In This Publication:
- Preface ii
- Executive summary 1
- Introduction 3
- The legal landscape 7
-- Climate change risk and opportunity 7
-- Access to Information 15
-- The Governance of Superannuation Funds’ Investment Activities in Australia 18
-- Trustee duties and obligations 18
-- Duty of care, skill and diligence 19
-- Duty to prudently manage investment risks 20
-- Duty to consider the long term prospect of investments 21
-- Duty to diversify across portfolio 22
-- The sole purpose test 25
-- Contravention of Trustees’ duties 26
-- Cultural and structural barriers 26
-- Conclusions 29
- Excerpt from Executive summary:
The future impact of climate change on economies and financial markets has been widely recognised, posing both risks and opportunities to investments. Superannuation funds are particularly vulnerable to climate change risk, due to the long term nature of their investments.
This was first addressed by the UNEP commissioned report A legal framework for the integration of environmental, social and governance issues into institutional investment (Freshfields Report) published in 2005, which concluded that the consideration of climate change risk in investment analysis is “clearly permissible and is arguably required in all jurisdictions”. This was further reinforced by the subsequent UNEP commissioned report Fiduciary Responsibility (Fiduciary II Report) in 2009. This analysis builds on these earlier reports with an emphasis on the Australian context, although its findings have a broad application to superannuation funds in other jurisdictions.
Australia has one of the largest compulsory superannuation sectors in the world, giving the country’s superannuation funds a unique ability to influence the financial market through their investment pool. This position of influence has prompted suggestions of mandatory sustainable reporting and investment for superannuation funds.
In particular, it has also seen increased expectations that investors will disclose the way in which they manage risk and especially environmental, social and governance issues, including climate change risks, that may impact on investments. Through the Carbon Disclosure Project, we have seen significant commitment by companies to disclose their greenhouse gas emissions. Yet despite this there has been a general reluctance by asset managers and fund managers to disclose the climate associated risks of their investment portfolios.
Please see full publication below for more information.