Mar 14, 2022 - Energy & Environment

Carbon Collective aims to solve climate change using your 401(k)

Illustration of a golden coin with an emboss of the Earth on it. 

Illustration: Aïda Amer/Axios

Carbon Collective, a San Francisco-based investment advisor, is launching a 401(k) service to give workers at small companies a way to fund climate solutions via their retirement savings.

Why it matters: The Carbon Collective aims to expand the relatively limited environmental, social and governance (ESG) options available to many employees at small companies of fewer than 300 people.

Driving the news: There has been a dramatic increase in the demand for ESG investment options in 401K plans and IRAs, with companies like Vanguard and BlackRock providing numerous low-cost options, including ESG index funds.

  • However, questions are being raised about the stocks that make their way into ESG funds, and how they align with a fund's purpose.
  • A recent Bloomberg investigation, for example, found systemic deficiencies in MSCI's methods. This called into question a top ESG ratings company that ESG fund managers rely on.

Zoom in: Carbon Collective aims to provide some clarity and avoid the greenwashing of the ESG world in part by publishing an annual climate index detailing companies it views as moving climate solutions forward.

  • The 2022 version of this list came out in December, and has 169 companies.
  • The index of publicly traded companies takes inspiration from climate solutions listed by the nonprofit Project Drawdown, along with those contained in a comprehensive International Energy Agency report.
  • The index's top five companies by market capitalization are Tesla, NextEra Energy, Applied Materials, Zoom Communications and ABB, according to a statement.

Details: The 401(k) product, which companies can choose to have administered by Vested or Ubiquity, adds a second layer of services to what Carbon Collective already provides, on top of individual investment products.

What they're saying: “People want to invest in building a world they actually want to retire into. Our bet was that they’re looking for a company to trust to help them do it,” said Carbon Collective co-founder Zach Stein, in a statement to Axios.

  • "What we need people to think about is whether their financial decisions are helping the world to transition off of fossil fuels or hindering that transition," said Ravi Mikkelsen co-founder of Atmos Financial, PBC, a climate solutions fintech startup that is not affiliated with Carbon Collective.
  • Mikkelsen said Carbon Collective's index is more solidly pro-climate compared to what gets included in the ESG portfolios of major investment companies, while noting he was not commenting on investment performance.
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