Settlement in climate-related financial disclosure case
The recent settlement in the Australian case: McVeigh v Retail Employees Superannuation Trust (REST) will be highly relevant to all New Zealand fund managers considering the impact of climate change on their investors.
McVeigh v REST is the first case to consider whether a trustee of a superannuation fund had the duty to consider and disclose climate change risks. The claim was initially brought by Mark McVeigh (an ecology student) against REST (McVeigh’s superannuation fund) in the Federal Court of Australia in 2018.
Who needs to read it?
The settlement will be particularly important to all fund managers, as well as their supervisor trustees and their respective directors.
However, all businesses which may be subject, when it comes into force, to the climate-related financial disclosure requirements announced by Minister for Climate Change should be aware of the developments in climate-related financial disclosure, and the growing concern for how climate change risks affect businesses and their stakeholders.
What does it cover?
McVeigh alleged that REST failed to disclose the fund’s exposure to climate change and the fund’s plans to address climate-related risks and had breached the Superannuation Guarantee (Administration) Act 1992 (Aust) and the Corporations Act 2001 (Aust).
Specifically, the claim considered a number of issues, including the allegation that REST had breached its duties to act with care, skill and diligence, act in the best interest of the beneficiaries, and exercise due diligence. It also addressed the physical impacts and transition impacts of climate change.
In its media statement for the settlement, REST acknowledged:
- the position of Task Force on Climate-related Financial Disclosures (TCFD), and that “climate change could lead to catastrophic economic and social consequences and is an important concern of REST’s members”;
- that “climate change is a material, direct and current financial risk to the superannuation fund across many risk categories”; and
- that “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”.
REST committed to taking further steps to manage climate-related risks, including disclosure of those risks, as well as the systems, policies and procedures maintained by the trustee to address those risks, to REST members.
REST’s media statement also set out 9 specific initiatives relating to those objectives. These include (among others):
- measuring, monitoring and reporting outcomes on its climate related progress and actions in line with the recommendations of the TCFD;
- encouraging its investee companies to disclose in line with the TCFD recommendations;
- publicly disclosing the fund’s portfolio holdings;
- enhancing its consideration of climate change risks when setting its investment strategy and asset allocation positions;
- actively considering all climate change related shareholder resolutions of investee companies;
- conducting due diligence and monitoring of investment managers and their approach to climate risk; and
- seeking to require that its investment managers and advisers comply with the above.
As the case resolved in an out of court settlement, it will not set a legal precedent. Nonetheless, the acknowledgement by one of Australia’s largest superannuation funds (by membership) sends a strong message to encourage other financial institutions to take further steps relating to climate-related financial disclosure.
The settlement also has implications for other climate related litigation, and may encourage more legal proceedings relating to climate-related disclosure.
In particular, businesses that would be captured by the proposed climate reporting requirements (announced by the New Zealand Minister for Climate Change (Hon. Mr James Shaw) on 15 September 2020) should monitor these developments closely.
The new climate reporting requirements will apply to:
- All registered banks, credit unions, and building societies with total assets of more than $1 billion;
- All managers of registered investment schemes with greater than $1 billion in total assets under management;
- All licensed insurers with greater than $1 billion in total assets under management or annual premium income greater than $250 million;
- All equity and debt issuers listed on the NZX; and
- Crown financial institutions with greater than $1 billion in total assets under management, such as ACC and the NZ Super Fund.
Organisations incorporated overseas will also be required to disclose in their New Zealand annual reporting.
See our previous note on New Zealand’s proposed climate-related financial disclosure regime.
If you have any questions in relation to the proposed climate-related financial disclosure regime or are considering how these changes will affect your business, please contact one of our experts.