Climate and Litigation Risk Concerns
There is a growing number of lawsuits that seek billions of dollars in damages from the biggest contributors to climate change, which may significantly impact the value of oil and gas companies and investment returns for PERA over the long term.
According to Client Earth, pension funds are at an increasing risk of litigation if trustees fail to develop their approach to climate risk in line with improving data and market practices. Lawyers have already warned some of the UK’s largest pension funds of this risk. Fiduciaries have an obligation to act reasonably when making investment decisions for the funds they oversee. If this fiduciary responsibility is violated, those managing pension funds may be held personally liable for actions or inactions that harm the beneficiaries.
ClientEarth lawyer Joanne Etherton said: “As some of the biggest pension schemes in the UK, these schemes represent the retirement income of a large number of people, making it crucial that they step up their actions on protecting and future-proofing members’ pensions. Trustees’ legal duties are not static and a court would look to the evidence available and how their peers are responding in determining whether they are in breach – in short, legal duties on climate risk are evolving.”
The scientific and international communities have come to the overwhelming consensus that burning fossil fuels is causing climate change. Most people who have studied this problem with an open mind have concluded that the only way to prevent profound human suffering on a global scale is to transition from fossil fuels to renewables, and this transition is in process and growing quickly. In this context, it is reasonable to expect that the fossil fuel industry will experience a significant decline in the near future, as has already happened in the coal industry. Fiduciaries who have retained exposure to the fossil fuel industry when this happens will fall under heavy scrutiny.
According to a global study, climate litigation cases are growing rapidly, with U.S. lawsuits the most numerous. The study found that the number of lawsuits involving climate change has tripled since 2014, with the United States leading the way. Researchers identified 654 U.S. lawsuits—three times more than the rest of the world combined. Many of the suits, which are usually filed by individuals or nongovernmental organizations, seek to hold governments accountable for existing climate-related legal commitments. The study was done by the United Nations Environment Program and Columbia University’s Sabin Center for Climate Change Law.