Australia faces legal challenge over bonds’ climate risks

The Australian government is facing a class-action lawsuit from investors who allege it failed to disclose the material risks from climate change to its bonds, in what is thought to be the first case of its kind.

Twenty-three-year-old student Kathleen O’Donnell, who owns Australian government bonds that are traded on the country’s main stock exchange, filed the civil action in the Federal Court on Wednesday.

The suit is the latest in a series of innovative legal challenges by Australian activists, who are pressuring the government, companies and investors to take more action to tackle climate change.

“I want the Australian government to tell the truth about the risks posed by climate change,” said Ms O’Donnell, who lives in a bushfire-affected part of Victoria and witnessed the devastation caused by fires that killed 34 people this year. The severity of the blazes sparked a fierce debate over whether climate change is to blame.

“I don’t want to look towards a future where these types of bushfires are a common occurrence,” she told the Financial Times.

Australia’s reliance on fossil fuels and its support for coal mining and gas development mean it remains one of the most emissions-intensive economies in the developed world.

Investors following environmental, social and governance principles have targeted listed companies with poor climate credentials with divestment campaigns. In recent months green campaigners have launched legal actions against Australian pension funds and state bodies to push for more climate action.

The class action suit argues that Australia’s economy and international reputation will be significantly affected by the government’s response to climate change and alleges authorities have failed to disclose these risks to investors. As a promoter of its bonds, the government “owes a duty of utmost candour and honesty” to investors about the country’s climate change risks, the court filing says.

The action seeks a declaration from the government that it breached its duty of disclosure by failing to address Australia’s climate risks in information documents on the bonds. An injunction restraining the government from further promoting exchange-traded bonds until it complies with its duty of disclosure should be granted, it says. 

Michael Burger, executive director of the Sabin Centre for Climate Change Law at Columbia University, said the legal action, which claims Canberra is in violation of securities law due to an alleged failure to disclose climate risks, appears to be a world first.

“This case, if successful, could fundamentally alter the way national governments and corporations approach climate-related financial disclosures,” he said.

An Australian Treasury spokesman declined to comment.

Keith Pitt, Australia’s Minister for Resources, told the FT the government was taking action to combat climate change, pointing to international agreements to cut carbon emissions by about a quarter from 2005 levels by 2030. “We are committed to our Paris Agreement targets and I think we’ll do that in a canter,” he said.

Still, the government is facing mounting pressure from some investors. Last year Sweden’s central bank ditched bonds issued by the state governments of Western Australia and Queensland on the grounds that the regions’ carbon emissions are too high.

Ms O’Donnell is represented by Equity Generation Lawyers — a law firm specialising in climate change.

The firm is behind another legal challenge involving the Retail Employees Superannuation fund — a pension fund that manages A$60bn — that is due to go to trial in November. The claimant in that case alleges he should be provided with greater information on how the pension trustee is managing climate risks.