Climate change, fiduciary duties, and geopolitical uncertainty: A conversation with veteran pension lawyer, Randy Bauslaugh

The relationship between pension fiduciaries, climate change, and long-term value creation continues to evolve. What began as a conversation about environmental stewardship has become a discussion about financial risk, investment opportunities, geopolitical instability, human rights, and legal accountability.

To explore these developments, Sonia li Trottier, Director of the Canada Climate Law Initiative, sat down with veteran pension and benefit lawyer, Randy Bauslaugh, to discuss the state of pension law, fiduciary duties, and climate change in Canada.

Sonia li: In 2021, you authored a legal opinion examining the implications of climate change for pension fiduciaries. Looking back, what were the key conclusions at the time, and how has the legal and governance landscape evolved since then?

Randy: When I wrote that opinion, most discussions about climate change still centered on its long‑term environmental effects rather than its immediate and increasingly unavoidable financial implications. One of the benefits of the paper, I think, was that it helped shift the conversation from one grounded primarily in environmental or ethical concerns to one rooted in financial materiality, fiduciary duty, and measurable systemic economic risk.

The central conclusion followed naturally from that reframing: pension fiduciaries not only may consider climate change; they may breach their fiduciary duty if they fail to do so when it is financially material. Climate change creates risks and opportunities that directly affect investment performance and the long‑term security of retirement income. And because the primary purpose of a pension plan is to deliver lifetime retirement benefits, fiduciaries must evaluate climate change through that financial lens.

In that sense, I like to think that the legal opinion contributed to a broader global shift that was establishing climate change as a core financial issue squarely within the fiduciary responsibilities of pension plan administrators.

In terms of consequences, I hope that this legal view also gave it a practical financial legitimacy that enabled administrators to shift from “should we think about it” to “how are we managing it”? Since 2021, many voluntary reporting frameworks have been introduced, such as the Canadian Sustainability Standards Board (CSSB). The Canadian market has responded with legitimate regulatory guidance through regulators like the Office of the Superintendent for Financial Institutions (OSFI), the Financial Services Regulatory Authority of Ontario (FSRA), and the Autorité des marches financiers (AMF).

We have also seen a rise of class action litigation focused on greenwashing and lawsuits alleging failure to consider climate risk as a breach of fiduciary duty to properly manage the financial risk, such as Hirji et al. v. Canada Pension Plan Investment Board in Canada and Kvek v. Cushman & Wakefield in the United States. They are testing the real-life application of the standard of care and prudence.

The level of scrutiny applied to climate‑related financial disclosures and public commitments is increasing rapidly. For pension fiduciaries, the issue is not whether climate change is “aspirational” or “ethical”, and it is not always about the long term. The real issue is whether disclosures provide accurate, decision‑useful financial information, and whether they do that across the short, medium, and long term. Climate change is already influencing asset values, operating costs, insurance availability, supply‑chain stability, and macroeconomic conditions; all of which affect pension plans today, not just decades from now.

Statements that are aspirational, unsupported by credible analysis, or inconsistent with current scientific and economic evidence risk misleading stakeholders about the financial position of the plan. That, in turn, exposes fiduciaries and their organizations to allegations of inadequate disclosure, breach of duty, and even personal liability; not because the statements are too ambitious, but because they fail to reflect financially material realities.

The challenge, of course, is that pension plans must communicate with a wide range of stakeholders, including beneficiaries, regulators, employees, investors, governments, and the public. While many of these stakeholders might prefer an ethical emphasis, the bottom line for fiduciaries is to ensure they are providing clear, credible financial information relevant to short, medium and long‑term financial security. Striking the right balance between transparency, financial rigour, and realistic forward‑looking assessments of climate related financial challenges is a core governance responsibility. Ultimately, better climate‑related financial information leads to better financial decisions. Fiduciaries should approach disclosure not as a moral exercise but as a practical tool for managing economic risk.

Ultimately, fiduciaries make better financial decisions when they have better financial information, and climate‑related disclosures should be understood not as ethical signaling but as practical tools for managing systemic economic risk across every time horizon relevant to the plan.

Sonia li: What about the recent landmark advisory opinion on climate change from the International Court of Justice (ICJ)? Do you think it impacts the state of law in Canada, especially with respect to pension plans?

Randy: The recent ICJ advisory opinion is an important development in international law, but it doesn’t change Canadian pension law. Advisory opinions aren’t binding. They address obligations of states under international law, not to the duties of pension fiduciaries under Canadian pension standards legislation or trust law.

Where it is relevant is in the broader legal context. The ICJ affirmed that states have binding obligations to protect the climate system from emissions under treaties Canada has signed, and under customary international law. That reinforces a global legal recognition that climate change causes real economic harm and that governments should act to manage it.

