Millennial Sues Australian Pension Fund over Climate Change Risks

24-year-old says fund broke the law by not providing information about climate change risks.

A 24-year-old Australian pension fund member is suing his pension for allegedly violating the country’s Corporations Act by failing to provide information related to business risks associated with climate change, as well as any plans to address those risks. 

Mark McVeigh filed a lawsuit in the Federal Court of Australia against the A$57 billion ($38.9 billion) Retail Employees Superannuation Trust (REST), to which he has contributed 9.5% of his salary since 2013. Under the Corporations Act 2001, super fund beneficiaries are entitled to request information they need so they can make informed decisions about the management and financial condition of the fund. 

“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,” said 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].”

According to court documents, McVeigh requested information from REST concerning its business risks regarding the potential financial impact on its investments of these changes. In particular, he wanted to know what REST knew of its climate change business risks, and what actions it was taking in response to those business risks, among other requests.

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However, he said the fund failed to provide the information he was seeking, and therefore violated the Corporations Act. It was then that he turned to Australian specialist climate change law firm Equity Generation Lawyers

“I see climate change as a huge risk that dwarfs a lot of other things,” McVeigh said in an interview with Bloomberg.  “It’s such a big physical impact on the planet, and the economy.”

REST has a climate change position statement that states that it factors in climate change risks into its investment strategy, and decision-making, including asset allocation and strategy reviews, and in its selection and review of investment managers.

“Climate change will impact the global economy in the short, medium and long term,” REST says in its climate change position statement. “The ongoing transition to a lower-carbon economy drives us to continually manage risks to deliver strong investment performance over time.”

The relief sought by McVeigh includes an injunction to force REST to give him the information he had requested in full, and a declaration that REST violated the Corporations Act by not providing the information he requested.

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The Next Buzzy Stocks Are … Utilities

T. Rowe Price says plodding sector is perking up, thanks to renewables.

Want a hot stock tip on an up-and-comer? That would be utilities. You know, the stodgy electric companies that live in a tangle of state regulation and don’t deliver blow-out earnings growth.

But utilities, an extremely underappreciated sector, are the contrarian pick of T. Rowe Price, the giant asset manager. In a news briefing in New York on Tuesday, portfolio manager David Giroux made a fascinating case for why utilities will be the star of the future, involving renewable energy sources and their rapidly improving technology.

The standard view of utilities’ future is that they will gradually get rid of coal-fired plants in favor of natural gas, which is cheaper and cleaner-burning. Not much excitement there.

The market agrees. Among the 11 S&P 500 sectors, utilities rank as No. 9 in terms of total return thus far in 2019, according to Yardeni Research. Up to now, it has generated 18.5% year to date, which isn’t shabby, unless you compare it to others. The S&P 500 overall averages 24.5%. The biggest winner is information technology, at 40.9%. The only two worse than utilities are health care (12.1%), burdened with political pressures, and energy (2.5%), suffering from lower oil prices.

Utilities have long been treated as a bond substitute, owing to their relatively fat payouts. The sector’s 2.9% average dividend yield is the lushest among stocks, other than that of real estate, which has the same number. Only energy, artificially buoyed by its low denominator (i.e., its depressed stock prices), has a better yield, at 3.8%.

Utilities’ payout beats that of the benchmark 10-year Treasury note, at 1.78%. And like Treasury bonds, utilities are viewed as very safe—with the obvious exception of Pacific Gas & Electric, now mired in Chapter 11 because of claims against it for California’s deadly wildfires.

What investors miss, said T. Rowe’s Giroux, is that “the conventional wisdom about utilities is outdated.” It used to be that utilities depended upon building large plants, which enabled them to pump up power bills to cover the costs, if state regulators would let them. Unsurprisingly, new plants often suffered from huge cost overruns, which sparked the ire of the regulators. Utilities seldom increased their earnings.

But these days, Giroux argued, earnings are perking up. More important, renewable energy is getting better and cheaper, as technological advances come to solar panels and wind turbines. A lot of the current grid is growing old and needs to be replaced: Power plants generally have a 30-year lifespan, and many were built in the 1970s and 1980s. Giroux predicted that, in two decades, two-thirds of the nation’s power will come from renewables. Utilities “are no longer a rate play,” he said.

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