An Inconvenient Covenant: How Climate Risks Are Transforming Australian Superannuation Trustees' Liability under Statutory Covenants

摘要

Climate change is becoming increasingly recognised as the cause of material financial risks. Assets that are most impacted by these risks are high-carbon and invested over long-term time frames. In Australia, a large number of superannuation funds invest in high-carbon assets over long-term periods. Recent reforms of the Superannuation Industry (Supervision) Act 1993 (Cth) have elevated duties imposed on trustees of superannuation funds. Complementary to the "best interests" duty under s 52(2) of the Act, superannuation trustees are legally required to uphold statutory covenants under s 52(6) and 52(8)(a)(i) that mandate the development of prudential investment strategy and risk management respectively. To successfully uphold these covenants, superannuation trustees must actively adapt their investment strategy and risk management frameworks beyond current industry norms to respond to climate risks. Trustees that fail to do so risk breaching these covenants, which exposes superannuation funds and their trustees to unprecedented legal action.