Making climate-friendly options available on 401(k)s

As CEO of Ayar Labs, it took Sphere founder Alex Wright-Gladstein over 3 years to get a single climate-friendly option on her company's 401(k) plan. It turns out she wasn't alone. Climate-friendly funds just weren't checking the boxes of what 401(k) fiduciaries were looking for. So she started Sphere, which makes climate-friendly funds that are easy to add to existing 401(k) plans and that are designed to check the boxes of what 401(k) fiduciaries need to see. Sphere also helps companies understand the climate impact of their investments with the AtmoSphere platform, which calculates the emissions from 401(k)s and helps sustainability and HR teams understand how to reduce those emissions.

The Problem: We're all forced to invest in fossil fuels

The vast majority of Americans consider climate change a threat, but 99% of Americans with a 401(k) have to invest in fossil fuels. Why? They have no other options. When you have a 401(k), you’re often investing in lots of different companies across different industries. And for over 99% of people, that includes the oil and gas industry. The worst part is, it gives fossil fuel companies $1 trillion dollars. Our 401(k) money accounts for 1/5th of all investments in fossil fuel companies.

The 401(k) system keeps us stuck in the status quo

Alex Wright-Gladstein was running what is now a $1B+ climate tech company called Ayar Labs. But even as CEO, it took her three years of pushing just to get one climate-friendly fund in her company’s 401(k) menu . And it turns out she wasn't alone. Not only were other climate tech founders like herself looking for these solutions, but there were entire social movements at big tech companies, including Google, Apple, and Microsoft, asking for these options. There were two reasons they weren't getting them:

1. Funds need to check a lot of boxes to get on 401(k)s.
2. Climate funds can have trouble checking those boxes.

There are lots of law suits in the 401(k) industry, where employees sue their employers, most often for having funds that are too expensive in their 401(k) menus. Climate-friendly funds tend to be actively managed and expensive. It’s no surprise they’ve had trouble breaking into the 401(k) market.

It turns out fossil fuels have not been a good investment

When ESG (Environment, Social, Governance) funds started to grow in popularity, the fossil fuel industry lobbied to push the belief that climate-friendly investing has bad financial returns. We kept hearing from Fox News to the Senate floor that you had to choose between investing with your progressive values or investing for good returns. But all the noise was created by fossil fuels lobbyists distracting us from this fact:

Source: Performance and volatility data from Sept 2014 to Sept 2023 for the ETFs with the following tickers: IYC, IYW, IYH, IYK, IDU, IYM, IYF, IYJ, and IYE. Inspired by the sector performance and volatility data presented by S&P Global for the decade from 2010 to 2020, here.

Our Solution: A climate-friendly fund that can check the boxes 401(k) fiduciaries need to see

We offer a climate-friendly fund that can finally check the boxes that 401(k) fiduciaries look for: it's diversified, it's reasonably priced, and it can be added to any 401(k) plan without requiring companies to switch 401(k) providers.

Please note: Investing in this community round via WeFunder means investing in Sphere, the company that created this index fund. If you invest in this community round, you will not be investing in the index fund.

The 401(k) market is primed for change

There are $30 trillion dollars in retirement savings in the US alone.

Source: Morningstar

It turns out 77% of Americans who have 401(k)s want to be able to invest for a better climate future.

That means there are $23 trillion dollars of retirement savings that want to be able to invest for a better future.

Outside of 401(k)s, close to one third of all investments are in values-aligned funds. Within 401(k)s, less than 1% of money is in climate funds. There is a huge amount of pent-up demand for climate-conscious investing in 401(k)s.

We meet people where they are

Any employer can add our products to their existing retirement plan, without having to change providers, because we offer funds that can be made available on any 401(k) platform. All it takes is an email to your 401(k) provider to request the fund be added.

Rather than ask HR teams to go through time-intensive and costly switches from one 401(k) provider to another, we let them stay with their current 401(k) provider and just add climate-friendly options to their existing retirement plans.

Our products look and feel like the funds that are typically offered in retirement plans when it comes to risks, returns, and fees - while also being climate-friendly.

The 401(k) industry offers unique scalable growth

Partnerships offer unparalleled access to large customer bases not available outside 401(k)s. One type of partner in particular, the 3(38) fiduciary, offers access to many employer plans once we are approved for a single 3(38) fund menu. We are already on four 3(38) menus.

401(k) advisory groups also offer a scalable path to market - rather than selling our product to an individual investor, or to an individual employer, we can sell to advisors, who can then add our funds to all of their client 401(k) plans. That means one new 401(k) advisor partnership can lead to dozens of new 401(k) plans and tens of thousands of new individual investors as customers.

The 401(k) industry offers a unique opportunity to access large groups of investors, for a few reasons:

1. A single plan can have tens of billions of dollars in it, meaning getting our funds added to one big plan can result in over a billion dollars being invested in our fund.
2. Benefits teams compete with each other to attract and retain talent, so if one big company offers our funds, others will follow.
3. 401(k) assets are sticky - once people start investing, they stay. And they automatically invest more every two weeks with their paychecks.

All of these companies have existing social movements for climate-friendly 401(k)s. We regularly meet with their leaders.

We have become a leader in this movement

Generating mass awareness is the first step in getting employees to demand a climate option. So we brought together a 35+ member coalition, including 30+ A-List celebrities, to create public awareness campaigns together. 

A social movement has existed for years, and we have emerged as leaders. Our last campaign got over 25 million views and we expect our next celebrity-fueled campaign to bring even more exposure to this cause.

