Australia Agrees to Disclose Sovereign Bonds’ Climate Risks

Investors can comment on the settlement until the court approval hearing, scheduled for October 11.

The Commonwealth of Australia will for the first time disclose climate risk in sovereign bonds following the settlement of a world-first class action lawsuit.

The case was filed in 2020 by Kathleen O’Donnell and centered on the fact that climate risk was not disclosed when she chose to invest approximately A$1,000 in exchange-traded Australian government bonds through the CommSec app earlier that year. O’Donnell and other plaintiffs she represented did not seek damages.

The case was settled on August 7 by O’Donnell and the respondents, the Commonwealth of Australia, the Australian Office of Financial Management CEO and the secretary of the Australian Department of the Treasury.

A court hearing on the settlement approval is scheduled for October 11, and other bond investors have been invited to put forward their views on the settlement for the court to consider, a process which  occurs in all class actions in Australia.

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If approved, the settlement will require the government to publish a statement on the Department of the Treasury’s website acknowledging that climate change is a systemic risk that may affect the value of its government bonds.

In a statement, O’Donnell commented: “As an investor, I am pleased with the proposed settlement. This is the first time a country with a AAA credit rating has acknowledged climate change is a systemic risk when talking about risks to government bonds.

“When I purchased these bonds as a 23-year-old in 2020, the government did not mention climate change. This was remarkable, given that my bonds mature in 2050, and by that time, Australia will be facing increasingly serious climate impacts,” O’Donnell said. “The settlement is an important recognition in the context of recent research that suggests Australia risks losing its AAA credit rating due to climate change. The settlement is an important first step in realizing the risks of climate change. The government must now prioritize effective action on climate change to mitigate those risks.”

Clare Schuster, an associate at Equity Generation Lawyers, the firm that represented O’Donnell pro bono, says, “When this case was filed in July 2020, the government referred investors in Australian bonds to the budget to assess the government’s fiscal position. At the time, the budget did not make any specific mention of climate change nor its economic impacts.

“Since then, Australia has better incorporated climate change into legislation, policy and in the budget, which now details the fiscal impacts of climate change,” Schuster says. “The settlement is an important step forward as part of a broader contextual shift. In the settlement, the Australian government provides better disclosure and commits to continued engagement with investors and other stakeholders on climate change risks.”

This article initially appeared in our sister publication, FS Sustainability, which, like CIO, is owned by Institutional Shareholder Services Inc.

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