Carbon Collective, a San Francisco-based investment advisory, is launching a 401(k) service to give workers at small companies a way to fund climate solutions via their retirement savings.

Why it matters: The Carbon Collective aims to expand the relatively limited environmental, social and governance (ESG) options available to many employees at small companies of fewer than 300 people.

Driving the news: There has been a growing demand for ESG investment options in 401(k) plans and IRAs, with companies like Vanguard and BlackRock providing numerous low-cost options, including ESG index funds.

• However, questions are being raised about the stocks that make their way into these funds, and whether they align with a fund's purpose.

Zoom in: Carbon Collective aims to avoid the greenwashing of the ESG world in part by publishing an annual climate index detailing companies it views as advancing climate solutions.

• The latest version has 169 companies and takes inspiration from climate solutions listed by the nonprofit Project Drawdown and a comprehensive International Energy Agency report.
• The index's top five companies by market capitalization are Tesla, NextEra Energy, Applied Materials, Zoom Communications and ABB, according to a statement.

Details: The 401(k) product, which companies can choose to have administered by Vested or Ubiquity, adds a second layer of services to what Carbon Collective already provides, on top of individual investment products.

What they're saying: “People want to invest in building a world they actually want to retire into,” said Carbon Collective co-founder Zach Stein.