While REST Super narrowly avoided a judgement by moving to settle the case at the 11th hour and thereby watering down the impact of the case, the outcome is still very important.
In 2018, a 23 year old Brisbane man, Mark McVeigh filed a legal action alleging the trustee of his retirement fund, the Retail Employees Superannuation Trust (REST), had breached the fiduciary duties owed to him by failing to adequately consider climate change risks. McVeigh was not alleging financial loss in the suit, but sought declarations from the court to establish the trustee breached its duty along with injunctions to prevent future misconduct.
In the agreement this week, Rest Super acknowledged that climate change would lead to catastrophic economic and social consequences and that the phenomenon was a “material, direct and current financial risk” to the superannuation fund. Rest Super has agreed to align its portfolio to net zero by 2050 and publically report investment / performance against the global Task Force on Climate-related Financial Disclosures (TCFD).
Rest Super has said it will conduct scenario analysis to inform its investment strategy and strategic asset allocation, disclose its entire portfolio holdings, and advocate investee companies to comply with the goals of the Paris Agreement.
Lawyers for McVeigh are Equity Generation Lawyers and they are also representing Katta O'Donnell (and all young people) in her case against Australian Government Bonds and the Australian Teens who filed for the Vickery coal mine expansion injunction. Principal David Barnden said:
"THIS MARKS THE FIRST TIME A MAJOR AUSTRALIAN SUPERFUND HAS AGREED TO SETTLE LITIGATION ABOUT THE MATERIAL FINANCIAL RISK OF CLIMATE CHANGE AND WHAT NEEDS TO BE DONE TO PROTECT MEMBERS. IT IS CLEAR THAT THE BUCK STOPS WITH BOARD MEMBERS, AND MANAGING CLIMATE RISK CANNOT BE DELEGATED AWAY."
The implications for funds managers, asset owners and governments globally are far reaching, even as the case failed to deliver a judgement. It also has potential implications for company directors involved with super funds or investing on behalf of members.
“IF INVESTORS ARE LEGALLY REQUIRED TO APPLY A CLIMATE RISK LENS TO THEIR PORTFOLIOS, THIS COULD, FOR EXAMPLE, RESULT IN A SIGNIFICANT REDUCTION IN INVESTMENTS IN FOSSIL FUELS, MANY OF WHICH ARE ALREADY BEING VIEWED AS STRANDED ASSETS IN A LOW-CARBON FUTURE."
McVeigh is a pin up example of many citizens because the implications of climate change for someone who cannot access their super for 35 years aren't pretty. This was outlined in a recent interview with Stephen Dunn, Chair of the IGCC.
When McVeigh filed the claim in 2018, he did so after Rest Super failed to provide him with information on how it was managing the risks of climate change. He alleged Rest Super had breached the Superannuation Industry Act and the Corporations Act by failing to manage climate related risks, such as fossil fuel companies plummeting in value or infrastructure being damaged by extreme weather.
Rest Superannuation has $57billion in funds with around 2 million members. Rest Super, with this decision, now moves into line with a number of other super funds in Australia who are already aligned with the 2050 goals and aiming for 2030. According to the IGCC, around $1.2 trillion of Australia's $3 trillion in funds and globally as part of the Investor Agenda, $50 trillion, are already committed to alignment.
McVeigh said the lawsuit provided a ground-breaking recognition of the material and financial risk that climate change poses to the economy and society, and the role that super funds have in managing it.
"I HOPE IT WILL GO SOME WAY TO CATALYSING THE AUSTRALIAN SUPER FUND INDUSTRY, WHICH, WITH ALMOST $3 TRILLION UNDER MANAGEMENT, HAS THE POTENTIAL TO MAKE OR BREAK OUR CLIMATE RESPONSE.”