The Asset Owners Disclosure Project (AODP) has claimed trustees' lack of action on climate change could leave them facing significant legal action.
The AODP and global law firm Baker & McKenzie found that trustees' understanding of climate change was reasonably advanced; however, action taken to limit climate risks had been minimal.
AODP said there were significant physical and regulatory legal risks posed by financial losses incurred by climate change impacts.
International trade union confederation secretary and AODP board member Sharan Burrow said a potential climate or carbon crash could dramatically impact portfolio values and make the sub-prime crisis look mild.
"Unlike sub-prime however, trustees have had ample warning about climate change and its regulation. Members will turn to their trustees for answers, and potentially legal discourse," she said.
Baker & McKenzie global partner for climate change Martijn Wilder said it would be difficult to implement a defence against not acting on the known risks.
"In the event of climate change regulation or physical impacts that will or already have the potential to damage the value of a fund's portfolio, it is difficult to conceive of a defence for trustees who cannot demonstrate they have considered the risks and taken steps to mitigate the risks that now exist," Wilder said.
AODP executive director Julian Poulter said the scary thing for trustees was that some underlying value destruction was already occurring.
He said most funds refused to disclose their climate change strategies, which could attract further legal action.
"Such resistance to transparency will surely only add to their legal exposure once the low-carbon economy begins to impact the value of their fossil fuel-based investments," he said.
The AODP wrote to the world's largest funds in July seeking disclosures on climate risk strategies, although few have responded.
Last week, the organisation "named and shamed" the Future Fund for citing resource constraints as the reason for its undeveloped climate change strategies.
