From Bushfires to Misfires: Climate-related Financial Risk after McVeigh v. Retail Employees Superannuation Trust

Abstract

The year 2020 proved to be a clarion call for global society. There is no longer doubt that increasingly we are experiencing unpredictable events, known as ‘black swans’, ranging from pandemics to financial meltdowns. One of the ’climate black swans’ against which experts have cautioned is the financial crisis caused by climate change. In this context, the Australian case of McVeigh v. Retail Employees Superannuation Trust for the first time tested climate risk and the fiduciary duties of retail pension funds. Settled in November 2020, the case has already raised the bar for climate risk practice in pension funds. In particular, McVeigh suggests that courts, as well as out-of-court settlements, may articulate a duty, rather than grant permission, for pension funds to consider climate-related financial risk in their investment decisions. The article builds on McVeigh to ask two questions. Firstly, what is the role of climate change litigation in promoting climate regulation by pension funds? Secondly, what is the relative importance of pension funds for the risk management of climate-related financial risk via due diligence compared with risk assessment via disclosure? Fundamentally, the article explains climate-related financial risk as a cultural phenomenon and argues that a discussion on pension fund fiduciary duties must consider disclosure in addition to due diligence. It argues that McVeigh articulated the need for a normative approach to pension fund disclosure duties and an extension of the field of climate-related risk disclosure to embrace climate-related risk due diligence.

What Can Machine Learning Teach Us about Australian Climate Risk Disclosures?

“…The severity of risks originating from these factors are reliant on the form, speed, and focus of transitional changes [7]. Litigation risk is the potential for firms to be liable for past or present contributions to GHG emissions and the harm arising from those emissions [10]. Climate risks are typically assessed separately but are interconnected.…”

“…In 2021, the Australian Council of Financial Regulators indicated a joint commitment to measuring the exposure of the Australian financial system to climate risks, increasing the regulatory supervision of the management of climate-related risks and improving the quality, consistency, and breadth of disclosures [9]. Stakeholders' demand for climate disclosure has increased as investors seek to determine if those responsible for managing their investments are accounting for increased climate risks [10]. This means it is more important than ever for firms to understand their exposure to climate risks and best practicerelated management of these risks.…”

Crossing (Conceptual) Boundaries of Transnational Environmental Law

“…In 'From Bushfires to Misfires: Climate-related Financial Risk after McVeigh v. Retail Employees Superannuation Trust', Esmeralda Colombo reflects on the fiduciary duties (including disclosure and due diligence) of retail pension funds. 75 Her analysis of the Australian case McVeigh, 76 the first brought by a beneficiary against a public pension fund, provides a unique opportunity to assess the positive implications, not of a court pronouncement, but of an out-of-court settlement. 77 The absence of legal binding effect is at the heart of Colombo's piece.…”

Governing Intersystemic Systemic Risks: Lessons from Covid and Climate Change

“…57 Climate change impacts and zoonotic diseases, too, are regularly portrayed as grey swans: as theoretically conceivable yet practically unforeseeable calamities that transpire through an exceptional confluence of circumstance and coincidence. 58 Covid-19 seemingly hurled itself into our lives, an unforeseeable bombshell laying waste to all plans and aspirations that typically herald the dawn of a new decade. Mere months before, we looked in horror as, suddenly, large swathes of western Australia were engulfed in flames, and we remembered experiencing similar horror at the sight of devastating fires ripping through the Amazon the year before.…”