Going green: This startup is bringing sustainability to retirement plans

Sustainability is more than just a fad to employees. It’s an opportunity to build a safer, more secure future, one they’re willing to invest in with their hard-earned wages — and the support of their employers.

Despite a growing interest in sustainable investing options in recent years, employers still have few options when it comes to offering their employees retirement plans that align with climate and environmental goals — which is why Carbon Collective, an online investment advisory, recently announced the launch of climate-focused 401(k) plans for employers.

“We know what we have to do to solve climate change — it’s quite straightforward,” says Zach Stein, co-founder of Carbon Collective. “When it comes to investing, the options that Wall Street was providing were not aligned. We have to dramatically reduce our use of fossil fuels and our investment in them while dramatically increasing our investment in climate solutions.”

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Carbon Collective is not the first startup to tackle climate change using employees’ 401(k)s. But while those platforms often serve large companies, the Carbon Collective team focuses on providing plans to small and mid-sized companies with 300 employees or less.

The portfolios Carbon Collective offers are diversified, low-fee and fully integrated across all major cloud-based payroll providers such as TriNet, ADP, Gusto, Intuit and JustWorks. Three options are available, including Carbon Collective’s Core Climate Portfolio, as well as an ESG option with less impact and lower tracking error, and a traditional index portfolio.

“Companies that do not think about the quality of the options they're giving employees are going to experience attrition,” Stein says. “It just doesn't make sense to have fossil fuels in your retirement fund. Employees are mission driven people, and they’ve joined a mission driven company. To put their financial needs and their ethical needs in opposition can be really uncomfortable for them.”

Thirty-seven percent of defined contribution plan participants said they were offered ESG-related investment options by their employer, according to the Schroders 2021 U.S. Retirement Survey. And of those who said their plan did not offer ESG investment options, 69% said they would or might increase their overall contribution rate if ESG options were offered.

Read More: Should your 401(k) plan offer ESG investment options?

“It's not the employer’s job to tell employees how to invest — that's a personal decision,” Stein says. “But it is the employer’s job to give them options.”

Of the employees for whom ESG-focused options were available, nine out of 10 chose to invest in them, the survey found. The reason more employers don’t offer those options, Stein says, is that they often don’t know where to start. Researching and managing funds is a heavy burden for employers, one that they likely can’t shoulder alone.

“Employers do not want to take on that liability internally,” he says. “That's where we found we can add value. We do our homework and try to provide the best guidance we can through our portfolio construction.”

Now more than ever employees are concerned about seeing their ethical framework reflected in the world and at work — and the companies that recognize and act on that will gain loyalty and trust in return.

“When employees retire they want the world that they retire into to not have played into climate change,” Stein says. “To be more sustainable than the one that we have today so they can stop working and relax and enjoy it.”