Industry superannuation fund, Rest has agreed to settle litigation brought by its member, Mark McVeigh, creating a climate risk fiduciary precedent.
In 2017, McVeigh filed legal action against the fund for breaching fiduciary duties by failing to adequately handle climate change risk.
Today, Rest issued a statement that said it would take further steps to ensure its investment managers took active steps to consider, measure, and manage financial risks posed by climate change and other relevant environmental, social, and governance (ESG) risks.
It noted that it would use “a variety of mechanisms” to access and, if necessary, take steps to improve the compliance of its investment managers.
Rest said climate change was a “material, direct, and current financial risk” to super funds across risk categories such as investment, market, reputational, strategic, governance, and third-party risks.
Rest said it considered that it was important to actively identify and manage these issues, and continue to develop systems, policies and processes to ensure that the financial risks or climate change were:
- Identified and, to the extent possible, quantified in respect of both individual assets and the fund’s portfolio as a whole;
- Considered in the context of the fund’s investment strategy and asset allocation mix (including in respect of Australian and international shares, cash securities, bonds, alternatives, infrastructure and property); and
- Otherwise appropriately mitigated and managed, having regard to the goals of the Paris Agreement and other international efforts to limit climate change.
“Rest’s policy requires that the management of climate change risks also involves the disclosure to members of those risks, as well as the systems, policies and procedures maintained by the trustee to address those risks,” it said.
“Rest agrees with Mr McVeigh to continue to develop its management processes for dealing with the financial risks of climate change on behalf of its members.”
The statement said that McVeigh acknowledged and supported Rest’s initiatives to:
- Implement a long-term objective to achieve a net zero carbon footprint for the fund by 2050;
- Measure, monitoring and reporting outcomes on its climate related progress and actions in line with the recommendations of the TCFD [Task Force on Climate-related Financial Disclosures];
- Encourage its investee companies to disclose in line with the TCFD recommendations;
- Publicly disclose the fund’s portfolio holdings;
- Enhance its consideration of climate change risks when setting its investment strategy and asset allocation positions, including by undertaking scenario analysis in respect of at least two climate change scenarios (including one scenario consistent with a lower-carbon economy well below 2°C this century);
- Actively consider all climate change related shareholder resolutions of investee companies and otherwise continue to engage with investee companies and industry associations to promote business plans and government policies to be effective and reflect the climate goals of the Paris Agreement;
- Conduct due diligence and monitoring of investment managers and their approach to climate risk;
- Continue to develop its management processes and implementing changes to its climate change policy and internal risk framework, which apply to all of the fund’s investments, to reflect the above; and
- Seek to require that its investment managers and advisers comply with the above.