Legal fight could change super game

Rest, the $57 billion industry fund, continues to battle a legal fight brought by one of its members that could have consequences for the entire superannuation industry.

Rest will be in court again on November 15 for a case management hearing.

In July last year, Mark McVeigh sparked the case against Rest after he found the fund's information available to members around mitigating climate change risks to be inadequate.

McVeigh told Financial Standard: "I was searching around online in 2017 and I came across an online tool you could use to look up your superannuation and see what they are doing about climate change and their investments. For Rest it was unknown, so that spurred me along because I wanted to know."

That online tool was on the Market Forces website.

McVeigh emailed Rest and found that it could not offer him the information that he was seeking.

"I always assumed they would have to give me that information so it made me question whether they are taking climate change into account with their investments," he says.

Through Market Forces, McVeigh got in touch with a lawyer - David Barnden. At the time, Barnden worked at Environmental Justice Australia, he has since established an independent firm and has taken the Rest case with him.

The case concerns two fiduciary duties to members, Barnden says.

Those issues are whether the fund acted in the beneficiaries' best interests and whether the requisite degree of skill, care and diligence was applied.

"The claim essentially pleads that climate change is a major risk and the trustee needs to take that into account and consider it through the mechanisms by which it makes investment decisions," Barnden says.

McVeigh and Barnden are not seeking remuneration for losses as a result of climate change in the case, instead viewing it as a public interest case.

"When those climate change effects hit it is going to have a huge impact on everyone's super. It's a public interest case and that's what I'm interested in," McVeigh says.

Barnden adds: "It's an important area of law, not just for climate change but more broadly in the superannuation industry around the standards that trustees should be held to."

Luke Hooper, special counsel at Mills Oakley, explained the case has ramifications for the ways super funds interpret the sole purpose test.

"The sole purpose test is 25 years old and guidance is warranted, especially in what appears to be an era of social and environmental activism," Hooper says.

"From my perspective, it would be odd for a court to rule that compulsory super should be used to further environmental purposes (in the absence of a return objective) and I think this is a matter the legislators and regulators need to provide input on."

A spokesperson from Rest told Financial Standard: "Climate change risks are factored into Rest's investment strategy and decision-making process, including asset allocation and strategy reviews, as well as in the selection and review of our investment managers."

Rest does not offer carbon neutral or sustainable investment options to members in the way that some funds do. However, the fund is a member of the United Nations Principles for Responsible Investment and says it is strengthening efforts to measure, monitor and report on climate-related risks.

Rest has about 1.9 million members. McVeigh remains one of those members to this day.

"Rest also works with our investment managers, investment advisers and the Australian Council of Superannuation Investors to engage with the companies and entities we invest in, and to improve disclosure of climate change risks and opportunities," the Rest spokesperson added.

The real consequences the case could have for the super industry remain to be seen, but Hooper says other funds are likely to be concerned.

If the court finds in McVeigh's favour, Hooper explains, it could mean a big change in terms of what information members expect from funds.

However, he adds: "As harsh as this may sound, super funds are designed for the sole purpose of growing members' funds. Focus on this should not be lost."

McVeigh is hopeful, saying: "You could have every super fund in Australia asking themselves whether their processes and analysis cover climate change enough, otherwise they're going to have people like me taking them to court."

"It's arduously slow. But we're getting to the meat of it now which is great."

Read more: Financial StandardMarket ForcesMark McVeighDavid BarndenLuke HooperEnvironmental Justice AustraliaMills OakleyUnited Nations
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