Public attention on the ways Australian superannuation funds are engaging with the challenges of climate change has never been greater. Media reporting of Australia’s position at COP26, together with concerted advertising by some funds of their sustainability credentials, means that members are more interested than ever about how their monies are being deployed. This interest was further whetted by the publicity surrounding litigation against major industry fund REST by one of its members alleging a failure by the trustee of REST to disclose adequately its approach to dealing with climate change.

At the same time, there are major developments globally affecting the ways in which climate change is measured and disclosed by financial institutions.  Many of the developments are responding to the recommendations of the Task Force on Climate-related Financial Disclosures (‘TCFD’), which both APRA and ASIC have endorsed. And just last month APRA wrote to all the entities it supervises to alert them to the imminent release of a voluntary survey that will permit them to assess against industry peers the steps they have taken to comply with CPG 229 Climate Change Financial Risks.

The regulatory scheme relevant to the disclosure of climate-related risks by RSE licensees in Australia is well known:

  • Section 1013D(1)(l) of the Corporations Act (as amplified by regulation 7.9.14C(d) of the Corporations Regulations) requires that RSE licensees disclose in their PDSs the extent to which ESG factors are considered in the investment process they employ;
  • Section 1017C of the Corporations Act requires that RSE licensees respond as soon as practicable to a request for information from a member that the member would reasonably require to make an informed decision about the fund and to understand the investments of the fund;
  • An entity over-representing the extent to which its practices account for climate-related risks, e.g. ‘net zero’ commitments (‘greenwashing’) may breach section 1041H of the Corporations Act/section 12DA of the ASIC Act (misleading or deceptive conduct) or section 1041E of the Corporations Act (false or misleading statements). A breach of section 1041H/section 12DA for example in turn is a deemed significant breach reportable to ASIC under section 912D of the Corporations Act; and
  • Although falling short of an enforceable legal requirement, Prudential Practice Guide CPG 229 Climate Change Financial Risks expresses APRA’s view that RSE licensees ought to disclose climate risk information to interested stakeholders.

(A Regulation requiring RSE licensees to disclose periodically their proxy voting behaviour, which would have disclosed some of the governance engagement of RSE licensees related to climate issues, was disallowed in February 2022 for reasons unrelated to this part of the regime.)

In our experience, RSE licensees engage with the risks from climate change in multiple ways across their investment portfolios, and in their business operations. However, as community expectations intensify, and as global best practice accelerates to ever-more detailed and sophisticated disclosure, the question confronting RSE licensees is just what they ought to disclose to members.

There is no easy answer to this. The catch-all disclosure requirement in the PDS regime in section 1013E of the Corporations Act makes it tricky as technically, RSE licensees are required to disclose anything that is material to a consumer’s decision to acquire an interest in the fund (beyond the specific content requirements). Indeed, some members will be more interested than others when it comes to such detail, and producing such detailed disclosure is a time-consuming and expensive process. It can be said that the penalties for issuing misleading information underscore the need for taking a careful, measured approach.

Reviewing the websites, PDSs and other items of communication published by RSE licensees over recent years, we have identified several trends:

Statements of intent Almost all major RSE licensees make what might be termed ‘statements of intent’ on their website. Surprisingly, only around half include such statements in their PDSs.
Detailed disclosure outside of PDS Most RSE licensees make documents (variously titled) outlining in more detail the range of ESG strategies in place available on their website. Documents such as Investment Guides that contain such further detail are often incorporated by reference in the PDSs.
Annual reports Annual Reports increasingly (but not uniformly) have sections dedicated to reporting on climate-related and/or ESG-related activity and achievements.
Proxy voting disclosure Some RSE licensees, perhaps anticipating the requirements of the now-disallowed Regulation, periodically disclose their proxy voting behavior in a report available on their website.  Although this does not disclose the reasons for each decision, it does indicate the position taken on each matter.
Decline in public undertakings of ESG initiatives The initial flurry of RSE licensees signing up to NGO initiatives and compacts has slowed. In part this may be because those compacts are already in place. The UNPRI has been around for over 15 years, for example. In part it may be a reflection of participants’ realisation that tokenistic subscription to these sorts of initiatives and compacts carries reputational risk. Being publicly identified and shamed as a ‘greenwasher’ if you don’t follow through genuinely on the undertakings has become a real possibility, particularly in jurisdictions like the European Union. ASIC, too, is getting interested. The Net Zero objectives announced by some RSE licensees over the past year shows some evidence of this tension, with anecdotal evidence suggesting that concern about how achievement of such a commitment might be demonstrated has inspired some RSE licensees to defer or decline to make such undertakings.
Quantifying climate-related matters Some RSE licensees are starting to generate reports that go beyond qualitative descriptions of the processes undertaken to quantify climate-related matters, such as estimating the ‘carbon footprint’ of their investment portfolios. It seems likely that the global TCFD-led initiatives directed at improving the quality of the underlying data on which such reports rely will assist RSE licensees to create such reports in the future, although no doubt challenges will remain.
Political and public pressures There are increasingly frequent calls in political circles and in the media for RSE licensees to engage in an ad hoc way with specific ESG issues.  Examples include the destruction of the Juukan Gorge cave by Rio Tinto in May 2020, the takeover of Riverlea by JBS and most recently, calls for divestiture of Russian assets in the wake of Russia’s invasion of Ukraine.  Some RSEs from the profit-for-member sector have made public announcements in response to these calls, but the majority have not (although that certainly does not mean that they have not considered their position and acted accordingly behind the scenes).

It is always hard for an RSE licensee to know just how much information to provide to beneficiaries. Disclosure is expensive and there are issues of commercial confidentiality that may intrude. There is also the risk of fueling political activism that distracts the RSE licensee (and drains its resources) from the core mission of pursuing the best financial interests of members. That said, the days of ‘trust us, we’ll do the right thing’ are gone. Transparency and accountability are increasingly prominent social norms and best practice in superannuation fund management demands careful, measured and timely disclosure of what the RSE has done, and intends to do, on behalf of members.


Michael Vrisakis
Michael Vrisakis
+61 2 9322 4411
Scott Donald
Scott Donald
External Consultant
+61 2 9225 5640
Abby Sutherland
Abby Sutherland
+61 2 9225 5312