The ESG Update Episode 21: Making the Golden Years Green
It’s time to clear up some confusion about ESG & 401k plans. After all, wouldn’t It be nice to make our golden years a bit more green? Join us this week as we welcome Timothy Yee, Chief Retirement Specialist and Co-Founder of Green Retirement to discuss the role ESG, SRI, and sustainability can play in retirement plans.
Transcript
This transcript has been edited for clarity.
Dan Carreno, Change Finance:
Welcome to The ESG update presented by change finance I'm Dan Carreno
Brittany Damico, Change Finance:
And I'm Brittany Damico.
Dan Carreno, Change Finance:
And we manage the business development efforts at Change Finance. We are an ETF provider dedicated to environmental, social and governance investing. Our mission is to help investors align their portfolios with their values without sacrificing returns, Brittany, how's it going this week?
Brittany Damico, Change Finance:
It's going good. Feeling strong. We had a little bit of that summer come back and now it's rainy and cold again today.
Dan Carreno, Change Finance:
Springtime, it's going to happen. Well, I want to welcome our guest this week, who is Timothy Yee, Chief Retirement Specialist and Co-Founder of Green Retirement. That's a firm that specializes in servicing retirement plans while maintaining a deep commitment to environmental stewardship, social responsibility, and the health of communities. Timothy. Welcome. How are you doing?
Timothy Yee, Green Retirement:
I'm doing well. Good to be here. Thanks for having me, Dan.
Brittany Damico, Change Finance:
Of course. Thank you again for joining us today. I have an article here that I'd love to get your opinion on. Back in December of last year, an article titled, “Climate funds hold less than 1% of 401k money. Here's why.” was published on CNBC and it delves into some shocking statistics. First is that there's over $9 trillion in 401k assets out there, but only 1% of 401k assets are actually invested in ESG funds. And this is probably because only 3% of 401k plans have an ESG fund available. If we look outside the 401k arena, we see that approximately one third of all professionally managed money in the U S has an ESG, SRI or sustainability mandate. So why is there such a fierce disparity when it comes to retirement plans?
Timothy Yee, Green Retirement:
You know, through reasons come to mind. The first and I hate to point at our industry, but I'd say poor marketing. I think about how many ads I saw for investments that talked about invest in our product and you'll save a polar bear. Well relevance. How many people have actually seen a polar bear? I mean, outside of the zoo, I can definitively say I have not. So I think the message needs to be tailored to what we're actually solving with an ESG investment. I think we need to find something closer that our audience relates to. I think there's an issue also, Brittany, that we're stuck in the 1970s. I can't tell you how many times people have said, I believe in ESG investments, but I feel that I'm going to have to give up something performance. For example, in order to have this kind of investment, maybe that was true in the 1970s, but numerous studies have shown that not to be the case. So I think the industry may have done perhaps a poor job of explaining that they do quite competitively. And then of course my favorite is the chicken and the egg in order to get your investment on a 401k platform. You need to have a certain amount of trade at a certain volume, a certain amount of assets under management, but in order to get all that, you need to be on the platform. So it becomes a case of the chicken and the egg, which came first. So I guess the question then what should the industry do? And I think we need to do a better job at storytelling at showing through compliance, approved numbers, how we've done over time and really put a groundswell of employees behind a demanding that the providers, whoever they may be, offer these investment options. So three problems, one solution, Brittany, thank you.
Brittany Damico, Change Finance:
I love the simple solution.
Dan Carreno, Change Finance:
Excellent. I know we've known each other for a little while now, and I know you're one of the few folks in the country that is really dedicated to sustainable investing and the retirement plan space and you've been doing it for a while. So can you just talk a little bit about what your experience has been like over the last number of years doing this work within the 401k world?
Timothy Yee, Green Retirement:
Yeah, glad to. Green retirement started in 2006 and we focus very much on 401k plans, but our expertise, our deep dive is into the green side and frequently I'm asked about how can plan sponsors offer green investments or green choices while doing their fiduciary duty. I actually feel, Dan, that question is flip-flopped. Always start with your fiduciary duty. Remember what the DOL says, have a defendable repeatable process, follow the prudent rule, and always have a duty of loyalty to your employees. So when I suggest that people look at green options or ESG options or SRI options, whatever they're being called, I suggest they be done through the same defendable, repeatable process. As you would evaluate any investment with a defendable repeatable process, make sure you are doing what a prudent person would do. Exhibit a duty of loyalty to your employees and make sure that the options you're giving are diversified like everything else. Following those four steps. I see absolutely no reasons that plan sponsors cannot offer those options. They can. And I think it's the pecuniary thing to do so.
