A university student in Melbourne has launched what has been described as a “world first” legal case against the Australian government, accusing it of misleading investors in sovereign bonds by failing to disclose the financial risk caused by the climate crisis.
In a claim filed in the Australian Federal Court on Tuesday, Katta O’Donnell, a fifth-year law student at La Trobe University, said that the government is breaching a legal duty and deceiving investors by not informing them upfront of the climate risk that they face.
Climate risk refers to assessments of the expected effects 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.
The Reserve Bank of Australia and the country’s corporate and financial regulators have said that climate change exposes the economy and financial system to risks that will get worse if action is not taken.
O’Donnell’s case, backed by David Barnden of Equity Generation Lawyers, says that the government and its officials have failed in their duty of care by not taking climate change into account when doing their job.
The case was developed after she introduced herself to Barnden when he gave a lecture at La Trobe on climate risk last year, the student said, adding that it would put the government “on trial for misconduct” for failing to deal responsibly with the climate crisis.
“I’m 23. I look to the future and I can definitely see that climate change is here and is going to get worse,” O’Donnell said. “It’s time the government told the public about the impact climate change will have on our future and the economy.”
Young Australians own bonds through their superannuation funds, but are in the dark about government assessments of the climate risk that their investment faces, she said.
Sovereign bonds are issued by governments to fund spending. Australia’s are worth more than US$700 billion, mostly held by central banks and pension funds.
“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,” O’Donnell said.
Barnden said he believes that it is the first case that deals with climate change as a material risk to the global sovereign bond market.
The risk is increasingly being recognized by institutional investors, he said, adding that the Swedish central bank last year sold bonds from Western Australia, Queensland and the oil-rich Canadian province of Alberta due to their failure to do more to address climate change.
“Australia is on the front line of sovereign climate risk,” Barnden said. “We confront the harrowing physical impacts of drought and bushfires, and we also face the financial risks of an economy over-exposed to fossil fuels being left behind as the world shifts to clean energy.”
He said that the legal claim was filed after he wrote to the government on O’Donnell’s behalf asking for it to change its disclosure policy.
O’Donnell is also represented by barrister and former federal court judge Ron Merkel.
A spokeswoman for Australia’s Treasury Department on Wednesday told reporters the government was aware of the lawsuit.
“Legal representatives are considering the matter. As it concerns current court proceedings the government will not make any comment,” the spokeswoman said.
Rob Henderson, a former National Australia Bank markets chief economist, now an economics and financial consultant, said that it is a “really interesting claim.”
There has been a significant shift in thinking over the past decade that accelerated after the Australian Prudential Regulation Authority (APRA) in 2017 said that it was not safe for companies to ignore climate risk, he said, adding that Australia’s major banks now all publish annual climate reports and issue green bonds.
“In some ways, I’m surprised this claim wasn’t brought earlier and that the commonwealth hadn’t taken the initiative in laying out how it would do this properly,” Henderson said. “It’s an anomaly in our current financial system.”
APRA is developing a climate risk variability assessment for investors based on scenarios published by the Network for Greening the Financial System, a collection of 66 central banks, including the Reserve Bank of Australia.
The assessment was expected to be finished by September, but has been delayed by the COVID-19 shutdown.
The scenarios include an estimate that global GDP this century could fall by 25 percent if the world does not act to reduce emissions.
The government of Australian Prime Minister Scott Morrison has set a 2030 climate target of a 26 to 28 percent cut in emissions by 2030 — less than scientists say is necessary to play its part under the 2015 Paris Agreement.
The Australian government is resisting a global push to set a goal of net-zero emissions by the middle of the century.
Additional reporting by Reuters
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