A pending case could have a dramatic impact on ESG investments and portfolios

Mark McVeigh is an environmental scientist from Australia. Although he will not have access to his retirement funds until 2055, he is suing his pension fund.

Prior to this lawsuit, McVeigh had asked Retail Employees Superannuation Trust (REST) what it was doing about climate change. Specifically, “ensuring his savings were future-proofed against rising world temperatures.”

Unsatisfied by the answer he received, he contacted Equity Generation Lawyers. Then he filed a lawsuit in August 2017.

Although the claim does not allege financial loss, it does suggest that the fund breached “the fiduciary duties owed to him by failing to adequately consider climate change risks,” according to Environmental Justice Australia.

Now the Federal Court case could create a unique precedent for ESG, climate change lawsuits, and financial managers in the future. The central question is simple.

Mark McVeigh Sues Retail Employees Superannuation Trust

Are pension funds breaching their fiduciary duty if they fail to address the financial impact of climate change?

That is the heart of the case. REST is one of the largest asset managers in Australia with more than $50 billion.  But McVeigh sees something bigger than financial returns.

According to Bloomberg, Mark McVeigh sees climate change as “a huge risk that dwarfs a lot of other things.”

“It’s such a big physical impact on the planet and the economy,” he told Bloomberg in an interview.

McVeigh wants climate change to sit at the top of the concerns for his pension fund. He wants the fund to comply with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations tied to risk management and disclosures. That organization wants funds to stress test investment portfolios based on the Paris Agreement’s limits on carbon.

Second, McVeigh wants to know how funds manage climate risk and how investments are exposed to these risks.

The pension fund responded by saying that climate change is one of the factors it considers in its investments. The challenge is that the Australian pension sector has to meet legislated minimum return targets.

Related: LGPS Launches Climate Change Strategy