Australian Pension Fund Settles Climate Change Lawsuit

Australia’s A$56 billion ($39.5 billion) Retail Employees Superannuation Trust has reached a settlement with one of its own members, who sued the fund last year for failing to provide information related to business risks associated with climate change.

Mark McVeigh filed a lawsuit last November against the pension fund, better known as Rest, alleging that it violated the country’s Corporations Act by failing to provide details on its exposure to climate change risk as well as any plans to address those risks.

“Climate change, the physical impacts, and the transition impacts, individually or in any combination, have posed, and will increasingly continue to pose, material or major risks to the financial position of many of Rest’s investments,” according to the lawsuit. “Trustee directors knew, or ought to have known, that Rest’s climate change business risks were likely to have a material or major impact on the financial condition of [the fund].”

The pension fund said in a statement that it “agrees with Mr. McVeigh to continue to develop its management processes for dealing with the financial risks of climate change on behalf of its members.” It also outlined nine initiatives it plans to undertake as part of the settlement and said McVeigh “acknowledges and supports” the initiatives. They are to:

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Implement a long-term objective to achieve a net zero carbon footprint for the fund by 2050.
Measure, monitor, and report outcomes on its climate-related progress and actions in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
Encourage its investee companies to disclose in line with the TCFD recommendations.
Publicly disclose the fund’s portfolio holdings.
Enhance its consideration of climate change risks when setting its investment strategy and asset allocation positions, including scenario analysis in respect to at least two climate change scenarios. This includes one scenario consistent with a lower-carbon economy.
Actively consider all climate change-related shareholder resolutions of investee companies and otherwise continue to engage with investee companies and industry associations to promote business plans and government policies to reflect the climate goals of the Paris Agreement.
Conduct due diligence and monitor investment managers and their approach to climate risk.
Continue to develop Rest’s management processes and implement changes to its climate change policy and internal risk framework, which apply to all of the fund’s investments.
Seek to require its investment managers and advisers to comply with the other initiatives.

“Rest acknowledges that climate change could lead to catastrophic economic and social consequences and is an important concern of Rest’s members,” the pension fund said. “Climate change is a material, direct, and current financial risk to the superannuation fund across many risk categories, including investment, market, reputational, strategic, governance, and third-party risks.”

Rest said that as a superannuation trustee, it “considers that it is important to actively identify and manage these issues,” and that climate change would be considered in the context of the fund’s investment strategy and asset allocation mix.

In a statement issued through his lawyers, McVeigh said that the 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.” He added that “this case is a ground-breaking recognition of the material financial risk that climate change poses to the economy and society, and the role that superfunds have in managing it.”

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Tags: Australia, Climate Change, ESG, Mark McVeigh, Paris agreement, REST, Retail Employees Superannuation Trust, Task Force on Climate-Related Financial Disclosures (TCFD), TCFD

A US district judge has ruled that John Paulsen, a former managing director and fixed-income analyst at Sterne Agee & Leach, aided and abetted a pay-to-play scheme involving the $216.3 billion New York State Common Retirement Fund.

Judge Paul Gardephe of the US District Court for the Southern District of New York (SDNY) found that from early 2014 until early 2016, Navnoor Kang, the pension fund’s director of fixed income, used his position to solicit and receive improper entertainment from Paulsen and Deborah Kelley, a registered representative at Sterne Agee & Leach. In exchange for the entertainment, Kang directed a “significant amount” of state business to Sterne Agee, which generated “sizable commissions.”

According to the US Securities and Exchange Commission (SEC)’s complaint, Paulsen and Kelley planned a ski trip to Park City, Utah, for themselves, Kelley’s husband, and Kang and his girlfriend. During the excursion, Paulsen and Kelley racked up more than $11,000 in expenses entertaining Kang and his girlfriend. When Paulsen and Kelley sought reimbursement from Sterne Agee, they omitted Kang’s name on their expense reports to hide the fact that he was there with them, and they instead claimed they were meeting with an analyst at an investment advisory firm.

“Paulsen knowingly provided substantial assistance to Kelley and Kang by participating in the entertainment of Kang, then hiding his and Kelley’s provision of benefits to Kang by submitting false expense reports,” according to the complaint.

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When the firm launched an internal investigation after finding inconsistencies with the expense reports, Paulsen and Kelley lied to the investigators, according to the complaint. The complaint also said that shortly after Kang joined the pension fund, Paulsen and Kang had an in-person meeting in which Kang warned Paulsen that the fund had very strict rules prohibiting him from accepting anything from Paulsen.

Gardephe concluded that Paulsen lied because he knew Kang and Kelley were engaged in an illegal quid pro quo relationship.

The court found Paulsen aided and abetted Kang and Kelley’s violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC is seeking a permanent injunction and civil penalties against Paulsen.

The SEC previously obtained final judgments against Kang and Kelley. Kang was sentenced to 21 months in prison in July of 2018, and Kelley was sentenced in 2017 to six months home confinement, in addition to 1,000 hours of community service and a $50,000 fine.

Although the firm’s name is not mentioned in the SEC’s complaint, it has been widely reported to be Sterne Agee & Leach.

The SEC is seeking to permanently enjoin Paulsen from violating or aiding and abetting violations of securities laws, and for him to disgorge the ill-gotten gains and pay civil penalties.