Abstract
AbstractThe 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.
Highlights
The article builds on McVeigh to ask two questions
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
What is the role of climate change litigation in promoting climate regulation by pension funds? Secondly, what is the relative importance of risk management of climate-related financial risk compared with risk assessment in pension funds? McVeigh v
Summary
The complaint and settlement in McVeigh drew heavily on the Recommendations of the TCFD in 2017. Investment horizons that are considerably shorter than those that would accurately account for climate-related financial risk.[123] Even long-term investors such as pension funds routinely follow short-term investment horizons (for example, three to five years) by relying on backwards-looking or short-termed ratios in credit and equity research analysis.[124] Such short-sightedness will prove fatal for regulation meant to anticipate systemic risk and provide future generations of citizens with both pensions and a stable climate This short-sightedness seems entrenched in the regulatory assumptions encased within the TCFD Recommendations, in which regulation is assumed to be a ‘light touch’ aimed at ‘creating the conditions’ or ‘developing the frameworks’ for markets to carry out their efficiency promise.[125] Importantly, this is the approach that McVeigh seems to counter. Lessons from behavioural law and economics, socio-legal studies on the role of organizational culture, and epistemological conventions that may obstruct climate risk appreciation and provoke misfires, as I show
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