Dan Carreno, Change Finance:
Pecuniary worked its way into the podcast. I knew it was going to happen at some point.
Timothy Yee, Green Retirement:
We’ve got to have pecuniary in there. I mean the DOL harped on it, Dan, and I actually had to look it up when they came out on October 30th with 148 pages. That was a Friday afternoon, the next day, Halloween, October 31st Saturday, I sat down with a pot of coffee and 148 pages. I had to look up the word pecuniary – that basically just means relevant financial risk factor. Why would they even say that? I don't know, but if you look at what are relevant financial risk factors, you'll find that ESG fits in there quite nicely. We just had a little wildfire scare out here in Northern Cal where I'm based, trust me, climate change and wildfires, there was a financial risk.
Dan Carreno, Change Finance:
I'm glad you've mentioned that. And it's funny that we have this debate around fiduciary duty and the ESG, because it does seem like this question has been answered numerous times. I want to just to quote briefly a report from the United Nations Environment Program, this was a report called “A legal framework for the integration of environmental, social and governance issues into institutional investment” and quote, “the links between ESG factors and financial performance are increasingly being recognized on that basis. Integrating ESG considerations into an investment analysis so as to more reliably predict financial performance, isn't clearly permissible and it was arguably required in all jurisdictions.” So this report came out a long time ago. Why are we still arguing about this?
Timothy Yee, Green Retirement:
I think, Dan, not to be political, but if you look at the last administration, there was a clear focus on climate change denial. For whatever reason, I'm not going to get into that in a 15 minute podcast, we would be talking for hours, but if your business interests align in a certain way that choosing one course over another makes sense, then it's amazing what you can achieve with blinders on. But I do use a very simple example again, in 2018, we had the car fire in Northern California. I believe 1200 homes were destroyed. Eight lives were lost. Imagine being the insurance company that it was covering those losses. I think an insurance company CEO would be very easily able to prove to you, Dan, the link between climate change and financial risk.
Brittany Damico, Change Finance:
I think we're getting further and further away from having to explain that in the future. I think the correlation is a bit more obvious than it has been in the past. So Timothy, what kinds of organizations do you find are most interested in having ESG options in their plan?
Timothy Yee, Green Retirement:
So this takes me back a good 10 years. I was on a 401k opportunity and it came down to two finalists, an established mainstream firm and little young scrappy us. So I like to say before Hamilton, young scrappy and hungry, my business partner told us not to get our hopes up. The CEO was a white right leaning and here I am talking about 401k expertise in ESG, but we won it, we got the plan. And part of the reason is we are ESG experts, which is what the employees were demanding. So we definitely won the day there. I also recall a company out of Denver no longer in business, but they had 14 different definitions of ESG. For example, you could look at your portfolio through a strictly Catholic lens, a Shariah lens, Islamic faith you could include or exclude STEM cells. Oh gosh, there were so many different ways to split slice and dice. I got the distinct impression that ESG appeals to both sides of the political aisle. And matter of fact, I would dare say Brittany ESG appeals to everyone
Dan Carreno, Change Finance:
Sounds very consistent with a study that was conducted by the Texas, where they found that 62% of all employees and 72% of millennials said that they would be more likely to contribute to their company's retirement plan, if they knew that the investment options were creating a positive impact. So the fact that you're saying, ‘Oh, you know, it's really by demand, right?’ It has been coming from the participants in the plan. So I speak with a lot of different financial advisors on a regular basis, Timothy, and many of them are asking questions these days about sustainable investments and the 401k world. So just curious for those types of advisors out there that are getting more involved into the space. I know that you partner with some of them and you work with some of them. How does that come about? Can you talk a little bit more about your partnership opportunity?
