RiskNovember 4, 2020

Australian Pension Fund Settles Climate Change Lawsuit

Mark McVeigh calls the settlement with Rest pension fund a ‘ground-breaking recognition’ of risks posed by climate change.

Reported by Michael Katz

Australia’s A$56 billion ($39.5 billion) Retail Employees Superannuation Trust has reached a settlement with one of its own members, who sued the fund last year for failing to provide information related to business risks associated with climate change.

Mark McVeigh filed a lawsuit last November against the pension fund, better known as Rest, alleging that it violated the country’s Corporations Act by failing to provide details on its exposure to climate change risk as well as any plans to address those risks.

“Climate change, the physical impacts, and the transition impacts, individually or in any combination, have posed, and will increasingly continue to pose, material or major risks to the financial position of many of Rest’s investments,” according to the lawsuit. “Trustee directors knew, or ought to have known, that Rest’s climate change business risks were likely to have a material or major impact on the financial condition of [the fund].”

The pension fund said in a statement that it “agrees with Mr. McVeigh to continue to develop its management processes for dealing with the financial risks of climate change on behalf of its members.” It also outlined nine initiatives it plans to undertake as part of the settlement and said McVeigh “acknowledges and supports” the initiatives. They are to:

Implement a long-term objective to achieve a net zero carbon footprint for the fund by 2050.
Measure, monitor, and report outcomes on its climate-related progress and actions in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
Encourage its investee companies to disclose in line with the TCFD recommendations.
Publicly disclose the fund’s portfolio holdings.
Enhance its consideration of climate change risks when setting its investment strategy and asset allocation positions, including scenario analysis in respect to at least two climate change scenarios. This includes one scenario consistent with a lower-carbon economy.
Actively consider all climate change-related shareholder resolutions of investee companies and otherwise continue to engage with investee companies and industry associations to promote business plans and government policies to reflect the climate goals of the Paris Agreement.
Conduct due diligence and monitor investment managers and their approach to climate risk.
Continue to develop Rest’s management processes and implement changes to its climate change policy and internal risk framework, which apply to all of the fund’s investments.
Seek to require its investment managers and advisers to comply with the other initiatives.

“Rest acknowledges that climate change could lead to catastrophic economic and social consequences and is an important concern of Rest’s members,” the pension fund said. “Climate change is a material, direct, and current financial risk to the superannuation fund across many risk categories, including investment, market, reputational, strategic, governance, and third-party risks.”

Rest said that as a superannuation trustee, it “considers that it is important to actively identify and manage these issues,” and that climate change would be considered in the context of the fund’s investment strategy and asset allocation mix.

In a statement issued through his lawyers, McVeigh said that the settlement “gives me, and Rest’s almost 2 million members, the reassurance that we need to know that our retirement savings will be invested responsibly in the face of the climate crisis.” He added that “this case is a ground-breaking recognition of the material financial risk that climate change poses to the economy and society, and the role that superfunds have in managing it.”