The age of investor activism and climate litigation dawns in Australia
The landmark case of McVeigh v Retail Employees Superannuation Pty Ltd
Recent settlement of the landmark Australian case of McVeigh v Retail Employees Superannuation Pty Ltd (REST) (NSD 1333/2018) provides further warnings to English pension trustees, fund managers, and UK listed companies, that the age of investor activism around climate change and social responsibility has now dawned.
The claim was initiated by Mark McVeigh in 2018, who was a member of REST, an Australian superannuation fund (the equivalent to a UK pension fund). Mr McVeigh alleged that REST had; (1) failed to provide fund members with information to enable them to make a judgment about their REST product and REST’s investment performance from a climate change perspective; and (2) breached its fiduciary duties as a trustee by not having a more developed climate change policy.
Mr McVeigh’s legal challenge was rooted in s.1071(c ) Australian Corporations Act 2001 and provisions of the Superannuation Industry Act: He alleged that REST had failed to manage the risks of significant downturns in investment value as a result of climate related events, including plummeting fossil fuel company valuations or extreme weather leading to damaged infrastructure/business interruption.
The Australian law requires trustees of super funds to act with care, skill and diligence in the best interests of members — including managing material risks to its investment portfolio.
English pension fund trustees are subject to similar duties because of their fiduciary position, and there are also equivalent provisions in the UK under the Companies Act 2006 with which directors must comply. Under s.393, directors must not approve accounts unless they are satisfied that they have “given a fair view of the assets, liabilities, financial position and profit or loss”. S.414C attempts to ensure that directors are properly assessed in line with their s.172 duties by requiring that the company’s strategic report provides “fair review” of the business covering the principal risks and uncertainties being faced, and specifically refers to environmental and employee matters (s.414C(4)). The settlement will therefore be of interest to entities in the UK.
Mr McVeigh’s out of court settlement, announced Monday 2 November 2020, will not set a formal legal precedent in Australia, however, the successful settlement of the claim may embolden investor and climate activists worldwide to examine the extent to which long-established trust and company law provides a tool-kit through which to hold pension, investment and other funds, and listed companies to account, on the urgent issue of climate responsibility.
As part of the settlement, REST has agreed to manage its funds with the goal of achieving net-zero greenhouse gas emissions by 2050. Many stakeholders will be concerned that in setting a target for 2050, REST has not gone far enough. However, the significance of this settlement cannot be understated in underscoring the commercial imperative of the climate crisis, and the combined power of investor activism and litigation to force paradigmatic change in the way that our money is invested and managed worldwide.