By Pietro Baffico, Strategy & Environmental Investing

Strategic allocation of corporate investments presents Chief Sustainability Officers (CSOs) with a powerful and often underutilized lever to accelerate sustainability transformations, enabling companies to simultaneously advance their environmental commitments, influence industry practices, and capture market opportunities in the transition to a low-carbon economy.

The Hidden Climate Impact of Retirement Plans

Most employees and executives don't realize that their retirement portfolios may be working against the very sustainability goals their companies are trying to achieve. The carbon footprint across retirement plans can be significantly reduced, which is becoming increasingly important as climate transition risks grow.

These risks include:

Negative financial impacts from policy transitions
Physical climate risks to assets and supply chains
Stranded assets in carbon-intensive industries
Greater exposure in traditional sectors like utilities and energy

Quantifying the Opportunity

Research demonstrates the substantial impact of portfolio reallocation. By shifting investments from high-carbon portfolios to low-carbon alternatives, investors can achieve remarkable reductions in carbon intensity.

For example, moving from a standard Fidelity Target Date portfolio (150 tCO₂ per million USD revenue) to a low-carbon Investature-advised portfolio (37 tCO₂ per million USD revenue) can result in up to a 75% reduction in Weighted Average Carbon Intensity (WACI).

Source: Investature calculations based on Sustainalytics data as of Q1 2025. Please note this serves only as indication, reported values may change over time, and estimates have been used where data is not available.

Understanding WACI

WACI measures the carbon intensity of businesses rather than total carbon emissions. It calculates the tonnes of CO₂ emitted per USD 1 million of company sales, then aggregates them using the percentage weight of each holding within the fund.

This metric enables everyday consumers and investors to compare the carbon efficiency of different funds with their benchmarks or alternative investment choices. Using a top-down approach with Morningstar data on Scope 1 & 2 emissions at the aggregate fund level, this analysis highlights how strategic reallocation can dramatically reduce investment portfolios' carbon intensity.

Performance Without Compromise

One common misconception is that sustainable investing requires sacrificing financial returns. The evidence suggests otherwise. The funds selected in our analysis have 5-year annualized financial returns that are in line with or above their benchmarks for specific asset classes. For example, in US large caps, the returns of the funds considered exceed the S&P 500 index.

Measuring Impact

Utilizing Investature’s first-of-its-kind impact platform, you can model the financed emissions impact of your organization’s investment choices, which can be measured under category 15 of Scope 3. And, we help you easily integrate the impact of your investments into your overall sustainability program.

Investature ensures your compliance with US legislation and Task Force on Climate-related Financial Disclosures (TCFD) recommendations, helping you navigate the regulatory landscape with ease.

Beyond Reduction: Creating Positive Impact

Taking this approach a step further, redirecting investments into climate-oriented funds helps support more sustainable solutions, opening up attractive opportunities for growth and innovation. These might focus on:

Specific sectors such as renewables or technological solutions
Companies already well-positioned for the climate transition
Companies that are transitioning from brown to green businesses, with proven sustainability goals and implementation plans

Strategic Implications for Corporate Leaders

For CSOs and corporate leadership, retirement plan realignment represents a significant opportunity to:

Align internal practices with external commitments - Ensure that employee investments reflect the company's stated climate goals
Reduce indirect Scope 3 emissions - Address investment-related emissions that often go uncounted
Engage employees in sustainability - Create tangible ways for employees to participate in climate action
Mitigate long-term financial risks - Protect employee retirement assets from climate-related market disruptions

Getting Started: Practical Steps

Companies interested in leveraging retirement assets as a climate action tool can:

Conduct a carbon audit of current retirement offerings
Engage investment advisors and retirement plan administrators about alternatives on low-carbon, climate risks, and climate opportunities
Educate employees about the climate impact of their investment choices
Include retirement plan metrics in sustainability reporting

Conclusion

As companies search for effective ways to address climate change, retirement plan realignment offers a powerful and often overlooked opportunity. By addressing this "sleeper lever," organizations can make meaningful progress toward climate goals while safeguarding long-term financial interests. The evidence is clear: we can build retirement security and a sustainable future simultaneously, without compromise.

Retirement Assets: The Sleeper Lever in Hitting Climate Goals