
Superannuation fund trustee duties and climate change risk
This report analyses the duties of trustee directors in relation to climate change risk under the Superannuation Industry (Supervision) Act 1993. It concludes that climate change risk should be considered by trustee directors to the extent that risks intersect with beneficiaries’ financial interests. Trustees should weigh relevant information and keep records documenting the decision-making process.
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OVERVIEW
This comprehensive analysis of the duties of trustee directors in relation to climate change risk under the Superannuation Industry (Supervision) Act 1993 (SIS Act) concludes that Climate Change Risks (CCR) intersect with the financial interests of a beneficiary of a superannuation fund. Therefore, climate change risks should be considered by trustee directors to the extent those risks intersect with the financial interests of beneficiaries.
Background
Environmental Justice Australia’s client, Market Forces, seeks opinion on the breadth of superannuation fund trustee directors’ duties and climate change risk. This report considers the SIS Act as it relates to trustee directors of registrable superannuation entities.
Trustee director duties
A trustee director must act in the best interest of beneficiaries; exercise due care, skill and diligence; and comply with the SIS Act’s “enhanced director obligations” in relation to MySuper products. The trustee director must ensure compliance with the SIS Act’s regulatory regime overseen and maintained by the Australian Prudential Regulation Authority.
Analysis: Climate change risks (CCR) and duties of trustee directors
There is an inherent harmony between the financial effect associated with CCR and the cardinal requirement of a trustee to act in the best financial interests of the beneficiary. Therefore, they should consider climate change risks to satisfy their trustee director duties. However, the financial effect of climate change risks warranting consideration is a contextual determination requiring a case-by-case assessment.
Trustee directors and corporate directors – distinct functions
The functions of a company and a trust are such that considerations of climate change risk may result in differing emphasis and outcomes. Thus trustee directors under the SIS Act and company directors under the Corporations Act for climate change risks consideration may result in different decisions.
Recommendations
Trustee directors must consider whether and to what extent climate change risks intersect financial interests of beneficiaries. Then, they should record their decision-making processes, including any considerations of climate change risks, to show compliance with their duties.
Implications for ESG
The report finds that consideration of CCR falls within the fiduciary duty of trustee directors. Thus, superannuation funds should consider these risks while investing member funds and maximising returns. Simultaneously, they should ensure that there is no compromise on responsible investing principles or adherence to the United Nations’ Sustainable Development Goals. Many investors now consider Environmental, Social and Corporate Governance (ESG) factors in their investing decisions. Based on the report’s conclusions, considering CCR must now form part of the ESG evaluation offered by responsible investment managers.