The divestment/investment movement calls on institutional, family, and individual investors to hold themselves accountable for the impacts of financial investments. By moving their money, individuals and institutions can revoke the license of fossil-fuel firms to operate, and doing so accelerates the transition of our global economy away from coal, oil, and gas to sun, wind, and water.
While ERISA (a federal law that regulates employee pensions and benefit plans) permits performance evaluation based on historical information, firms can (and sometimes do) choose to enhance traditional performance metrics with more comprehensive information. For example, a firm might choose to consider including funds in its 401(k) plan that meet financial as well as ESG (environmental, social, and governance) targets. ESG dimensions might include carbon intensity, Board diversity, or legal exposure.
According to Darya Allen-Attar of Morgan Stanley’s Institute for Sustainable Investing, myths that impact investing options are limited and returns must be sacrificed should be debunked. Indeed, studies show that impact investments has met and often exceeded the performance of comparable traditional investments. Morgan Stanley reports that sustainable equity mutual funds have demonstrated equal or better median returns and equal or lower volatility than traditional funds more than 50 percent of the time. Morgan Stanley also reports a positive relationship between corporate investment in sustainability, operational performance, and stock price.
That said, Allen-Attar reminded us that manager selection is crucial for sustainable and traditional investments alike. The fact is, including your 401(k) investments can become part of this crucial conversation.