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$41 Billion Pension Fund Settles Australian Climate Change Lawsuit

Bloomberg logoBloomberg 11/2/2020 Matthew Burgess

(Bloomberg) -- A $41 billion pension fund sued in Australia over its disclosure of climate change risks settled the lawsuit on Monday with a commitment to net zero emissions in its portfolio by 2050 -- a case that may spur more litigation around the world.

Retail Employees Superannuation Trust also pledged to “enhance its consideration” of such risks when making investments, publicly reveal its holdings and monitor the approach of its external fund managers.

The lawsuit was brought in 2018 by fund member Mark McVeigh, who claimed Rest wasn’t doing enough to protect his retirement savings against the impact of rising world temperatures. The case, which was due to begin a three-day hearing Monday, was seen as a test of whether money managers in Australia’s A$2.9 trillion ($2 trillion) pensions industry have a fiduciary duty to help combat the ravages of a warmer planet.

Read more: A 24-Year-Old Is Suing Pension Fund for Not Being Green Enough

“Australia is the second-most litigated jurisdiction in the world for climate disputes, so this outcome will likely be scrutinized globally,” said Daisy Mallett, a Sydney-based attorney who specializes in arbitrations and investor-state disputes. The settlement may “encourage other similar pieces of litigation to catalyze greater climate-related disclosure and mitigation action in other countries.”

There’s been a surge in climate litigation across the world as activists and investors seek to force governments and companies to address global warming that’s fueling natural disasters including wildfires, floods, typhoons and droughts.

More than 700 such lawsuits were filed globally over the past five years, according to a database compiled by the Arnold & Porter law firm and the Sabin Center for Climate Change Law at Columbia Law School in New York. Of the 1,680 total cases since 1986, about three-quarters were in the U.S., and Australia emerged as the No. 2 venue with 113, the data show.

chart, histogram: Scales of Justice © Bloomberg Scales of Justice

While the agreement doesn’t set a legal precedent, it will set a new benchmark for how to mitigate climate risk in Australia, said Brynn O’Brien, executive director of the Australasian Centre for Corporate Responsibility, a governance research and shareholder advocacy organization.

“It will reverberate,” she said. “People will be looking into it very closely around the world.”

Australia’s pension funds, which oversee the world’s fourth-largest pot of retirement savings, are being pressured by members to cut exposure to high-emitting companies and scrap investments that are undermining the Paris Agreement. Some of the largest funds, including Aware Super and UniSuper Management Pty., are targeting net zero carbon emissions by 2050 and divesting from companies that get more than 10% of their revenue from thermal coal.

“This case is a ground-breaking recognition of the material financial risk that climate change poses to the economy and society, and the role” pension funds have in managing it, McVeigh said in a statement after the settlement was reached.

In announcing the settlement, Sydney-based Rest acknowledged climate change is a material and financial risk to the fund and “it is important to actively identify and manage these issues.”

The fund also pledged to:

Carry out analysis of at least two climate change scenarios, including one that’s consistent with a lower-carbon economy, when setting its investment strategyActively consider all climate-related shareholder resolutionsEngage with companies and industry associations to promote business plans and government policies that reflect the goals of the Paris Agreement

“Rest acknowledges that climate change could lead to catastrophic economic and social consequences and is an important concern of Rest’s members,” the fund said in the statement.

David Barnden, principal at Equity Generation Lawyers that represented McVeigh, said the case had far-reaching implications for investors.

“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,” he said in a statement.

(Updates with comment on case’s significance in fourth paragraph)

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