Mr McVeigh alleged Rest had breached the Superannuation Industry Act and the Corporations Act by failing to manage those risks – which could include fossil fuel companies plummeting in value or infrastructure being damaged by extreme weather. 

The law requires trustees of super funds to act with care, skill and diligence to act in the best interests of members – including managing material risks to its investment portfolio.

David Barnden, principal and director of Equity Generation Lawyers who acted on the case, said the implications of this case are far-reaching for investors and for the climate.

“This marks the first time a major Australian super fund has agreed to settle litigation about the material financial risk of climate change and what needs to be done to protect members. It is clear that the buck stops with board members, and managing climate risk cannot be delegated away,” he said.

“This outcome should represent a significant shift in the market’s willingness to tackle climate risk – a shift which should set a clear precedent for the industry in Australia, and also pension funds around the world.”

Clayton Utz partner Brendan Bateman said the case has demonstrated the power of environmental and climate change litigation in that it can be used as a vehicle to drive changes in attitudes in the financial services sector.

“It is using existing legal frameworks and principles, such as those around directors’ duties under the Corporations Act or fiduciary duties under relevant investment legislation that are being used to provide a platform of which to articulate around climate change and around its risks considerations for the investment industry,” he told Lawyers Weekly.

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Mills Oakley financial services partner Mark Bland said this case “promised the first judicial consideration of the obligations of superannuation trustees in the management of climate change risks, particularly in relation to the requisite standard of care in managing them and the disclosure to members of how these risks are managed.” 

“A judgement would have provided certainty for trustees who are operating in a highly uncertain environment,” Mr Bland said.

“The requirement for action on climate change risk by ASIC and APRA is at variance with the views expressed by members of Government, and the strongest voices for addressing climate change risk at each of ASIC and APRA are departing this year.”

While the settlement is in one sense a lost opportunity for certainty, it has the direct impact of setting the $60 billion in Rest on a course where climate change risks are actively managed. It also sets a standard against which other funds can expect to be measured by their members.

Mr Bland said that funds that are lagging in the management of ESG-related risks will be carefully considering what steps they will need to take to avoid being the next target of such an action.

The case also has gained attention internationally, as an example of an emerging tactic of climate activism – litigation against the increasingly significant pools of capital in pension funds.”

In the statement, Rest said that “climate change is a material, direct and current financial risk to the superannuation fund”.

The super fund also said its portfolio will be aligned to reach net-zero emissions by 2050, reported against the Task Force on Climate-related Financial Disclosures, a not-for-profit organisation that aims to standardise corporate disclosure of climate change risks in financial reporting.

“Today’s settlement gives me, and Rest’s almost 2 million members, the reassurance that we need to know that our retirement savings will be invested responsibly in the face of the climate crisis,” plaintiff Mr McVeigh said.

Previously, a report pointed out that Australian and New Zealand investors want significantly bolstered climate change risk disclosure from companies, including a clear demonstration of how it is being used to inform business strategies and decisions.

Mr Bateman said that one of the key takeaways from such a public statement issued by Rest showed that, the super industry is seriously assessing not only the impacts across the trustee but what its expectations are of its investment managers and investee companies, who they invest in and who do they use the money to invest in.

“You’ll have this cascading responsibility and increasing pressure on companies and businesses and investment and infrastructure asset owners to address climate risks. They will have to be able to get on the front foot and articulate how they assess climate-related risk as part of their business and so that this can be passed up to the investors and effectively to the board,” he said.

Mr Bateman said we’ll be seeing an increasing trend, as long-term investors appreciate that climate change is a risk not only now but an increasing risk in the future.

"There’s a real focus now, not just from REST but the broader investment community will focus on companies and businesses they invest in and they want to see an emphasis on competency and growing capability in the climate space, so businesses can get the best expertise in order to meet the expectations of the investment community,” he said.