Landmark Australian Lawsuit Ties Investor Risk to Climate Change
In what observers are describing as a “world-first” legal case, a 23-year-old law student from Melbourne is taking the Australian government to court, charging it with failing in its legal duty to inform investors in its sovereign bonds about climate-related financial risks.
Katta O’Donnell has put the Morrison government “on trial for misconduct” for its irresponsibility in “breaching a legal duty and deceiving investors by not informing them up front of the climate risk they face,” writes the Guardian. “Climate risk,” it explains, “refers to assessments of the expected impact of the climate crisis on investments, including the likelihood that fossil fuel investments will lose value and potentially become stranded as the world reduces greenhouse gas emissions.”
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And the government of Australia had plenty of advance notice, adds the Guardian, noting that “the Reserve Bank of Australia and the country’s corporate and financial regulators have warned that climate change exposes the economy and financial system to risks that will get worse if action is not taken.”
Heavily exposed to such risks are the country’s US$700 billion-plus in sovereign bonds, held primarily by Australia’s central banks and pensions funds. O’Donnell is particularly concerned about the many of her peers who have been kept in the dark about the extent to which their future financial security is in peril.
“While the current government will be long out of power by the time we can access this money, our financial security…will bear the brunt of its climate legacy,” she said.
David Barnden, a lawyer with Equity Generation Lawyers who, with former federal court judge Ron Merkel, is backing O’Donnell’s suit, told The Guardian he believes this will be the first lawsuit to “deal with climate change as a material risk to the global sovereign bond market.” Institutional investors are beginning to respond to such risk, he added, citing last year’s decision by the Swedish central bank to dump bonds from both Western Australia and Alberta in response to those regions being delinquent in their efforts to address the climate crisis.
The case—one of a recent surge in global climate lawsuits—is a “really interesting claim,” said Rob Henderson, an economics and financial consultant and former chief markets economist with National Australia Bank. Unlike the Morrison government, he noted, Australia’s major banks are moving to protect themselves and their shareholders from climate risk: 66 of the country’s central banks, including the Reserve Bank of Australia, are now members of the Network for Greening the Financial System, which has produced a number of climate risk scenarios, one of which estimated that “global GDP could fall 25% below the assumed level this century if the world [does] not act to reduce emissions.”
Staying its own course, the Morrison government has set a target that experts say falls short of its Paris commitments. “It is resisting a global push to set a goal of net zero emissions by mid-century,” writes The Guardian.