The Federal Employee’s Guide to ESG Investing

As interest in sustainable investing grows, many of our Feds have asked how they can align their retirement savings with their personal values. For those who prioritize environmental and ethical concerns, building a green retirement portfolio may be an appealing option. This approach focuses on structuring investments to support sustainability and ethical practices while also aiming to achieve long-term financial goals.

In 2022, the Thrift Savings Plan (TSP) introduced the mutual fund window, giving participants access to thousands of mutual funds, including some that incorporate environmental, social, and governance (ESG) principles. While green Thrift Savings Plan options come with certain limitations and additional fees, they represent a step toward reaching these objectives. Beyond the TSP, there are also broader opportunities to explore ESG-focused investments through other retirement savings strategies. Let’s explore the details further.

Understanding ESG Investing

ESG investing is an approach that evaluates potential investments based on factors beyond traditional financial metrics. Key considerations include:

• Environmental factors: Sustainability efforts such as reducing carbon emissions, using renewable energy, or protecting natural resources.
• Social impact: Commitment to workplace equity, community engagement, or human rights.
• Governance practices: Ethical corporate practices, transparent decision-making, and responsible leadership.

There are several potential benefits to choosing ESG investments. First, they may allow you to align your investments with causes that matter to you. Second, despite potential concerns about the performance of ESG investments compared to traditional investment options, some studies show positive results. Companies with strong ESG practices may deliver competitive returns by managing risks effectively and capitalizing on global sustainability trends. Finally, ESG investing may enable you to support broader environmental and social efforts, such as funding renewable energy projects or promoting ethical business practices, creating a meaningful global impact.

ESG Investing Options for Federal Employees

Within the confines of the Thrift Savings Plan, ESG investing for federal employees is currently quite limited. The core TSP funds (G, F, C, S, and I) do not include any ESG screening or filters. However, the TSP’s mutual fund window provides access to some ESG-focused mutual funds.

That being said, participants are only allowed to invest up to 25% of their total TSP balance in the mutual fund window, with the remaining 75% having to be invested in the TSP’s core funds (G, F, C, S, and I). The mutual fund window also includes a $55 annual administrative fee, a $95 annual maintenance fee, and a cost of $28.75 per trade. These costs and limitations may make the mutual fund window less appealing to many Feds.