Jones Day

A major superannuation fund has promised to enhance its management of climate change risks, disclose to members how those risks are addressed and align its investment portfolios to net-zero emissions by 2050.

In mid-2018, Mark McVeigh brought a suit in the Federal Court of Australia against Retail Employees Superannuation Pty Limited ("REST").

The 25-year-old fund member and beneficiary argued that REST failed to provide information about how the fund was managing the risks to its investments likely to be impacted by climate change. Mr. McVeigh alleged that REST had committed a breach of fiduciary duty and a breach of duties imposed by statute.

Under section 52 of the Superannuation Industry (Supervision) Act 1993 (Cth) ("SIS Act"), superannuation entities must include certain covenants in their governing rules. These include promises:

  • to exercise the requisite degree of care, skill and diligence on behalf of beneficiaries;
  • to act in the best interests of beneficiaries; and
  • to regularly review investment strategies by having regard to matters including the risk involved in making the investments.

The Corporations Act imposes similar duties of care and skill on trustee directors.

A beneficiary must also be allowed to access 'prescribed' information or documents under section 52 of the SIS Act. This includes information required for the purpose of making an informed judgment about the management and financial condition of a superannuation entity.

The parties reached a last-minute settlement prior to the hearing which was set to commence on November 2. In the settlement, REST agreed to nine initiatives, including to achieve a net-zero carbon footprint for the fund by 2050 and to enhance its consideration of climate change risks when setting its investment strategy and asset allocation positions. REST also noted its intention to have regard for the Paris Agreement and the Task Force on Climate-related Financial Disclosures recommendations.

The settlement does not create a binding legal precedent. Even so, it is significant. This is the first time a suit has been brought against an Australian superannuation fund over its alleged lack of action on climate change. It also is the first time a major Australian superannuation fund has reached a settlement about the significant financial risk presented by climate change and the need to protect member investments. Similar litigation is to be expected in the future.

×