New report highlights financial impact of Vanguard index fund investments in high-carbon industries

FOR IMMEDIATE RELEASE

MEDIA CONTACT: Sophia Wilson, swilson@asyousow.org, (341) 600-1832

BERKELEY, CA—MARCH 19, 2024—Today, researchers at the University of Waterloo, in partnership with As You Sow, released a new report finding that Google employees could have earned an estimated $1.15 billion in additional returns, with the financial performance of the company’s retirement plan holdings “estimated to have been higher if they had divested from the Energy Sector ten years ago on an absolute and risk adjusted basis.”

Google's 401(k) employee retirement plan holds more than $2 billion invested in fossil fuels, with over 90% of plan assets held in funds from Vanguard, the top global investor in fossil fuels.

The report analyzed Google’s employee 401(k) plan, estimating cumulative 10-year returns with and without fossil fuel energy sector investments, and found a difference of 9.15%, or 0.879% per year invested in favor of the fossil fuel-free portfolios.

“Google’s retirement plan administrators must account for climate-related financial risk from the plan’s high-carbon energy investments, including declining value,” said Danielle Fugere, president and chief Counsel of As You Sow. “The fossil fuel sector is consistently trailing the S&P 500, even in the face of recent high oil prices. This trend will only be amplified as oil and gas and other fossil fuels are replaced globally by cheaper, cleaner energy sources. Companies must protect their employees’ life savings from these risks.”

The findings follow an earlier analysis from the researchers looking at six major U.S. pension funds, estimating that the funds would have seen a return on their investments that was 13% higher on average over 10 years had they excluded fossil fuels. Other researchers have found similar impacts on passively invested index funds. The overwhelming majority of Google plan assets are in index funds or index-based target date funds.

“We know fossil fuels have underperformed over the last decade, so the results shouldn’t be surprising,” said Andrew Behar, CEO of As You Sow. “Nearly every retirement plan is invested in the extractive economy, which is out of alignment with the values of the people who earn the money. The solution is very simple: Google could easily push Vanguard to offer sustainable target date and index fund options so their employees can avoid these under-performing and risky holdings.”

“Google has the opportunity to signal to Vanguard and the $10 trillion U.S. defined contribution market that plan sponsors are serious about managing long-term climate risk,” added Behar. “Many retirement plans across the U.S. are structured similar to Google’s plan, with significant exposure to high-carbon industries that contribute to climate change and create outsized systemic portfolio risk for plan beneficiaries. Responsible stewardship of Google’s 401(k) means active consideration and management of the plan’s contribution to systemic climate risk over different time horizons, as required by its beneficiaries’ best interests. Failure to account for the plan’s long-term contribution to systemic climate risk in selecting plan investments exacerbates the risks faced by tomorrow’s retirees, as those investments lock in climate change’s growing impacts.”

“Investing in high-carbon fuels that build climate impact into the atmosphere and into the economy is bad news for younger employees whose retirement funds and lives will be subject to that increased risk,” said Fugere.

The report looked at equity funds and target date funds in the Google 401(k) plan, using data from company filings with the U.S. Department of Labor. Most plan investments are in collective trust investment vehicles that do not disclose holdings; mutual funds tracking the same indexes were used as proxies.

As You Sow also has a shareholder proposal with Alphabet, Google’s parent company, asking for a report describing how the company is protecting employees from climate risk embedded in its retirement plan investment options. The proposal explains that investments in high-carbon and deforestation-intensive industries that contribute to climate change and create systemic portfolio risk are poor long-term investments, particularly for younger beneficiaries whose retirement benefits are likely to be harmed due to climate-related financial losses.

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As You Sow is the nation’s leading shareholder representative, with a 30-year track record promoting environmental and social corporate responsibility and advancing values-aligned investing. Its issue areas include climate change, ocean plastics, pesticides, racial justice, workplace diversity, and executive compensation. As You Sow, also publishes monthly report cards rating mutual funds and retirement plans as part of its Invest Your Values initiative. Click here for As You Sow’s shareholder resolution tracker.