Data and Research November 30, 2022

Institutional Investors Incorporate ESG Factors at Slower Rates

Institutional investors are incorporating environmental, social and governance factors into investment decision-making this year at the lowest rate since 2017, Callan data shows.  

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Fewer institutional investors are incorporating environmental, social and governance factors into investment decision-making in 2022, Callan data shows.

The Callan ESG Survey found 35% of respondents are using ESG factors in investment decision-making in 2022, down from 49% in 2021, the apex of ESG adoption in the survey’s history. The Callan survey found that in 2020, 42% of institutional investors reported incorporating ESG factors.

Callan’s DC index research found ESG adoption remains “relatively low,” the survey document stated: Data showed 86% of plans do not include one ESG fund, compared to 14% of plans that have at least one ESG fund in their lineup. The defined contribution data presented in the Callan ESG survey come from the Callan 2022 DC Trends Survey and the Callan DC index from the second quarter of 2022.

Incorporating ESG-factors for defined contribution plans likely remains low because of regulatory and fiduciary concerns, explained Tom Shingler, senior vice president and ESG practice leader at Callan, in a statement.

“While there are a number of asset owners incorporating ESG at increasingly complex levels, there is federal regulatory uncertainty and differing ESG policies across states and their pension systems—which have led to confusion and inaction in some cases,” the statement said. “Additionally, there is backlash against ESG from some stakeholders who question its contribution to investment outcomes, while other stakeholders demand increasing levels of ESG incorporation.”

ESG use among defined contribution plans is low, as allocations ranged from 0.3% to 8.6% of total plan assets, with an average 2.7% allocation, Callan found.

The Callan ESG survey also showed disparities between corporate versus non-corporate defined contribution plans for adopting ESG options. Among non-corporate DC plans, 25% offer a standalone ESG option, compared to only 4% of corporate plans, Callan data showed.

The decline of ESG adoption for public pension plans, from 63% to 24%, was the “biggest driver of the overall decline in 2022,” according to the survey summary.

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The data shows that among larger institutional investors, ESG incorporation is higher:

  • 45% of institutional investors with $20 billion or more of assets under management incorporate ESG factors into decision-making.
  • 47% of institutional investors with assets between $3 billion and $20 billion.
  • 33% of institutional investors between $500 million and $3 billion.
  • 25% of institutional investors with $500 million or less.


“This may be attributed to larger investors typically having the most resources to dedicate to ESG incorporation and being under high levels of stakeholder scrutiny,” the survey summary stated.

The Callan survey found that the institutional investor sectors with the highest rate of incorporation are nonprofits, with 54%, followed by healthcare organizations at 38%, educational institutions at 35% and those in financial services with 33%.

Those institutional investors not incorporating ESG into investment decision-making offered varied reasons, the survey found.

Callan found 47% of investors say they do not incorporate ESG because the benefits are unclear, 31% say there is not convincing research connecting ESG factors to better performance and 28% will not consider any factors that are not purely financial in investment decision-making.

Furthermore, 25% do not incorporate ESG factors because they are unsure if adoption will result in a breach of fiduciary duty to the fund, 20% are considering ESG but have not made a decision, another 20% have not incorporated them for other reasons and 11% say they are unsure how to implement ESG factors into strategic asset allocation. 

The Callan research also showed ESG incorporation by investor type: 53% for foundations, 47% for endowments, 26% of corporate plans and 24% for public retirement plans. In 2021, the Callan ESG report showed public plans in the top spot at 63%, 57% for foundations, endowments at 50% and corporate retirement plans at 20%. In 2020, figures were 63% of endowments, 57% of foundations 36% of public pension plans and 32% of corporate plans.    

“Endowments and foundations typically have had the highest adoption rates since the survey’s inception in 2013,” the survey document stated. “[W]hile most plan types have had some consistency in adoption rates over the past few years, public plans have varied and had the most significant change from 2021 to 2022.”

Although data showed an overall decline for survey respondents that incorporate ESG factors, the interest and attention remains high, Shingler said in the statement.

“The level of interest and debate about ESG has never been more intense in the U.S.,” Shingler says.

Additional key findings from survey respondents:

  • 50% incorporated ESG to meet their fiduciary responsibility.
  • 20% of respondents not yet incorporating ESG were considering doing so.
  • 75% of those that incorporated ESG considered those factors in every investment/manager selection.


