Australia to acknowledge climate risk to government bonds after world-first court settlement

The Australian government has agreed to settle what has been described as a world-first court case that accused it of misleading investors by failing to disclose the financial risk caused by the climate crisis.

In 2020, Melbourne university student Katta O’Donnell launched a class action accusing the then Morrison government of breaching a legal duty and deceiving investors in sovereign bonds by not informing them upfront of the climate risk they faced.

Her lawyers said it was a class action representing current and future investors in government bonds, which are considered one of the safest forms of investment.

Under settlement terms announced on Wednesday, the Albanese government agreed to publish a statement on a Treasury website acknowledging that climate change was a systemic risk that may affect bond value.

O’Donnell dropped a request for a declaration the government had engaged in misleading conduct.

Climate risk refers to assessments of the expected impact of the climate crisis on investments, including the likelihood that fossil fuel investments will lose value as the world reduces greenhouse gas emissions. Australians own bonds through their superannuation funds.

O’Donnell said the settlement was an “important first step in realising the risks of climate change”.

“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,” she said.

“The government must now prioritise effective action on climate change to mitigate those risks.”

The agreed statement to be published by the Treasury will say climate change “is a systemic risk that presents significant risks and opportunities for Australia’s economy, regions, industries and communities”, and that there is uncertainty about the magnitude and timing of the physical impacts and the global transition to net zero emissions.

“As a consequence, there is uncertainty about whether the fiscal impacts of climate change may affect (if at all) the value of [government bonds],” it says.

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The statement includes some steps the government is taking on the climate crisis, including developing sustainable finance reforms and outlining the fiscal impacts of climate change in the federal budget.

A lawyer representing O’Donnell, Clare Schuster from Equity Generation Lawyers, said the budget did not mention climate change or its economic impacts when the case was filed and the government had improved how it incorporated the climate crisis into the budget, legislation and policy.

She described the settlement as an important step “as part of a broader contextual shift”, noting the government had committed to “continued engagement with investors and other stakeholders on climate change risks”.

The settlement is due to go to the federal court for approval on 11 October.

The government was asked for a comment on the agreement.


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