A lawsuit settlement on the other side of the world is reverberating around the globe as it increases the environmental, social and governance standards for a US$41 billion pension fund and potentially encourages similar legal action elsewhere.
The lawsuit, filed against the Australian Retail Employees Superannuation Trust, known as REST, by one of its members, was settled in November 2020 just as the two sides were headed to trial. The lawsuit claimed that REST violated Australian law by failing to disclose sufficient information on climate change-related investment risks and the strategies to address these risks.
The suit also claimed that the physical and transition climate-related risks pose material or major risks to the financial position of many of REST’s investments and that REST had failed to discharge its due diligence risk management duties.
Following the settlement, a statement from REST said that climate change is a material risk to the plan across many risk categories, including investment, market, reputational, strategic, governance and third-party risks.
As part of the settlement, REST agreed to make changes to the plan to ensure that its reporting is in line with the recommendations of the Taskforce on Climate-Related Financial Disclosures and to encourage investee companies to do the same. REST also committed to conduct climate-scenario analysis to inform its investment strategy and to implement a long-term objective to achieve a net zero-carbon footprint for the plan by 2050.
Because the case did not go to trial, it hasn’t established a legal precedent. The settlement does however set a standard by which other Australian pension funds will be measured, according to the Australian law firm Mills Oakley.
David Barnden of Equity Generation Lawyers, who represented McVeigh, noted the case had far-reaching implications for investors. In a statement he said: “This outcome should represent a significant shift in the market’s willingness to tackle climate risk – a shift which should set a clear precedent for the industry in Australia, and also pension funds around the world.”
According to a Grantham Institute report, climate-related litigation cases have jumped significantly since the start of the decade. Further, there are currently 22 active cases of climate-related litigation in Canada as of May 2020. The Grantham Institute report concluded that there is likely to be more climate-change lawsuits going forward.
While a review of a climate-related lawsuit database did not show any cases involving a Canadian pension fund, in an increasingly litigious world, pension plans should consider the possibility that beneficiaries who are worried about the effects of climate on their investments may be encouraged by REST’s case to bring forth more Canadian climate lawsuits. Indeed, in my opinion Canadian pension plans should not REST on their laurels and instead begin to address and report on the climate change risks embedded in their investments.
Catherine Ann Marshall is the principal consultant at RealAlts. These views are those of the author and not necessarily those of the Canadian Investment Review.