Superannuation companies risk legal action over woeful climate disclosure

Most large Australian superannuation companies have provided no, or inadequate, evidence that they’ve considered climate risk in their investment portfolios, putting trustees at risk of legal action, according to a new legal opinion released today by Noel Hutley SC and James Mack.

The memorandum of opinion, commissioned by Market Forces, found that climate change risk “can and should be considered by trustee directors to the extent that those risks intersect with the financial interests of a beneficiary of a registrable superannuation entity”.

“In our opinion, there is an inherent harmony between the financial effect associated with climate change risks and the cardinal requirement of a trustee to act in the best financial interests of beneficiary,” the opinion states.

It said trustee directors should “source, consider and weigh relevant information relating to climate change risk and record their decision making processes”.

The legal opinion was released by Market Forces alongside a new report – Risky Business – which found that 60 of Australia’s top 100 superannuation companies disclosed no evidence that they’ve considered climate risk in regards to their investments. This accounts for $393 billion, or 29.2 per cent of all large superannuation fund assets, and represents 8.8 million member accounts.

An additional 22 disclosed inadequate evidence of climate risk consideration, accounting for $306 billion (22.8 per cent of large superannuation fund assets), and representing 5.2 million member accounts.

The legal opinion follows similar statements from Bank of England governor Mark Carney and the Australian Prudential Regulation Authority, which in February warned that organisations not taking climate change seriously could undermine the entire financial system, pointing to a similar legal opinion sought by the Centre for Policy Development and the Future Business Council.

“Australian regulators have made it clear that super funds need to assess climate risk,” Market Forces analyst Daniel Gocher said.

“Since this has largely fallen on deaf ears, it’s no surprise that trustees now find themselves open to legal action for a dereliction of basic fiduciary duty.

“It is extraordinary that more than 80 per cent of Australia’s super funds have still failed to disclose how they are managing an issue that APRA has singled out as an immediate, material, financial risk.”

However, 18 funds representing 48 per cent of large superannuation fund assets ($646 billion) were found to have disclosed “adequate” evidence that they have considered climate risk.

These included AMP, AustralianSuper, BTFG, First State Super, UniSuper, Sunsuper, Commonwealth Super Corporation, HESTA, Cbus, Mercer, VicSuper, State Super Retirement Fund, Local Government Super, Catholic Super, Russell Investments Master Trust, Vision Super, Christian Super and Australian Ethical. Only nine of these funds provided members with regular updates or research on climate risk.

Mr Gocher said those who were considering climate risk should disclose that risk to their members.

“As for the funds that are ignoring climate risk – if the warning signs from regulators haven’t jolted trustees into action, perhaps the realisation of legal liability will.”

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