Can you sue your super fund for climate change?

Will climate change eat into your superannuation, and what is your fund doing about it? (Images: AAP, Getty)

Superannuation funds may not be acting in their members' best interests by risking their retirement savings on investments vulnerable to climate change.

UNSW Law associate professor Scott Donald said the climate risk can't be avoided and is already determining investment performance.

"Climate risk is here – it is affecting the valuation of assets and also the investment opportunity set now. Sticking one’s head in the proverbial sand is not a viable investment option."

Donald said the law is explicit in that superannuation fund trustees have to act in the best interests of its members.

"So, to the extent that climate change poses financial risks, the duty is already there. The problem is one of priority. Unfortunately, not all trustees see action on climate risk as a priority, at least not for their fund."

The issue was raised by a 24-year-old ecologist who is suing his super trustee, alleging it failed to manage financial loss from his nest egg related to climate change.

The landmark case, which could set a precedent for a flood of similar claims, is set for a three-day trial on July 20 in Sydney.

The warning comes as Fairfax Media reported four of Australia's largest industry super funds have extensive holdings in coal mining and have voted down shareholder resolutions that seek to make them more climate-friendly.

This is despite their public stance that they would take climate change seriously and back emissions reduction.

"Many investors around the world are already avoiding companies and industries with negative climate impact, such as certain types of mining companies," said Donald.

"Others seek to invest in companies and industries with a positive climate impact, such as wind and solar farms."

How do you lose super from climate change?

ARC Centre of Excellence in Population Ageing Research (CEPAR) senior research fellow Rafal Chomik said there are two ways climate change is impacting superannuation investments.

"Physical damage arising from more frequent and intense natural disasters and higher temperatures [known as physical risk], and the risks associated with the transition of the economy from dependence on fossil fuels to a low-carbon economy [known as transition risk]," he said.

"Investment portfolios can be exposed to both of these."

Research has shown not properly balancing portfolios to reduce investment in industries vulnerable to climate change would negatively hit retirement nest eggs.

"The fact that many institutional investors are rebalancing their portfolios to address climate change risk lends support to this finding," Chomik said.

The bite on the final superannuation totals can be significant.

"For example, a scenario where a member experiences a one percentage point lower level of investment returns over their career results in super accumulation at retirement being 18% lower and income being 5% lower."

Chomik said Australian Prudential Regulatory Authority has already marked climate change as a risk to be mitigated, but not all funds have taken notice.

"APRA has said that climate change exposure is material and actionable, but not all super funds have produced climate-related financial disclosures, which are intended to stress-test their strategies," he said.

"Super funds need to embed climate change as a core business issue and continue to build the resilience of their investments to climate change."

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