The Department of Labor (DOL) has issued a final rule that will allow ERISA plan fiduciaries to consider climate change and other environmental, social and governance (ESG) factors in investment decisions and proxy voting. We applaud the DOL’s work and the new rule. Careful consideration of sustainability factors can help spotlight risks and opportunities that a large body of academic and financial research confirms have significant, material impacts on company and portfolio value. This is particularly the case as we transition to a more sustainable global economy, where environmental issues such as climate change and human capital issues, including diversity and inclusion, will have more bearing on how companies and investment portfolios perform. What the rule does:

  1. Establishes ESG factors as material risk-return indicators. Most significantly, the rule firmly establishes that incorporating climate change and other ESG factors is consistent with the “core principle” that the duties of prudence and loyalty require ERISA plan fiduciaries to focus on “relevant return-risk indicators”. 
  2. Includes proxy voting as a core fiduciary duty. The rule also embraces a “second core principle” that the fiduciary duty to manage plan assets “includes the management of shareholder rights related those assets,” making ERISA policy now harmonious with the SEC’s view that proxies are assets of shareholders and should be voted. (The 2020 rule made proxy voting optional, as though it has no value, and imposed heavy requirements on funds that vote proxies against the recommendations of company management.)
  3. Removes Trump era constraints & red tape. The new rule reverses DOL amendments enacted in late 2020 during the final days of the Trump administration that asserted ― despite abundant evidence to the contrary ― that ESG factors were not “pecuniary” and thus not material to financial performance, which inhibited the inclusion of sustainable funds in many retirement plans. It removes barriers and costly paperwork that the earlier rule created for plan sponsors who use sustainable funds in ERISA plans, allowing fiduciaries to consider collateral benefits “so long as the fiduciary does not accept reduced returns or greater risks to secure those benefits.” 
  4. Allows consideration of investor preferences. Importantly, the rule also allows fiduciaries to take participants’ preferences, including non-financial preferences, into account when constructing a menu of investment options, because accommodating such preferences may “lead to greater participation and higher deferral rates” and “could lead to greater retirement security.” 

This is wise, as investors are beginning to express a marked preference for investments that incorporate climate and other ESG concerns. A 2021 Schroders study found 69% of respondents said they would or might increase their contribution amounts if their retirement plans included ESG options1. Yet fewer than 5% of defined contribution plans include at least one sustainable fund, despite this rising demand.

Ironically, just as the new DOL rule correctly underscores the materiality of ESG factors to financial and investment outcomes, aspiring presidential candidates former Vice President Mike Pence and Florida Governor Ron DeSantis, who want to revert to Trump era prohibitions, are leading a rising cry against “woke” capitalism. Indeed, treasurers of some red states have begun forbidding their pension funds from considering ESG factors and in some cases have even banned specific asset managers that do not invest in fossil fuels or firearms — a major departure from past practice and, we’d argue, the proper exercise of fiduciary duty.

This effort to limit or mandate investment choices is clearly politics, pure and simple, and not a market-based approach to managing retirement assets. Fiduciaries are duty-bound to consider all factors that are likely to be material. To ignore such factors — or worse, to substitute the views of politicians and government officials for fiduciaries and financial professionals — in our view will not only lead to sub-par investment outcomes but is a clear breach of fiduciary duty.   

The new DOL rule reflects how far the broader investment community has come in understanding the risks and opportunities accompanying the transition to a more sustainable economy. A 2021 Russell Investments survey of asset managers found that 82% of US-based asset managers now systematically incorporate ESG information into their investment process2. The percentage approaches 100% in the United Kingdom and Europe.

DOL rules on ERISA funds keep changing as administrations change, and the gulf between the investment community and certain Republican politicians will likely widen, fueling an ongoing debate given our divisive political climate. This could continue to have a chilling effect on the inclusion of sustainable funds in retirement plans, particularly in Republican states, and a lasting solution will likely require an act of Congress. In the meantime, by basing its new rule on long-established principles of fiduciary duty — including prudence, loyalty, and financial materiality — the DOL is speaking a language that the marketplace clearly embraces.

We believe the new DOL rule is in the best interests of ERISA plan participants. Retirement plan sponsors will benefit from the additional information they need to evaluate a range of risks and opportunities arising as our global economy transitions to a more sustainable model. This will be critical to building resilient investment portfolios for retirement plan participants in the years ahead. Indeed, their economic security will depend on it.

1 Schroders, “US Retirement Survey,” 2021. Retirement Survey Results – 2021 – Sustainability – Defined Contribution – Schroders

2 Russell Investments, “Seventh Annual ESG Survey,” 2021. 2021 Annual ESG Manager Survey: Climate Risk Red Flag | Russell Investments

Joseph Keefe


Joe is President of Impax Asset Management. Based in the Portsmouth office, he is responsible for distribution of Impax’s full capabilities across North America.

Prior to joining the firm in May 2005, Joe was President of NewCircle Communications, a strategic consulting and communications firm specializing in corporate social responsibility and public policy communications. He served as Senior Advisor for Strategic Social Policy at Calvert Group from 2003-2005 and as Executive Vice President and General Counsel of Citizens Advisers from 1997-2000. He is a former member of the Board of Directors (2000-2006) of US SIF, the trade association representing asset managers and investors engaged in sustainable investing throughout the United States. Before entering the investment management industry, Joe worked in private law practice for 16 years.

Joe holds a Juris Doctor from the University of Virginia School of Law and a Bachelor of Arts in philosophy from the College of the Holy Cross.

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Julie Gorte, Ph.D.

Senior Vice President for Sustainable Investing

Julie is a leading figure in Impax Asset Management’s sustainable investing work, overseeing the firm’s ESG-related research on prospective and current investments, and the financial implications of integrating sustainability into investment decision-making and engagement. She also tracks and develops insights into the impact of public policy on investment. Julie is also a member of our Gender Analytics team.

Prior to joining the firm, Julie headed up the social investment strategy at Calvert. She has held senior roles at the Congressional Office of Technology Assessment, The Wilderness Society, and the Environmental Protection Agency.

Julie serves on the boards of the Endangered Species Coalition, E4theFuture, Clean Production Action, the Forum for Sustainable and Responsible Investment (US SIF) and is the board chair of the Sustainable Investments Institute. She holds a Ph.D. and a Master’s degree in resource economics from Michigan State University and has a Bachelor’s degree in forest management from Northern Arizona University.

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