How Your Retirement Plan Could Be Helping the Planet

If you have anywhere near my level of financial literacy, and "Retirement Plans for Dummies" is above your reading level, then it's likely that if you do have a 401K or IRA plan, it's investment portfolio is something of a black box.

That should change—if not for the sake of your own financial health, than at least for the sake of the planet's.

Investors hold tangible power when it comes to influencing corporations to adopt eco-friendly policies, sustainable sourcing criteria, and transparent disclosure practices (i.e. how much greenhouse gas emissions do their factories produce, or does a company have lots of factories in vulnerable flood zones, etc., etc.). And that means you may have real power in holding corporations accountable.

According to a recent report from Ceres, a investor advocacy group spearheading a resurgent move to green the corporate world, nearly half of U.S. households own mutual funds (largely through employer-sponsored retirement plans), and U.S. mutual funds comprised about 35 percent of investments of the nation's securities market in 2007.

In a recent post, Mindy Lubber, the head of Ceres, noted that major institutional investors are starting to green their portfolios. The California Public Employees' Retirement System, for example, recently committed  $500 million in investments in top performing environmentally-friendly companies. She also notes more and more evidence that this pays off in returns:

A new RLP Capital analysis (PDF) of the eight largest traditional mutual funds and the eight largest ESG funds showed that the ESG funds had significantly higher returns over the last three years. ESG is also gaining traction among investors; just over $3 trillion is now invested in funds using ESG analysis, a 13 percent jump from 2007.

Unfortunately, Lubber says, California Public Employees' Retirement System $500 million of green-minded investing is only a drop in the bucket compared to the pension fund's $200 billion in assets (0.25 percent to be exact), and this for an fund that is leading the pack.

Ceres, right now, is fighting for 4 investment changes that would help green Wall Street, including national accounting rules and executive compensation payment structures that value minimizing long-term business and investor risks (from climate change, water scarcity, oil spills) as opposed to simply maximizing short-term profits. If BP executives, for example, lived by such a creed, the Gulf might not be where it is today.

Lubber's organization right now is a coalition of more than 130 institutions and socially-responsible organizations and investors, such as the California Public Employees Retirement System, that work to engage with companies. Ceres also runs the Investor Network on Climate Risk, an alliance of 90 investors with collective assets totaling $9 trillion—one reason they have hope of weilding their influence on Wall Street.

Do you have a retirement or pension fund? Look into how your employer is investing, and urge them to join Ceres or invest in funds that are part of Ceres and get involved in greening their investment portfolio. Bottom line: It's a powerful way to influence corporations to do better with their bottom line.

Photo credit: Ephicharmus via Flickr

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