How to Divest from Fossil Fuels in Your 401(k) or IRA

You recycle. You shop secondhand. You gave up plastic straws in 2018. But if you haven’t looked into what your 401(k) or IRA is funding, there’s a chance your retirement plan is quietly bankrolling oil companies, coal expansion, and other climate disasters in the making.

Spoiler: Most default retirement plans do include fossil fuel investments.

But don’t panic — you don’t have to pull all your savings and move to a yurt. This guide walks you through how to divest from fossil fuels in your retirement accounts without blowing up your financial future.

What Does “Divesting” Actually Mean?

Divestment simply means removing your money from companies or industries that don’t align with your values. In this case: fossil fuels — oil, gas, coal, pipelines, and the rest of the dirty energy empire.

Instead, you invest in alternatives like:

• Clean energy
• Green infrastructure
• ESG (Environmental, Social, Governance) screened funds
• Fossil-free mutual funds or ETFs

The goal? Keep your money working for your future — not against the planet’s.

Why Most Retirement Accounts Include Fossil Fuels

1. Default Funds Are Built for the Status Quo

Most 401(k)s include index funds or target-date funds packed with major energy companies. Why? Because they’ve historically delivered strong returns — not because they’re sustainable.

2. Advisors May Not Prioritize ESG

Unless you ask for it, your plan manager or financial advisor may never bring up fossil-free options.

3. ESG Options Aren’t Always Offered

Many workplace plans still lag behind, offering only limited or outdated sustainable investment choices — or none at all.

How to Check If Your 401(k) or IRA Funds Fossil Fuels

Step 1: Find Your Plan’s Fund List

Log into your retirement provider’s portal and find a breakdown of where your money is allocated. Look for fund names like:

• Vanguard Total Stock Market Index Fund
• Fidelity 500 Index Fund
• Target Retirement 2050

Click on the fund name to view its holdings.

Step 2: Use These Tools to Screen It

• FossilFreeFunds.org: Enter the fund name and get a climate impact score
• As You Sow: Check for fossil fuel involvement, deforestation, gender equity, and more
• Morningstar Sustainability Rating: See ESG rankings (though note this still includes some “dirty” funds)

If you see ExxonMobil, Chevron, BP, or similar names in the top holdings — it’s not fossil-free.

How to Divest Your 401(k)

1. Ask About Sustainable Fund Options

Your HR or benefits department may already offer ESG or fossil-free funds — they’re just buried in the menu. Ask these questions:

• Do you offer any ESG or fossil-free fund options?
• Can I switch my default target-date fund to a sustainable alternative?
• Will you consider adding more ethical investment options?

2. Self-Direct Your Allocations

If ESG or green funds are available:

• Log into your account
• Choose “Change investments” or “Reallocate funds”
• Move your existing balance and future contributions into the fossil-free options

3. Request Plan Changes

If there are no sustainable options:

• Ask HR to add them. You can cite demand, brand image, and employee values.
• Share tools and sample plans from organizations like:
  • Green America’s Fossil-Free Retirement Toolkit
  • As You Sow’s Retirement Scorecard

Bonus: Rally your coworkers. There’s power in numbers.

How to Divest an IRA

Option 1: Roll Over to a Provider That Supports Fossil-Free Investing

If your IRA is with a big name and lacks green options, you can roll it over to one of these:

• Green Century Funds
• Aspiration
• Betterment (Climate Impact Portfolio)
• Fidelity or Schwab (self-directed with ESG ETFs)

The rollover process is usually painless and doesn’t trigger taxes if done properly.

Option 2: Buy ESG or Fossil-Free ETFs

Already have a self-managed IRA? Perfect. You can buy funds like:

• iShares Clean Energy ETF (ICLN)
• SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)
• Vanguard ESG U.S. Stock ETF (ESGV)

Just log in and reallocate your holdings.

Option 3: Work With an ESG-Focused Advisor

If you’re unsure where to start, find a fiduciary advisor who specializes in values-aligned investing. Make sure they’re not pushing greenwashed products just for commissions.

Examples of Fossil-Free Funds and Alternatives

Here are a few popular options to consider if you’re moving your money:

Note: Always check fund holdings and expense ratios before investing.

Will Divesting Hurt Your Returns?

Not necessarily.

Multiple studies have shown that divesting from fossil fuels doesn’t mean sacrificing performance. In fact, companies with poor ESG scores are often riskier over the long term — think lawsuits, regulation, stranded assets.

Key benefits of fossil-free portfolios:

• Less exposure to volatile oil prices
• Lower climate-related risk
• Competitive returns (and often lower fees)

Common Questions About Fossil-Free Investing

Will I lose money by divesting?
No, not inherently. ESG and fossil-free funds often match or outperform traditional funds.

Can I divest if my employer doesn’t offer ESG funds?
Yes — ask them to add options, or use an IRA rollover for greater control.

Is it hard to divest from fossil fuels?
It takes a little research, but it’s completely doable — and worth it.

What’s the fastest way to make the switch?
Use tools like FossilFreeFunds.org, check your holdings, and move your balance to the cleanest available options.

Final Thoughts: Retire Without Regret

You work hard for your money. The least it can do in return is not destroy the planet while you’re saving for retirement.

Divesting from fossil fuels isn’t about perfection — it’s about taking control of where your money goes. And retirement accounts are one of the biggest levers you’ve got.

So whether you’re 25 or 65, the time to clean up your portfolio is now. Because no one wants to cash out at 70 on a scorched Earth.