In that sense, the ICJ opinion doesn’t create any new fiduciary duties for Canadian pension plan administrators, but it does reinforce the broader legal and economic reality that climate‑related financial risks are increasingly unavoidable considerations for anyone managing assets for the benefit of others, including pension plan administrators and other fiduciaries.

Sonia li: So, with all of that in mind, what does effective fiduciary oversight look like in this legal environment today?

Randy: Effective fiduciary oversight in this legal environment requires a clear-eyed focus on process, financial materiality, and the statutory “prudent person” standard of care. Pension plan administrators are held to the highest standard known to law, namely the duty to act with the care, diligence, and skill that a person of ordinary prudence would exercise when dealing with the property of another. With this baseline legal framework in mind, I think it is fair to say that effective oversight is defined by four core pillars:

1. Curiosity, Continuous Learning, and Documented Process
   Fiduciaries are not required to be climate scientists, but they must understand how climate risks dynamically impact the plan’s risk-return profile. Legally, courts evaluate fiduciaries based on “process over prediction”. This means they are protected by the robustness of their decision-making process, not their ability to predict the future. Fiduciary oversight in this context means ensuring that internal teams or external advisors are using credible, decision-useful data, and documenting that they have actively questioned and stress-tested that data.
   
   
2. Pragmatic, Prudent Delegation
   The Canadian pension landscape is unique, featuring a few global giants alongside a massive tail of small plans. 55% of registered plans have fewer than ten members, and 81% have less than 100 members. For these smaller plans, building in-house climate expertise is impossible. In almost all pension plans other than the top 50 or so, the legal duty of pension fiduciaries shifts from direct management to prudent delegation. Oversight for these plans involves exercising rigorous diligence when selecting, monitoring, and retaining external managers, ensuring they have the specialized capabilities to navigate shifting market realities.
   
   
3. Application Across Both DB and DC Plans
   Not all plans are the same.  Oversight must be tailored to the specific nature of a plan’s benefit structure:
   
   For Defined Benefit (DB) Plans: Fiduciaries must evaluate climate risk through the lens of short medium and long-term asset-liability matching and employer covenant sustainability. A physical risk (like an extreme weather event destroying a real estate asset) or a transition risk (like a sudden regulatory shift hitting carbon-intensive holdings) directly affects the fund’s solvency and funding requirements.
   
   For Defined Contribution (DC) Plans: In alignment with CAPSA Guideline No. 3 (Guideline for Capital Accumulation Plans), fiduciary duty centers on menu design and member education. Even though it would be legally safer not to provide plan members with investment choice, over 97% of Canadian DC Plans offer investment choice. Oversight of plans granting member investment selection adds a huge fiduciary burden, especially with default investment options, such as target-date funds. The fiduciaries must—on an ongoing basis—be satisfied that all options and default funds prudently account for systemic risks like climate transition, and that members are given appropriate information to make informed investment choices.
   
   
4. Balanced Prioritization Without Ideological Elevation
   Climate-related financial risks do not exist in a vacuum. They are unfolding alongside deep geopolitical friction, energy security challenges, industrial policy shifts, and supply chain fragility. Fiduciaries must treat climate change as a material financial risk, but they cannot elevate it above other existential financial priorities. If a plan faces a near-term liquidity crunch or an urgent funding deficit, immediate cash-flow stability may legally outweigh longer-dated transition opportunities. Prudent oversight means weighting climate risk precisely according to its actual financial significance—neither ignoring it as a non-financial issue nor treating it as an ideological crusade.
   

Ultimately, effective oversight requires a willingness to challenge historical assumptions. Investment and funding strategies that were appropriate a decade ago may no longer reflect a world of fractured supply chains and volatile geopolitical alignments. Fiduciaries fulfill their legal obligations not by guaranteeing specific climate outcomes, but by maintaining an objective, repeatable governance framework that protects the financial interests of plan beneficiaries today, tomorrow, and decades into the future.

–Randy Bauslaugh

Sonia li: You spoke about the non-climate change challenges that pension board and trustees face. Could you expand on that? Is there something you are hopeful about?

Randy: The energy transition is generating tremendous innovation and economic opportunity. That is encouraging, and this is why I have recently become more optimistic. At the same time, the scale and complexity of the issues facing fiduciaries is also changing. Climate change is can’t be viewed in isolation. These challenges are constantly shifting and creating new or different legal and financial headaches for fiduciaries.

Trustees and pension boards are being asked to evaluate complex information, understand rapidly evolving technologies and trends, oversee the management of climate-related risks and opportunities, and make decisions in a world under geopolitical stress. The expectations placed on boards and trustees have increased substantially over the past decade, and boards need to evolve accordingly.

*This post does not represent any legal, accounting, or investment advice, please contact your lawyer, accountant, or investment manager for any legal or other professional advice.