The recent settlement of the Australian case: McVeigh v Retail Employee Retirement Trust (REST) will be very relevant for all New Zealand fund managers given the impact of climate change on their investors.
McVeigh v REST is the first case to consider whether a pension fund trustee had a duty to review and disclose climate change risks. The lawsuit was originally filed by Mark McVeigh (an ecology student) against REST (McVeigh’s pension fund) in the Federal Court of Australia in 2018.
Press releases dated November 2, 2020 for REST settlement and McVeigh’s legal representatives are available online.
Who needs to read it?
The regulation will be particularly important for all fund managers, as well as their respective trustees and directors.
However, all companies that may be subject, upon its entry into force, to the climate-related financial disclosure obligations announced by the Minister responsible for climate change should be aware of the evolution of climate-related financial disclosure and the Growing concern about how climate change risks affect businesses and their stakeholders.
What does it cover?
McVeigh alleged that REST failed to disclose the fund’s climate change exposure and the fund’s plans to address climate-related risks and violated the Superannuation Guarantee (Administration) Act 1992 (Aust) and the Corporations Act 2001. (Aust).
Specifically, the complaint related to a number of issues, including the allegation that REST failed in its obligations to act with care, skill and diligence, to act in the best interests of beneficiaries and to exercise due diligence. reasonable. He also discussed the physical impacts and the impacts of climate change on the transition.
In its media statement for the settlement, REST acknowledged:
- the position of the Task Force on Climate-related Financial Disclosures (TCFD), and that “climate change could lead to catastrophic economic and social consequences and is a major concern of REST members”;
- that “climate change is a significant, direct and current financial risk for the pension fund in many risk categories”; and
- that “Rest’s policy requires that the management of risks related to climate change also involves the disclosure to members of these risks, as well as the systems, policies and procedures maintained by the administrator to deal with these risks”.
REST is committed to taking additional steps to manage climate-related risks, including the disclosure of those risks, as well as the systems, policies and procedures maintained by the administrator to address those risks, to REST members. .
REST’s press release also presented 9 specific initiatives related to these goals. These include (among others):
- measure, monitor and report on the results of its climate-related progress and actions in accordance with TCFD recommendations;
- encourage the companies in which it invests to publish information in accordance with the recommendations of the TCFD;
- public disclosure of the fund’s portfolio holdings;
- strengthen its consideration of the risks associated with climate change when defining its investment strategy and its asset allocation positions;
- actively review all shareholder resolutions related to climate change from issuing companies;
- perform due diligence and monitoring of investment managers and their approach to climate risk; and
- seeking to require its managers and investment advisers to comply with the above.
Our point of view
As the case is resolved amicably, it will not create a legal precedent. Nonetheless, recognition by one of Australia’s largest pension funds (by membership) sends a strong message to encourage other financial institutions to take further action regarding climate-related financial disclosure.
The settlement also has implications for other climate-related litigation and may encourage more litigation related to climate-related disclosure.
In particular, companies that would be targeted by proposed climate reporting requirements (announced by New Zealand’s Climate Change Minister (Hon. James Shaw) on September 15, 2020) should closely monitor these developments.
The new climate reporting requirements will apply to:
- All registered banks, credit unions and building societies with total assets of over $ 1 billion;
- All registered investment fund managers with total assets under management greater than $ 1 billion;
- All licensed insurers with total assets under management greater than $ 1 billion or annual premium income greater than $ 250 million;
- All issuers of shares and debt securities listed on the NZX; and
- Crown financial institutions with total assets under management exceeding $ 1 billion, such as ACC and the NZ Super Fund.
Foreign incorporated organizations will also be required to disclose in their New Zealand annual report.
See our previous note on New Zealand’s proposed climate-related financial disclosure regime.
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