Employees at companies like Microsoft and Google started organizing to get climate-friendly options on their retirement plans in 2016. They have sent hundreds of emails and petitions with thousands of signatures to their benefits teams. Employees elsewhere are following their example as the movement is growing.

We help companies measure 401(k) emissions

Corporate sustainability teams are starting to pay attention to the emissions from 401(k)s for the first time - and can become a major driver of demand for climate-friendly options.

The Green House Gas Protocol (GHGP) is the gold standard methodology used by both the SEC and its EU equivalent to describe how companies should measure their emissions. The concept of Scope 1, 2, and 3 emissions comes from the GHGP. They are currently making the first update to the GHGP in 10 years. We jumped on the opportunity and led a mass submission of proposals to add 401(k) emissions to the Scope 3 definition. Once sustainability teams measure emissions from 401(k)s, they'll start working to reduce them.

We're building a platform for measuring, comparing, and improving your company's 401(k) carbon emissions. This will launch as we get closer to the GHGP deadline for requiring companies report their 401(k) emissions.

AtmoSphere Starter is a free tool that's currently available for anyone to look up their company's 401(k) and understand how much money it has invested in fossil fuel companies. AtmoSphere Enterprise is a paid SaaS platform that we will make available to sustainability teams at large companies to understand the emissions from their 401(k)s and how to reduce those emissions.

Why has no one done this before?

They've tried. But big providers keep falling flat when it comes to offering climate-friendly options. They see "Environmental, Social, and Governance (ESG)" funds as cash cows and charge high fees for them - which is a no-go in the price-sensitive 401(k) market, where excessive fee lawsuits abound. And by investing in fossil fuel companies in their ESG funds, they've created a pervasive impression of greenwashing when it comes to big brand names in finance.

Climate-focused asset managers exist, but they use active fund management strategies, having research teams deeply investigate the environmental credentials of every stock, and must charge higher prices as a result. This also boxes them out of many 401(k) plans where low-fee index funds are the norm.

We have been added to over 250 401(k) plans so far, and climate champions everywhere are adding us to more as our social movement grows.

What makes us the right people for the job?

Our team is led by a second-time founder with a highly successful first company. With that first company, she broke into the semiconductor industry, which is similar to the 401(k) industry in that it is well-established and notably hard to break into. She doesn't shy away from big challenges, and that grit may make the difference in breaking into the 401(k) market.

In founding Sphere, she teamed up with a financial manager who has decades of experience in values-aligned investing at the biggest asset management firms in the world. He managed values-aligned investment strategies at Bank of America Merrill Lynch and is a professor of sustainable investing. She also teamed up with a creative director who has won countless awards and made billions of impressions with his creative campaigns.

Together with experienced fund and index managers at US Bank, Ultimus, and BITA, and marketing experts at Buena, this team has decades of financial know-how and movement-building experience - exactly what it will take to make climate-friendly solutions available on every retirement plan.

Sphere's advisory board includes 401(k) industry and climate finance experts who bring decades of experience and social networks to the table.

Why now?

We're running out of time on climate. We have less that five years left to limit warming to 1.5 degrees Celsius. When Alex realized this after hiring her replacement as CEO at Ayar Labs, she started exploring business ideas that could have not only a big impact, but also have that impact quickly.

She had spent most of her life feeling like an outlier, worried about climate change when it felt like most people around her were not. In recent years, with youth-led movements creating the Green New Deal and bringing global warming to the forefront of the national conversation, it felt like that changed. She no longer felt alone. And the data backed that up. Today, over 80% of Americans are worried about climate change. That's an incredible majority. So why haven't we solved the problem?

As a student at MIT, she had learned about system dynamics - and the fact that we all live within systems that make it hard for us to change our impact alone. We live in neighborhoods that don't have public transit. Electric cars are expensive. Food is sold in plastic packaging. We need those systems to change if we want to truly reverse climate change. Individuals can't fix this alone.

How do we change the system?

Money helps.

She decided to start following the money. She had been annoyed when it had taken over three years to get a single climate-friendly option on the Ayar Labs 401(k) plan, but she hadn't realized the scale of the money that was holding status quo fossil fuel systems in place. Once she learned that there are $30 trillion dollars in retirement savings in the US alone, she realized someone had to do something. And since no one else was, she realized she'd have to do it herself.

Before now, no one had created a solution for the 401(k) climate problem that addresses the sticky law-related problems that have boxed out climate options in the past, like the fact that there are so many excessive fee lawsuits against 401(k)s.

No one had created a solution for the 401(k) climate problem that meets people where they are, without requiring HR teams to go through costly and time-consuming transitions to new 401(k) providers.

No one had created a solution for the 401(k) climate problem in a way that raises awareness so more people can join the army of climate people demanding better options.

Over 80% of Americans are worried about climate change. They're ready for solutions.

They are ready for this solution.

Why you?

Alex's first company spun a technology out of MIT that can cut the energy use of AI in half. Despite that company’s success, with customers like NVIDIA, Intel, and AMD and a valuation over half a billion dollars, she has something she wishes she’d done differently. 

If she had a chance to do it over, she would have insisted the opportunity to invest early on were opened up to small investors who were early believers in what they were building, not just professional venture investors who represent a small slice of the population.

That’s why we're doing it differently this time around. That's why we're offering you the opportunity to join us as an investor today. We would love to have you on the journey.