The Australian Government is being sued by an investor of government bonds. The proceedings have been brought as a representative action, on behalf of other holders of and investors in Exchange-traded Australian Government Bonds. The claim alleges that the government has failed in its duty to disclose climate change risks to investors, having the effect of misleading or deceiving investors. The claim also alleges that Commonwealth officials have not met standards of care and due diligence, through failing to disclose these risks.
The claim cites a number of risks to an investment in sovereign bonds issued by the Australian Government, including:
- Physical risks of climate change generally, such as the costs of responding to climate related or exacerbated extreme weather events.
- Transition risks include the risk of stranded assets, the risk of changing markets and demand for fossil fuel products, the risk of litigation and changes to the economy transitioning to low carbon, and disruption from an abrupt or disordered transition.
- Government policy responses to climate change and their effectiveness.
- Resilience to climate change.
- Reputational risk and how Australia's performance is perceived by other countries.
- Financial risks – such as the impact climate change will have on GDP, tax base, etc.
- Credit ratings risk and how global credit ratings agencies will factor climate change exposure into future credit ratings assessments.
These proceedings are an evolution of existing proceedings scheduled for hearing in late 2020, McVeigh v REST, where a superannuation fund is being sued by a member for failing to disclose and manage climate related risks. While there have been proceedings brought against NSW Government authorities relating to climate change, these have been on the basis of alleged breaches of statutory duties rather than duties owed to investors.
These proceedings are a timely reminder of the litigation risks associated with failing to disclose and manage climate change related risks, both for investors and governments at large.
"With COVID you see the government borrowing a lot more money via bonds to, to pay for things like Job Keeper, but also to pay for essential services like health and education." Barnden says this creates more debt, especially as we become sensitive to certain risk factors. He uses the example of global credit rating agencies like Standard and Poor's, Fitch, and Moody's, taking into account the creditworthiness of countries based on climate change risks. As evidence of the "sovereign risk" attached to a lack of climate change disclosure, he cites the Central Bank of Sweden, who held eight per cent of their foreign exchange reserves in Australian dollars, divesting from Australian and Queensland bonds because of high per capita carbon emissions.