REST settlement highlights climate risk duties for pension funds

Out-Law News | 03 Nov 2020 | 4:36 pm | 1 min. read

A major pension fund in Australia has committed to achieving an investments portfolio with a 'net zero' carbon footprint by 2050 as part of a settlement agreement reached with one of its members who had raised legal action against it.

The case, brought by 25 year old council worker Mark McVeigh before the Federal Court of Australia, centred on whether Retail Employees Superannuation Trust, a A$57 billion (US$41bn) pension fund, had breached its fiduciary duties by not acting in McVeigh's best interests and exercising care, skill and diligence to protect his retirement savings from the financial risks posed by climate change.

On Monday, REST and McVeigh announced they had reached an out-of-court settlement in their dispute. In a statement, REST admitted that climate change represents a "material, direct and current financial risk" to the fund and committed to a range of actions to address that risk.

Saunders Carolyn

Carolyn Saunders

Partner, Head of Office, London and Head of Pensions & Long-Term Savings

This settlement from the other side of the world will add to the scrutiny of schemes’ responses to climate change and increases reputational risk for those schemes that fail to engage with this issue

Commitments made by REST include the implementation of "a long-term objective to achieve a net zero carbon footprint for the fund by 2050". It has also said it will measure, monitor and report outcomes on its climate related progress and actions, and encourage its investee companies to disclose climate-related risk, in line with recommendations made by the global Task Force on Climate-related Financial Disclosures (TCFD). The TCFD recommendations aim to encourage publicly-listed companies and large asset owners to be more transparent around climate-related risk facing their businesses.

Melbourne-based Ewan Robertson of Pinsent Masons, the law firm behind Out-Law, recently highlighted McVeigh's case as an example of the growing awareness of companies and institutions in Australia of climate change issues and the need to act to address them. London-based pensions expert Carolyn Saunders of Pinsent Masons said that the REST settlement is an indicator of a more widespread push towards acknowledging and addressing climate-related risk in the pensions industry.

Saunders highlighted a recent consultation by the Department for Work and Pensions in the UK on plans to impose climate risk governance and reporting on UK pension schemes, building on the TCFD's existing voluntary disclosures framework. The new requirements are anticipated to be built into the Pension Schemes Bill currently before the UK parliament.

"Trustees in most jurisdictions have similar fiduciary duties and climate change is a global issue, so the commitments made by this Australian super fund are relatable to trustees in the UK," Saunders said. "In fact, many of the commitments made by REST mirror what is proposed in the recent DWP consultation on trustee governance of climate risk and TCFD-style reporting. Although the UK proposals are aimed at registered master trusts and large defined benefit schemes, they are expected to drive best practice across UK pension schemes."

"This settlement from the other side of the world will add to the scrutiny of schemes’ responses to climate change and increases reputational risk for those schemes that fail to engage with this issue," she said.