By Will Bugler
Australia’s largest super fund, Rest, has agreed to test its investment strategies against various climate change scenarios and commit to net-zero emissions for its investments by 2050, after a legal case brought by a 25-year-old man from Brisbane. Mark McVeigh sued Rest in 2018 for failing to provide details on how it will minimise the risk of climate change. The landmark case represents the first time a superannuation fund has been sued for failing to consider climate change.
Mr McVeigh alleged Rest had breached Australia’s Superannuation Industry Act and the Corporations Act, after it failed to provide him with information on how it was managing the risks of climate change. These risks include physical climate risks that threaten Rest’s investments, and also transition risks which arise from the decarbonisation of the global economy.
Climate change is a ‘material, direct and current financial risk’
Australian law requires trustees of super funds to act with “care, sill and diligence to act in the best interest of members – including managing material risks to its investment portfolio”. In its settlement Rest agreed that its trustees have a duty to manage the financial risks of climate change.
In Rest’s statement about the settlement it said: “The superannuation industry is a cornerstone of the Australian economy — an economy that is exposed to the financial, physical and transition impacts associated with climate change.” and went on to emphasise that “climate change is a material, direct and current financial risk to the superannuation fund”.
Rest also agreed to take immediate action by testing its investment strategies against various climate change scenarios, publicly disclose all its holdings, and advocate for companies it invests in to comply with the goals of the Paris Agreement.
Mr McVeigh’s lawyer, David Barnden, head of Equity Generation Lawyers, said the case still sets an important precedent globally. “This outcome should represent a significant shift in the market’s willingness to tackle climate risk—a shift which should set a clear precedent for the industry in Australia, and also pension funds around the world,” he said. Mr Barnden is also representing 23-year-old Katta O’Donnell, who is suing the Australian Government for failing to disclose the risks that climate change could have on government bonds.
Growing momentum behind regulation
The latest cases in Australia are part of a global movement towards stricter regulation governing the financial risks posed by climate change (see Acclimatise’s timeline charting the rise of climate law). In 2015, for example, France introduced laws mandating climate disclosure for institutional investors and asset managers and in 2017 the Financial Stability Board’s Taskforce on Climate-related Financial Disclosure published recommendations for corporate climate disclosures. In 2019, National Instrument 51-102 Continuous Disclosure Obligations set out new requirements for firms reporting in Canada to disclose material risks in their Annual Information Form.
The implication of landmark cases such as the Rest settlement, is that super funds, pension funds, banks and other investors will increasingly require companies to understand and manage their climate risks. Earlier this year, Acclimatise worked Working with Asia-Pacific’s largest law firm, MinterEllison to produce a primer on physical climate risk aimed at Non-Executive Directors. The primer was published by Chapter Zero a global voluntary programme that connects and supports Non-Executive Directors to improve oversight and action on the issue of climate change.
Download the primer here.