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The World's Courtrooms Could Unleash the Next Wave of Green Investing

Matthew Burgess
·5 min read

(Bloomberg) -- The legal risk for pension funds that fail to account for climate change in portfolio investments is about to become a little clearer.

While activists and investors around the world are using courts to push government officials and company executives to cut emissions, a trial set to start Monday in Australia offers an early test of whether money managers have a fiduciary duty to help combat the ravages of a warmer planet.

The case was brought by a 25-year-old environmental scientist, Mark McVeigh, who sued his A$57 billion ($41 billion) pension fund for not adequately disclosing or assessing the impact of climate change on its investments. His claim is part of a surge in global lawsuits — from the U.S. to the Philippines to the Netherlands — seeking to force changes intended to slow the pace of natural disasters including wildfires, floods, typhoons and droughts.

“Litigation has become a transnational movement,” said Joana Setzer, an assistant professorial research fellow at the London School of Economics and Political Science. For many, cases are “driven by frustration, by realizing that so many other routes to address climate change, especially international negotiations and national legislation, have been insufficient,” she said.

More than 700 such lawsuits were filed globally over the past five years, according to a database compiled by the Arnold & Porter law firm and the Sabin Center for Climate Change Law at Columbia Law School in New York. Of the 1,680 total cases since 1986, about three quarters were in the U.S., and Australia emerged as the No. 2 venue with 113, the data show.

For example, eight teenagers and an 85-year-old nun sued to halt the expansion of a Whitehaven Coal Ltd. mine about 450 kilometers (280 miles) northwest of Sydney, alleging the environment minister has a duty to protect young people from climate change. And a law student sued the government for not disclosing climate change alongside other financial risks in its sovereign debt.

“Climate change is one of the biggest and most under-appreciated risks for asset prices, so forcing greater disclosure and intellectual rigor around it can only be a good thing,” said Franziska Jahn-Madell, a director at London’s Ruffer LLP, which manages about 20 billion pounds ($26 billion) of investor money.

In 2018, McVeigh sued Retail Employees Superannuation Trust, or Rest, claiming it wasn’t doing enough to protect his retirement savings against the impact of rising world temperatures. Rest manages money for about 2 million members — mostly shop keepers and grocery clerks.

In response, the fund said climate change is one of a variety of factors it considers when investing, court filings show. “Rest rejects any suggestion that it has not acted in the best financial interests of its members or has not taken sufficient account of climate change risk in managing its investments,” the pension fund said in a statement.But McVeigh’s claim may have already had an impact. Rest restructured its investment team last year and hired a new chief investment officer, Andrew Lill, from Morningstar Inc., which has been warning of the climate’s ravages since at least 2017. The board revamped its roster of advisers, and the fund is mapping the carbon footprint of its stock portfolio. Rest said Lill’s appointment in August “had nothing to do” with the litigation.

“The McVeigh case and others like it have woken corporate Australia up to the real risk of litigation for failure to consider, disclose and respond to climate risks,” said Daisy Mallett, a Sydney-based attorney who specializes in arbitrations and investor-state disputes. “The judgment will be closely scrutinized to guide how Australian companies approach climate risk.”

Rest isn’t the only firm that’s been making changes. In 2017, Commonwealth Bank of Australia began estimating climate risks in its annual report — about a month after activists said in a lawsuit that the nation’s largest bank broke the law by not disclosing the potential impact on its business.

In the Netherlands, the country is being forced to cut emissions by at least 25% below 1990 levels before year end, after its highest court ruled the government had a legal obligation to prevent climate change. In Portugal, six young people sued 33 European Union states in September, alleging their insufficient action on climate change threatens their right to life.

The U.S. remains a key battleground. A potentially precedent-setting case filed in 2018 by about two dozen local governments in Maryland seeks financial damages from oil and gas producers for their role in causing climate change. BP Plc, Chevron Corp. and big energy companies — facing similar claims by governments in other state courts — want such cases heard in federal courts, which are seen more favorable to industry defendants.

At the same time, finance companies including Morgan Stanley and JPMorgan Chase & Co. are urging the U.S. government to start making businesses pay for their greenhouse gas emissions.

“Fossil-fuel companies, like tobacco companies before them, have allowed governments to pay for the harms caused by their products, harms that both industries spent decades concealing from the public,” said Korey Silverman-Roati, a climate law fellow at the Sabin Center. “As climate harms and costs continue to rise, more jurisdictions are likely to attempt to recoup their costs in court, and the pressure on courts to apportion those costs in a just way will only grow.”

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