.

Over $320 billion flows into oil, gas, and coal companies just through standard 401(k)s, according to Sphere. Shifting this money fights air, land, and sea pollution while boosting returns.

Why go green with your 401(k)?

You likely care about building a healthy future for all. The toxic gases emitted by oil, gas, and coal companies spike global temperatures and trigger significant weather events, harming communities globally. Investing in oil, gas, and coal companies also poses financial risks. 

As countries worldwide transition to clean energy, these assets may plummet in value.

Consider that 2023 saw record-breaking investment in clean energy ($1.75 trillion in total, according to the International Energy Association) alongside the worst year for oil stocks since the COVID-19 pandemic. As innovations like solar, wind, geothermal, and battery storage gain ground, investments in oil and coal companies become riskier. 

Steering your savings away from them makes financial sense.

Going carbon-free also helps forge the sustainable future we want, complete with clean air and minimal pollution. 

"Climate action requires significant financial investments, such as in new energy systems and infrastructure that can withstand climate change impacts," wrote a representative from the United Nations. "But climate inaction is vastly more expensive."

Your 401(k) choices shape corporate behavior, too. Green investments use shareholder votes to encourage pollution cuts and climate action.

How does carbon divestment work?

Divestment means removing investments from certain companies or sectors, like big oil and coal. Studies demonstrate that divesting from these companies has no negative impact on portfolio performance. That's because risks concentrate heavily on oil, gas, and coal, while opportunities spread across the growing green economy.

Carbon-free funds that perform well include the SPDR S&P 500 Fossil Fuel Free ETF (SPYX) and the Green Century Balanced Fund (GCBLX). The key is picking diverse blends that focus on innovations tackling society's most pressing issues. 

Such an investment strategy insulates you from struggling industries while allowing exposure to sectors like batteries, electric vehicles, recycling, and beyond.

How can you add a green option?

First, learn whether your plan already offers fossil fuel-free choices, like SPYX or GCBLX. If not, email decision-makers politely to share your interest. Direct them to helpful sites like FossilFreeFunds.org to explore strong options.

With enough voices, companies listen. Building a future beneficial to all takes participation from every caring person. What sustainable shift will you make next?

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