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Moving billions through 401ks with Sphere, Ep #7

Today’s episode focuses on what’s perhaps the easiest way for you to help move billions of dollars out of fossil fuels.

Date: 06/13/2022
Guest:

Alex Wright-Gladstein

About episode

Today’s episode focuses on what’s perhaps the easiest way for you to help move billions of dollars out of fossil fuels. That’s right, I said “you,” “billions of dollars,” and “easy,” all in the same sentence. The surprising answer to this riddle is your 401k—and a young company called Sphere.

In this episode of Invested in Climate, I have a fascinating conversation with Sphere CEO and Founder Alex Wright-Gladstein, a serial entrepreneur who’s making it easy for everyday people and companies of all sizes to divest their 401ks from fossil fuels. I think you’ll learn a lot from this episode and walk away with a really easy and impactful action to take.

In Today’s Episode, we cover:

  • [2:35] When Alex realized her life’s work was to protect the planet
  • [6:05] Learn more about Sphere and the problem it works to solve
  • [10:30] Is divesting money from fossil fuels having an impact?
  • [15:11] What do you need to do to get started?
  • [16:04] Are climate-friendly 401k options more expensive?
  • [18:41] Details about the Sphere 500 Fossil-Free Index Fund
  • [22:34] Raising awareness for fossil-free investing
  • [25:49] Who is currently working with Sphere?
  • [27:03] How to change investments in a 401k with a past employer
  • [29:32] Other investment strategies you should consider
  • [32:04] Actionable ways Alex is making strides in other areas
  • [34:32] Why you should focus on creating infrastructure change

Bringing climate-friendly investment options to the forefront

Alex notes that she came of age during the Iraq War when everyone said “We need to go to war for the oil.” So she sought to learn more about energy. She took part in a year-long symposium on the topic of oil and water. She wanted to protect the climate and the planet—but didn’t know how to do it as a career.

So she completed internships in a lab with scientists, one in DC with a focus on policy and regulation, and lastly, an internship at a venture capital firm—Lux Capital. Their firm focused on nanotech in its early days. It was there that she realized serial entrepreneurship could become a career. That’s what she wanted to do.

Her goal was to bring to life technologies that could have an impact on the world. The first company she started was Ayar Labs, a climate tech company that made data centers more energy-efficient by using light to move data between chips.

When they were setting up their 401k for employees, Alex asked her providers for climate-friendly investment options. But it turned out that it wasn’t that simple. It took years to get an environmentally friendly investment option for her employee’s 401ks. Why was it so hard?

Climate-friendly ETFs come with an expense

The biggest issue is that climate-friendly mutual funds and ETFs are expensive. They tend to be actively managed, which costs money. Secondly, employers can be sued by their employees for having funds that are too expensive in their 401ks. So employers face a legitimate fear by offering expensive funds. It’s one of the biggest reasons that climate-focused funds aren’t allowed in most 401k lineups. Many 401k platforms don’t even allow ETFs in them—only mutual funds. Why is that problematic? Because most climate-focused funds are ETFs. It eventually led Alex to realize someone needed to fix the problem, so she started Sphere.

Learn more about Sphere and the problem it works to solve

Their goal is to make it easy for employers to offer client-friendly investment options to their employees. The first product Sphere has sponsored is called the “Sphere 500 Fossil-Free Index Fund.” Because it’s an index fund, it’s not actively managed, which can make it more affordable (only a fee of 0.07%, in line with S&P 500 index funds). Other funds can charge fees up to 1.5%.

When you invest in this product, you’re investing in a type of portfolio similar to an S&P 500—with the fossil fuel companies removed from the list. Fossil fuel companies are those that do the extracting, refining, and distribution of fossil fuels. It also excludes utility companies primarily fueled by fossil fuels.

How will removing fossil fuels from your 401k impact your investments? Alex points out that removing fossil fuels from your 401k has kept performance the same or even improved returns. Why? Fossil fuel companies have been underperforming over the past 40 years. Sphere also conducted a 10-year backtest based on the rules of their index fund. What were the results? They found you would have done better if you were invested in Sphere’s fund over the S&P 500.

Learn how you can make a difference

Those worried about climate change spend a lot of time thinking about their impact in every area of their life. You may think about what you’re eating or how much you’re flying—but not about where you put your money. Trillions of dollars are invested in fossil fuel companies by default. By removing dollars from fossil fuels, you state that you disagree with the status quo and that something needs to change.

Sphere’s goal is to send a message to the world that this is a problem. Stop giving your money to companies that are actively lobbying against climate legislation that would keep us safe. How can you make a difference in your company?

Be sure to check out the free resources and tools available on Oursphere.org and listen to this episode of Invested in Climate to learn more!

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