The survey was conducted in May and June by Callan. Data was collected from 109 institutional investors in 11 different sectors.

Compliance November 29, 2022

Attorneys File Similar ERISA Lawsuit Against Freight Transporter

A second national freight transporter within a month is faced with an ERISA breach lawsuit from the same attorneys.  

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A group of attorneys representing retirement plan participants have sued at least two nationwide freight transporters in the last month for alleged fiduciary breaches.  

A new complaint against Old Dominion Freight Line, brought under the Employee Retirement Income Security Act, followed a lawsuit earlier this month against Knight-Swift Transportation that made substantially similar allegations.

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The new complaint, Harvey L. Davis vs. Old Dominion Freight Line, Inc., alleges two counts against Old Dominion plan fiduciaries: one for breach of fiduciary prudence to participants for selecting and retaining share classes and investments that both charged higher fees and one for failing to adequately monitor other plan fiduciaries.

“Defendant’s imprudence caused the plan and its participants to wrongfully lose roughly $3 million in retirement savings over the course of the relevant time period,” the complaint states. “[The plan] remains exposed to harm and continued losses, and those injuries may be redressed by a judgment of this Court in favor of plaintiff.”

Three of the four law firms listed on the complaint—McKay Law of Scottsdale, Arizona (the Knight-Swift complaint was filed in the U.S. District Court for the District of Arizona) and Morgan & Morgan and Wenzel Fenton Cabassa, both of Tampa, Florida—filed the earlier ERISA suit. “The lawsuits have substantial similarities,” explained Andrew Oringer, partner and co-chair of the ERISA and executive compensation group at Dechert LLP, which is involved in neither of the recent cases.

“Some firms may develop expertise or connections within specific industries, even where like compliance issues are not necessarily manifest across companies within that industry,” Oringer said. “In that case, a firm or firms might target companies within the same industry.”

Norris Law, of Wake Forest N.C., was not involved in the earlier lawsuit.  

The ‘Old’ Complaint

Attorneys for the plaintiffs claim Old Dominion plan fiduciaries failed to prudently monitor and select the proper share classes of 11 investments offered in the plan, according to the complaint. Plaintiffs’ attorneys contend that high-fee retail share classes were included in the plan when cheaper share classes meant specially for retirement plans were available.

“Investment companies recognize that trillions of dollars are invested through retirement plans, and they want their investments to be offered by retirement plans, so they offer pricing discounts to retirement plans,” stated the complaint. “The discounts offered by investment companies are often referenced by the corresponding share class label, with specific funds meant for retail or retirement plan investors.”

The complaint added that “the ‘retail’ share class of an investment charges a higher price than a ‘retirement plan’ share class. But in all other material aspects, the underlying investment is the same.”

The plaintiffs allege Old Dominion plan fiduciaries failed to select and retain—although widely available as an option for the plan—the R6 retirement share class of the JP Morgan Smart Retirement-2020 Fund target-date series, but instead included an R5 share class.

The R6 share class costs 40 basis points, 10 bps less than the 2020 R5 fund, according to the complaint. Another fund in the Old Dominion plan, the Russell Investments US Small Cap Equity S share class carries a 96bps expense ratio, more than the 83bps ratio for the Russell US Small Cap Equity R6 share class.

“By causing plan participants to pay more for identical investments, [the] defendant failed in its statutory ERISA duty to prudently defray costs of the plan,” the complaint states.

Old Dominion retirement plan participants had nearly $500 million invested in the “identified imprudent share classes,” according to the complaint, as of December 31, 2021.

Old Dominion fiduciaries are also alleged to have failed to adequately monitor other plan fiduciaries, in violation of ERISA, according to the complaint.

“[The] plan sponsor, had a duty to monitor the [retirement] committee and ensure that the committee was adequately performing its fiduciary obligations, and to take prompt and effective action to protect the plan if the committee was not fulfilling those duties,” the complaint stated.

The Old Dominion plan had more than $2 billion in assets under management and 24,033 total participants with account balances, as of December 31, 2021, the court filing said.

Neither the plan sponsor nor plaintiffs’ attorneys responded to questions on the lawsuit. Attorneys for the plaintiffs brought the lawsuit against Old Dominion before the U.S. District Court for the Middle District of North Carolina.

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