Aggregation of Climate-Related Risk Exposure in Employer-Sponsored 401(k) Plans

Abstract

This report evaluates the climate-related financial risks embedded within the investment options of a large employer-sponsored 401(k) plan. Using Morningstar/Sustainalytics, Bloomberg, PACTA, Reuters, and fund-level financial data, the analysis identifies significant exposure to high-emitting sectors, limited sustainability alignment, and substantial transparency gaps. While the portfolio is diversified, its concentration in carbon-intensive industries exposes plan participants to elevated transition, regulatory, and stranded-asset risks. Importantly, scenario testing shows that reducing these exposures can be achieved without compromising long-term returns.