Social(K) BLOG
October 15, 2022

Benartzi joins Sphere boar to help make informed decisions on ESG

WALNUT, Calif. – Behavioral economics professor Shlomo Benartzi, known for the influence his research has had on retirement savings plans in the US, has joined the board of fintech startup Sphere, a company on a mission to get climate-friendly options in every 401(k).

Image of Shlomo Benartzi
Shlomo Bernartzi

Survey found that 76% of people with 401(k)s do not know what ESG means, but 77% want to invest their money for a better climate future

According to a July survey designed by Sphere with the help of Prof. Benartzi, 76% of retirement plan participants do not know what the term ESG means. 

The top answer when asked what ESG means was “Economic Stock Growth.”

ESG stands for Environmental, Social, and Governance investing, and while it is a commonly-used term in the finance industry, few outside the industry know the term. When asked how they feel about climate change, however, 80% of respondents said they are somewhat, very, or extremely worried. 77% want to be able to invest for a better climate future.

Sphere makes it easy for employers to offer climate-friendly investment options in their retirement plans while maintaining their fiduciary duty, with affordable products that demonstrate strong performance compared to benchmarks. The Sphere 500 Fossil-Free Fund (SPFFX) avoids fossil fuel industry investments and votes the shares of the companies it does invest in taking into account our planet, rather than automatically approving board recommendations.

Benarzi joins the Sphere board to help fiduciaries make informed decisions about ESG and climate investing, during a time of confusion as global dollars allocated to ESG investing reach all-time highs, but recent media and Securities and Exchange Commission (SEC) spotlights on greenwashing in the finance industry bring skepticism to the field. 

“It’s clear that most workers are very confused about ESG investing,” said Prof. Benartzi. “They literally don’t even know what the letters stand for. Is the “E” for economics, the environment or maybe entertainment? As an industry, we need to help participants, advisors and sponsors make informed choices.”

Climate-friendly investing can improve 401(k)s by both protecting the long-term savings of plan participants, as well as by increasing participation when participants feel they can have an impact with their investments.

A study by the NYU Center for Sustainable Business reviewing 59 studies about the performance of climate-focused funds found that 43% showed a positive correlation between climate focus and performance, and only 14% showed a negative correlation.  The Sphere index’s 10-year back test validates the academic findings, showing improved performance compared to an index of the top 500 US companies that includes fossil fuel companies.

Excluding the fossil fuel industry from portfolios also protects investors from stranded asset risk - the risk that public pressure and regulations will require oil, gas, and coal companies to “leave it in the ground,” resulting in a devaluation of the key assets on the companies’ balance sheets and loss of value of the shares in those companies. 

Surveys have shown that offering ESG investment options can increase the contributions that plan participants make to their retirement savings plans. 

“We could not be more honored to have Shlomo joining our board of directors,” said Sphere founder and CEO Alexandra Wright-Gladstein. “His insights and expertise have had an enormous impact on everyday Americans and their ability to retire in comfort, and those insights are now helping us ensure everyone has a healthy planet to enjoy in retirement.”

Benartzi co-developed the Save More Tomorrow (SMarT) program with Nobel Laureate Richard Thaler, which helps employees improve their savings rates over time, and is now implemented by the majority of large retirement plans in the United States, with key elements included in the Pension Protection Act of 2006. He currently serves as Senior Academic Advisor for the Voya Behavioral Finance Institute for Innovation, and has served on advisory boards for Acorns, WisdomTree, Morningstar and Personal Capital.

Article originally appeared here

To learn more about ESG read these articles:

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