Super funds ignoring climate change risk legal action

Most (82 per cent) of the country’s largest superannuation funds have provided inadequate or no tangible evidence they have considered climate risk in their investment portfolios, according to Market Forces.

Market Forces analyst, Daniel Gocher, said Australian regulators had made it clear that super funds needed to assess climate risk.

“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,” he said.

“…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 [Australian Prudential Regulation Authority] has singled out as an immediate, material, financial risk.”

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The firm commissioned a memorandum of opinion from Noel Hutley SC and James Mack seeing the breadth of super fund trustees duties and climate risk. The memorandum said the failure by super funds put trustee directors “at risk of breaching their duty to members, and as such, vulnerable to legal action”.

“Billions of dollars of Australian retirement savings are at stake from the physical and transition risks of climate change. The funds that are considering climate risk would be doing right by their members to disclose it,” Gocher said.

“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.”

Market Forces’ latest analysis also found that:

• 60 funds disclosed no tangible evidence they had considered the impact of climate risk on their investment portfolios; these funds were responsible for over $393 billion or 29.2 per cent of all large superannuation fund assets and 8.8 million member accounts;
• 22 funds disclosed inadequate evidence they had considered climate risk ($306 billion or 22.8 per cent of large superannuation fund assets and 5.2 million member accounts);
• 18 funds disclosed adequate evidence that they had considered climate risk ($646 billion or 48 per cent of large superannuation fund assets and 12.4 million member accounts); and
• Just eight funds provided regular updates or research to members on climate risk; even those funds that provided ‘adequate’ disclosure published limited regular updates or company/investment specific information.