Ceres applauds the U.S. Department of Labor Secretary Marty Walsh and the agency on its adoption of a new rule—Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights—that would allow climate-aligned funds in 401(k) plans.
“This rule is an important step towards safeguarding American workers’ retirement savings from the financial risks of climate change,“ said Steven M. Rothstein, Managing Director of the Ceres Accelerator for Sustainable Capital Markets at Ceres. “This rule removes restrictions imposed during the previous administration that made it difficult for 401(k) and other retirement plan sponsors to include climate-aligned and other ESG funds in the list of options available to participants. Given the long-term nature of both retirement investing and the climate crisis, and the increasing frequency and financial costs of climate-related disasters, fiduciaries have an obligation to provide investment options that take the physical and transition risks of climate change into account.”
401(k) plans hold nearly $7 trillion in assets—in about 600,000 plans—on behalf of about 60 million active participants and millions of former employees and retirees, making them the most widely held form of stock market participation for Americans. However, fewer than ten percent of 401(k) plans include climate-friendly options, in stark contrast to the explosive growth in demand for environmental, social, and governance (ESG) investment options in the broader market. Many of the largest and most sophisticated investors around the world have already integrated climate risk into their investment processes because it impacts financial performance. For example, 291 institutional investors that collectively manage $66 trillion of assets have made net zero plans through the Net Zero Asset Managers Initiative. A study of 11,000 mutual funds over 14 years shows that ESG funds have had equivalent returns with lower risk relative to the broad market.
“This rule is good news for over 60 million Americans, most of whose retirement savings are today unprotected from the financial impacts of climate change. It ensures that fiduciaries can incorporate climate risk into their investment decisions when in the best interest of the plan’s beneficiaries,” added Rothstein. “Regulation is catching up to market realities.”