The legal opinion from Noel Hutley and James Mack, commissioned by climate activist group Market Forces, has built on the lawyers’ previous take on the Rest case in recent years, where a member sued the retail industry super fund for failing to consider climate change in its investments.
Super trustees are exposed to multiple risks from climate change, the new opinion detailed, from economic consequences if the world fails to align with the Paris climate goals, to the regulators, who have recently signalled they will be stepping up efforts to police climate risk in the finance sector.
APRA also released its draft guidelines for managing climate risk on Thursday, aimed to help banks, insurers and super funds to prepare for impacts in the coming years. As outlined by the Reserve Bank and a number of other central banks last year, the global economy faces to lose 25 per cent or more in GDP by the end of the century, if no action on climate change is taken.
Among other recommendations, Mr Hutley and Mr Mack have said super funds should be preparing themselves, seeking external expertise, but also building their internal resources.
“Superannuation trustees should expect that regulators will exercise their enforcement powers consistently with their statements on climate change risk,” Mr Hutley and Mr Mack’s opinion stated.
“Therefore, trustees should ensure they receive advice from asset consultants and other experts which is consistent with the reality of the financial risk posed by climate change. Superannuation trustees should ensure that they have the expertise to assess any advice and to mitigate any risks of climate change.”
Further, Mr Hutley and Mr Mack have recommended that super funds must consider divestment where climate risks are too great for a particular investment.
“Trustees should expect that, increasingly, every investment turn will require an engagement with the financial risk posed by climate change,” Mr Hutley and Mr Mack wrote.
“The engagement is also required by the law. If that engagement identifies a risk, the law also requires that a superannuation trustee manage that risk.”
Will van der Pol, legal researcher and campaigner for Market Forces commented the opinion “makes it clear that super funds have a legal duty” to exit enterprises expanding the scale of the coal, gas and oil industries.
“Both as a result of intensifying physical climate change impacts and the rapid economic transition required to limit warming, high carbon assets like coal, oil and gas projects are already becoming stranded,” Mr van der Pol said.
“Despite this, Market Forces’ research shows almost every superfund in Australia continues to invest in companies which continue to expand the scale of the fossil fuel industry. While a number of investors have moved to exclude some coal investments, this is just the tip of the climate risk iceberg.”
Market Forces has updated its comparison table of super funds’ positioning on climate change, as it campaigns for members to contact their funds, to tell them to change their policies.
Only a handful of super funds, such as Australian Ethical, Future Super, Cruelty Free Super and Verve Super, explicitly exclude investment in fossil fuels across their entire portfolios.
A number of funds, such as Aware Super and Cbus have pledged to reduce portfolio emissions to net zero by 2050 – while others are yet to implement any divestment or fossil fuel exclusion policy.
