Putting Pension Plans to Work: Retirement Billions Can Be Harnessed to Green the Economy. (Money Matters)

By Clarke, Paul | E Magazine, November-December 2002 | Go to article overview

Putting Pension Plans to Work: Retirement Billions Can Be Harnessed to Green the Economy. (Money Matters)


Clarke, Paul, E Magazine


The headlines are full of corporate scandals involving Enron, WorldCom, Xerox and even Martha Stewart Omnimedia, with the result that big business is under scrutiny as never before. In an effort to improve companies' social and environmental practices while also maximizing long-term revenues, many public and private pension funds are discovering the benefits of investing in a sustainable future.

In the United States alone, the top 1,000 pension plans counted $4.8 trillion in assets in 2001, placing retirement funds third (after commercial banks and mutual funds) in terms of capital available for investment. And since pension plans are composed primarily of small investments from employees and union members, these assets are distributed among a vast number of participants. Taken together, this adds up to a mighty political force.

"A retirement fund is one of the main ways that small savers wind up invested in the stock market," says Michelle Chan-Fishel, coordinator of the Green Investments Project at Friends of the Earth (FOE). Environmental groups such as FOE and the National Wildlife Federation (NWF) long ago recognized that these small-scale investors could significantly influence corporate behavior by targeting their plans' investment choices, without jeopardizing financial performance. This sort of influence was initially detailed by Jeremy Rifkin and Randy Barber in their 1978 book, The North Will Rise Again: Pensions, Politics and Power in the 1980s. In the book, Rifkin and Barber explain how people can wield power as pension investors to deter companies from relocating factories and laying-off employees, or to encourage companies that employ large numbers of union workers.

Using Their Clout

Many plan participants hope to build on the success of socially responsible investments (SKI) in mutual funds, some of which are also available as retirement plan options. These funds, offered by companies such as Domini Social Investments, Pax World Fund and Green Century Funds, incorporate social and environmental screening criteria in choosing their investments. Negative screens weed out industries such as nuclear power or fossil fuels, and positive screens select sustainable technologies such as solar and wind power. These funds are highly competitive: In 1999, 21 percent of the SRI funds analyzed by Morningstar (a firm that evaluates the financial performance of mutual funds) received its highest five-star rating, twice the rate for mutual funds overall. …

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