Sustainable Index Fund Debuts for 401(k) plans

Defined contribution plan investors have a new option for sustainable 401(k) investments from a climate-focused index fund provider.

Sphere has brought the Sphere 500 Fossil-Free Fund to Ascensus recordkeeping accounts, the company has announced.

“Adding SPFFX to Ascensus makes climate-friendly investing available to millions more investors across the country,” said Alex Wright-Gladstein, founder and CEO of Sphere, in a release. “We could not be more pleased to be working with these world-class investment platforms to make climate-friendly investing available and affordable for all.”

The fund carries an expense ratio of 0.07%, or 7 basis points.

“This pricing is intended to make it appropriate for 401(k) plans, where excessive fee lawsuits are common,” says the Sphere release.

The fund invests in the top 500 U.S. companies excluding fossil fuel companies, and votes its shares in the companies it owns to promote climate action, according to Sphere. The fund separates top 500 companies in which to invest by market capitalization, the release adds.

Although 80% of U.S. workers see climate change as a threat, sustainable funds constitute 1% of participants’ 401(k) assets, according to data cited by Sphere from the Plan Sponsor Council of America, a nonprofit trade group of employers that offer employment-based retirement plans.

“Sphere launched SPFFX to make it easy for every employer to offer climate-friendly investment options via their 401(k)s,” the release states.

Sphere’s sustainable investing approach purports to support plan sponsors’ fiduciary duties to retirement plan participants by ensuring that in-plan investment options do not sacrifice performance when aligned with climate change criteria and employees’ sustainable investment goals.

The index provider’s approach is to lean on environmental, social and governance investing research  “showing that excluding fossil fuel companies has improved returns across one-, three- and five year periods,” the release says.

“Over a [40-year] period, the investment performance of portfolios that exclude fossil fuel production companies does not significantly differ in terms of risk and return from those that include them,” the release continues. “This simple approach makes it possible for plan sponsors to add SPFFX to a plan with confidence that there is documented reasoning for doing so from a fiduciary perspective.”