Timothy Yee, Green Retirement:
So sort of two-fold one, I'm always happy to chat with financial advisors, bring them up to speed on what I'm doing, show them the secret sauce and then wish them well. So they can go do it on their own. This isn't a zero sum game or a limited pie. This is the more people who are out there talking ESG the better it is for the world. So I'm happy to chat with advisors for those who do not want to specialize in retirement plans. In terms of acting as a fiduciary, there are two kinds in the 401k world, 321 and 338 – 321 means I will manage the retirement plan. And I will do that in conjunction with the plan sponsor. I will look at the investment options and discuss with the plan sponsor and I will be taking on some of that investment responsibility and risk. The 338 fiduciary simply means I manage the investments by myself without input from the plan sponsor. I'll tell them what it is I'm doing, of course, but I don't need their approval. I go ahead and do that. That is becoming more popular because plan sponsors don't have the time to learn something new. They have a full plate on their own responsibility. It's the same for the financial advisors. Many of these advisors are private wealth managers. They do very well in private wealth. I don't do private wealth, Dan. So what I say to those advisors is let me handle the 401k and let me turn all the individual opportunities over to you. So I know my lane and I stick to it.
Brittany Damico, Change Finance:
Well, I agree with Dan that a larger portion of advisors that I've been speaking to as well are quite curious about integrating ESG into retirement plans and have questions and would like more information. So if any advisors are looking for more information and would like to get in touch with you, how can they contact you to learn more?
Timothy Yee, Green Retirement:
Good question, Brittany. And thank you for the opportunity. They can reach me at www.greenretirement.com and my phone number (510) 638-6331 that's (510) 638-6331. Always happy to chat.
Dan Carreno, Change Finance:
Excellent. Well, Brittany Timothy, thank you very much. Before we start closing it out, why don't we take a minute just to sit around the campfire? Well it’s getting a little bit warmer. I think people are really starting to get out there more with all the vaccines being administered. So hopefully we will actually be camping again with friends and family soon. Brittany, when that happens, what are you going to be chatting about?
Brittany Damico, Change Finance:
Well, I don't think this is going to come as a huge shocker, but I will most likely be chatting about World Ocean’s Day! I am very excited about it. The day is meant to highlight the impacts we're having on the ocean and to promote more sustainable practices around marine resources. It is coming up on June 8th and I've been thinking about various ways I can get involved and share knowledge, maybe collaborate with others that are interested in really doing some promotion. So I'm just spreading the word. That'll be me around the campfire.
Dan Carreno, Change Finance:
Nice. I like it. Timothy. How about you, Timothy?
Timothy Yee, Green Retirement:
I hope to be sitting around a campfire at burning man. Even though the event itself has been canceled for the second year running, there's quite a bit of interest in going out there during the week. So I hope to be sitting around a campfire with some of the burners and perhaps talking about the impact of the last year and a half and what I can do to help them.
Dan Carreno, Change Finance:
Then for me, finally, I just wanted to mention quickly that here in my state of Colorado, the utility has launched a really exciting pilot program where they are going to be crowdsourcing peak demand energy from home batteries of residents in Denver and in greater Colorado. So instead of when a peak demand for electricity comes in, usually in the evening hours, when everybody comes home and turns on the TV, they usually have had to turn on a peaker plant, right? Which is usually a natural gas plant. That's relatively inefficient and is pretty polluting. So instead of doing that, they're just going to be draining home batteries from thousands of different homes all over the front range and using that as a way to meet that peak energy demand. So I think it's just a great new pilot program and a more indication of us moving on past some of the fossil fuel burning infrastructure that we've had in place for so long.
Brittany Damico, Change Finance:
I love that. I think that is so cool. And I would love to see something like that happen out here as well.
Dan Carreno, Change Finance:
Okay. Well, we'll wrap it up there, Timothy again, thank you for coming on sharing some of your knowledge and insights relative to the retirement plan space. Again, we're getting a lot of questions about that these days, and I just want to remind anyone who's listening that if they want to find the articles or resources that we discussed during the podcast, you can go to www.change-finance.com under the podcast library, which is under the insights tab. A links will be provided within the podcast transcript. Of course, if you have any questions or feedback for us, you can always get in touch with us through the website. So thank you very much for listening and we will be back soon with another episode of the ESG update!
Disclosures
Registered principal, offering securities and advisory services through independent financial group, LLC, a registered broker dealer and investment advisor member FINRA SIPC Brene retirement, Inc and IFG are unaffiliated entities, change finance and an independent investment advisor registered under the investment advisors act of 1940 as amended. The opinions expressed here are those have changed finance and are subject to change without notice investing involves risk and past performance is not indicative of future risks. This material is not financial advice or an offer to purchase or sell any product change. Finance reserves, the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.