Guest essay by Eric Worrall
University of New South Wales associate professor of law ecologist is suing his own retirement fund, over a claim the fund managers are failing to address climate risk.
Climate change: Could your super fund be liable?
Twitter Facebook LinkedIn12 FEB 2020
DAWN LO, BEN KNIGHT
Is the next shake-up to Australia’s superannuation industry just around the corner?
Can you sue your super fund for financial loss incurred as a result of climate change? This controversial question will be addressed in a landmark court case in July this year and will place Australia’s estimated $3-trillion super industry under the microscope.
Has your super fund failed to protect your retirement savings from climate change risks?
The case in question centres around a 24-year-old ecologist who has taken his trustee to court, claiming the financial loss associated with climate change was not factored into his retirement investment. The outcome of the case could set a precedent for whether super funds must take climate change risks into account.
UNSW Law’s Associate Professor Scott Donald, Director of The Centre for Law, Markets and Regulations (CLMR) – a joint initiative of the Faculty of Law and UNSW Business School – says the risk of climate change cannot be avoided and is already impacting investment returns.
“Climate risk is here – it is affecting the valuation of assets and also the investment opportunity set now. Sticking one’s head in the proverbial sand is not a viable investment option.”
Associate Professor Donald says the legal responsibility of super funds could extend to protecting against the risks imposed by climate change.
“The law is clear – super fund trustees have an explicit duty to pursue the best financial interests of members. So, to the extent that climate change poses financial risks, the duty is already there. The problem is one of priority. Unfortunately, not all trustees see action on climate risk as a priority, at least not for their fund.”
Read more: https://newsroom.unsw.edu.au/news/business-law/climate-change-could-your-super-fund-be-liable
Surely the obvious answer is, if you are not happy with the risk management policies of your current pension fund, shop around for a new fund, or start your own; Under Australian law running your own own “self managed fund” is an entirely viable proposition.
There are funds which invest in fashionable green business ventures, though green investments have their own risks. The 2011 collapse of Solyndra obliterated at least $187 million of Tranche “E” investment fund assets, including money from Richard Branson’s Virgin Green Fund, which eventually shut down in 2014.
Spain’s abrupt cancellation of billions of dollars worth of renewable subsidies in 2012 reminded green fund managers who invest in businesses which depend on government subsidies, that governments can arbitrarily rip up renewable subsidy agreements without notice or compensation.
What about investing in China? China dominates manufacturing of solar panels and wind turbine components, so surely there should be plenty of opportunities to invest in profitable green Chinese manufacturing enterprises?
Not so fast. Communist China’s sovereign risk profile has just taken a major dive. Two key Chinese manufacturing cities in the last few days passed laws allowing city authorities to arbitrarily seize private assets, to help combat the Corona Virus.
The one thing fund managers truly fear is the possibility a corrupt government might seize their fund’s assets. Given China’s horrendous levels of corruption, it is likely only a matter of time before a corrupt Communist official uses those new seizure laws to enrich themselves at the expense of Western fund managers and investors. Expropriated owners are supposed to receive fair compensation, but the level of compensation will be determined by the officials exercising the new seizure laws.
Even if the Corona virus is rapidly defeated, and we all hope for the best, this new power to arbitrarily seize assets will be a reminder to green investors and others that property rights are subject to the whim of government officials in Communist China.
Correction (EW): Commiebob points out I misread the article. The plaintiff is ecologist Mark McVeigh, not a UNSW law professor.
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