January 15, 2025
Superannuation trustees in Australia have a fundamental fiduciary responsibility to act with care, skill, diligence, and in the best financial interests of their fund members. This responsibility explicitly includes the identification, assessment, and management of all material financial risks, notably climate-related financial risks.
What are fiduciary responsibilities?
Fiduciary duties require trustees and directors to:
Act prudently and in the best interest of beneficiaries.
Exercise due care, diligence, and skill in their decision-making.
Avoid conflicts of interest and manage any unavoidable conflicts transparently and effectively.
Who holds fiduciary responsibilities?
Fiduciary responsibilities in superannuation funds primarily rest with:
Fund trustees and directors of trustee companies.
Investment committees and those overseeing risk management frameworks.
Fiduciary duty tested in court: McVeigh v REST
In a landmark Australian case, McVeigh v REST (2018), a fund member sued the REST superannuation fund trustees, alleging inadequate consideration and disclosure of climate-related financial risks. Key aspects included:
Failure to undertake scenario analysis aligned with the Task Force on Climate-related Financial Disclosures (TCFD).
Trustees’ inadequate verification and oversight regarding the assessment and management of climate risks by investment managers.
REST settled the case before a full judgment, committing to enhanced climate-risk disclosures and management practices, highlighting fiduciary responsibilities in managing climate risks.
Why climate risk management is a complex fiduciary responsibility
Managing climate-related financial risks poses specific challenges:
Complex risk types: Climate risks include physical impacts, transitional policy shifts, technological disruptions, and market sentiment changes, making risk assessment inherently complex.
Data fragmentation: Holding-level emissions and climate risk data are often fragmented across numerous managers and markets, particularly within private investments, complicating trustees’ risk management and reporting.
Mandate gaps and resource limitations: Traditional investment mandates typically do not explicitly require detailed climate-risk reporting, leading to inconsistent data availability and reporting.
Positive industry shifts
Heightened regulatory oversight and prominent legal cases such as McVeigh v REST are catalyzing significant industry shifts:
Regulators like ASIC and APRA are strengthening requirements for climate-related disclosures and governance.
Trustees increasingly integrate explicit climate-risk management and reporting requirements into investment mandates.
Emerging technologies and platforms provide structured solutions to manage and verify climate-related financial data.
Pathzero’s role in supporting fiduciary compliance
Pathzero bridges the gap between fiduciary responsibilities and practical implementation by:
Providing comprehensive, holding-level emissions data across private market investments.
Offering tailored calculation tools for standardized, accurate emissions assessment.
Enabling seamless data integration and secure multi-party disclosures to streamline and substantiate climate risk management.
Through these capabilities, Pathzero supports trustees and directors in effectively fulfilling their fiduciary duties regarding climate-related financial risks, ensuring robust governance, informed decision-making, and compliance with regulatory expectations.