There are significant implications for superannuation fund trustees, their executives and the relationships between superannuation funds and their investment fund managers flowing from the recent settlement reached between Rest and its member and ecologist, Mark McVeigh.
That is the assessment of legal firm, Mills Oakley which argues that because the case was settled it has not succeeded in establishing a legal precedent it has nonetheless established a standard against which other superannuation funds will be measured.
Mills Oakley partner, Mark Bland has written that while the lack of a court determination is an issue, the settlement appears to have ensured the active of management of climate change risks by superannuation funds.
This case promised the first judicial consideration of the disclosure and conduct of obligations of superannuation trustees as they relate to managing climate change risk.
A judgement would have provided certainty for trustees who are operating in a highly uncertain environment.
The requirement for action on climate change risk by the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) is at variance with the views expressed by members of Government. Also, the strongest voices for addressing climate change risk at each of ASIC and APRA will have departed by the end this year.
“While settlement is, in one sense, a lost opportunity for certainty, it has the direct impact of setting the $60 billion in Rest on a course where climate change risks are actively managed. It also sets a standard against which other funds can expect to be measured by their members,” he wrote.
“The claim was also based on conduct prior to July 2018, so any judgement may have been highly fact specific and related to expectations at that time, which have shifted considerably. While the commitments made by Rest do not appear to be directly enforceable, the mechanism of a press release amounts to a representation that, if Rest were to depart from privately, would result in misleading or deceptive conduct.”
Bland wrote that funds that are lagging in the management of environmental, social, and governance (ESG) related risks will be carefully considering what steps they will need to take to avoid being the next target of such an action and to ensure they don’t see members exit the fund in favour of funds that are actively managing climate change risk.
“Funds should be careful, however, in rushing to make commitments in response to member pressure. Not only could the failure to keep to promises cause significant reputational damage, it would also likely amount to misleading or deceptive conduct,” he said.