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Government faces climate risk investor class action

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A 23-year-old student has launched a lawsuit against the Australian government for failing to account for and disclose climate risk to bond investors.

Kathleen O’Donnell, a student who owns Australian government bonds traded on the ASX, is taking on the government in what is thought to be the first class action seeking to hold it to account over climate as a material risk to the sovereign bond market. 

The claim, filed on the behalf of Australian government bonds holders in the Federal Court on Wednesday, has alleged that the nation’s economy and reputation in international financial markets will be significantly affected by the adequacy of the government’s response to climate change. 

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As a result, the action has stated investors who trade in Australian government bonds face material risks from climate change and they should be disclosed. 

By failing to disclose climate change risks to investors, the Commonwealth of Australia has been accused of breaching its duty of disclosure and misleading and deceiving investors. 

Commonwealth officials were said to have failed to perform their duties, under Australian law which requires them to act with a standard of care and diligence of a responsible person in their position. 

The claim has sought declarations that the Commonwealth breached the law as well as an injunction from the Federal Court to prevent further promotion of bonds without informing investors about climate change risks. 

Ms O’Donnell owns government bonds that mature in 2050, by which time, should the government fail to enact effective policies – the impacts of climate change are expected to have taken hold.

The law firm representing her, Equity Generation Lawyers is also behind a legal action against retail industry super fund REST, which has alleged that the fund failed to protect its members’ savings against climate change

David Barden, Ms O’Donnell’s lawyer, previously worked on a similar claim against CBA, for failing to disclose climate risks to investors. 

“The regulators, APRA and ASIC are encouraging and in some instances requiring companies to disclose financial risks to investors and it should be no different for the government in promoting financial products, it should disclose those risks,” he told Investor Daily. 

The claim has referred to the Paris Agreement’s goal of limiting warming to 1.5 degrees Celsius and the flow-on impacts on stranded assets, likely legal changes and changes to the economy. 

It has also listed physical and transition risks that impact the value of bonds, as identified by the Taskforce on Climate-related Financial Disclosures (TCFD). 

“The physical risks are obvious. Australia is susceptible to droughts and fires, as we’ve seen in the past few years to quite a horrible extent,” Mr Barnden said. 

“And also [there is the] transitionary switch which includes reputational risks, and what other investors think about Australia and our performance on climate change.”

Sweden’s central bank Riksbank dumped Western Australia and Queensland state government bonds last year due to their high domestic per capita carbon emissions, reasoning that Australia was “not known for good climate work”.  

“It illustrates this issue is real,” Mr Barnden said. 

“Climate change is front of mind for investors and they are already acting on it.

“What investors are looking for is information on where to invest their money. At the end of the day, Australia is looking to borrow money. It will only increase the attractiveness and resilience of Australia as an investment location to disclose those risks.” 

The claim has named the Commonwealth of Australia, the secretary to the Department of Treasury and the chief executive of the Australian Office of Financial Management as respondents.

Treasury stated it does not comment on matters concerning current court proceedings. 

The RBA, as part of a coalition with other central banks (The Network of Central Banks and Supervisors for Greening the Financial System, or NGFS) warned in June that global GDP could fall by 25 per cent by the end of the century if the world does not act to reduce greenhouse emissions.

In February, APRA indicated major financial institutions will need to answer for how well prepared they are for climate change, as they would be assessed under a new stress testing framework

Mr Barnden added that countries who rely on exports of coal and gas, who have higher emissions and are continually uncooperative in international climate negotiations will have increased chances of jeopardising investments. 

Having to come clean under stronger disclosure standards could have the potential to bend the government to seek to minimise the risk in the first place. 

“In disclosing climate change risks to investors, it certainly should be the case that the government should turn its mind to how to mitigate risks,” Mr Barden said. 

“That may result in a change of policy, but we don’t know.”

 

Government faces climate risk investor class action
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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