New analysis from environmental finance group Market Forces reveals 82% of Australia’s largest superannuation funds have provided inadequate or no tangible evidence they have considered climate risk in their investment portfolios.
According to a new opinion also released today by Noel Hutley SC and James Mack, this failure puts trustee directors ‘at risk of breaching their duty to members’ and as such, vulnerable to legal action.
“Australian regulators have made it clear that super funds need to assess climate risk,” said Market Forces Analyst Daniel Gocher. “Since this has largely fallen on deaf ears, it’s no surprise that trustees now find themselves open to legal action for a dereliction of basic fiduciary duty.”
Market Forces’ new analysis – Risky Business – assesses Australia’s 100 largest superannuation funds, representing 99% of managed super fund assets, and finds that:
- 60 funds disclose no tangible evidence they have considered the impact of climate risk on their investment portfolios; these funds are responsible for over $393 billion or 29.2% of all large superannuation fund assets and 8.8 million member accounts;
- 22 funds disclose inadequate evidence they have considered climate risk ($306 billion or 22.8% of large superannuation fund assets and 5.2 million member accounts);
- 18 funds disclose adequate evidence that they have considered climate risk ($646 billion or 48% of large superannuation fund assets and 12.4 million member accounts);
- Just eight funds provide regular updates or research to members on climate risk; even those funds providing ‘adequate’ disclosure publish limited regular updates or company/investment specific information.
To accompany the analysis, Market Forces commissioned a memorandum of opinion from Noel Hutley SC and James Mack seeking the breadth of superannuation fund trustees duties and climate risk. The opinion states that ‘climate change risks can and should be considered by trustee directors.’
The legal opinion follows a speech to the Insurance Council of Australia in February 2017 by Australian Prudential Regulation Authority (APRA) Executive Board Member Geoff Summerhayes in which he noted that climate risks “have often been seen as future or [a] non-financial problems”, but made it clear “that this is no longer the case”. Accelerated developments in technology have huge implications for the Energy and Utilities sectors, with the potential to reduce coal, oil and gas demand in the short-term.
This is particularly relevant for Australia, “given the size of [its] superannuation sector and its heavy weighting towards carbon-intensive equities”, with vulnerable sectors accounting for over a quarter of the S&P ASX300 index.
The clarion call from APRA follows similar recommendations from the Financial Stability Board’s Task Force on Climate-related Disclosures (TCFD) led by Bank of England Governor Mark Carney.
“It is extraordinary that more than 80% of Australia’s super funds have still failed to disclose how they are managing an issue that APRA has singled out as an immediate, material, financial risk,” said Gocher.
“Billions of dollars of Australian retirement savings are at stake from the physical and transition risks of climate change. The funds that are considering climate risk would be doing right by their members to disclose it. As for the funds that are ignoring climate risk – if the warning signs from regulators haven’t jolted trustees into action, perhaps the realisation of legal liability will.”
More information available at http://superswitch.org.au/riskybusiness/