23-Year-Old Sues Australia Over Climate Risk in Bonds

The Australian government is defending a class-action lawsuit that claims it’s misleading investors by failing to disclose the impact of climate risk in its bonds. 23-year-old law student Kathleen (Katta) O’Donnell says the Australian Office of Financial Management and the Treasury are deceiving investors by not disclosing climate change alongside other financial risks in its exchange-traded debt. She wants all marketing halted until the disclosures are made.

In the first hearing at the Federal Court in Melbourne, the case was adjourned after Justice Bernard Murphy ordered O’Donnell’s lawyers to detail the harm caused and fix technical issues in relation to the class action. The case will return to court in mid-2021.

The lawsuit comes as debt investors globally grapple with assessing the long-term effects of rising world temperatures and how much economic growth must be sacrificed for countries to adapt. Sweden’s central bank last year ditched its holdings of debt issued by Western Australia and Queensland -- states that account for a chunk of Australia’s fossil fuel exports -- amid increased concern about the threats posed by climate change.

“The concept that any debt issuance should consider and disclose the suite of material financial risks is not a novel one,” said Sarah Barker, head of climate risk governance at law firm Minter Ellison. “What is novel about that claim is that it is the first time that it has been litigated in a climate risk context.”

The Australian Office of Financial Management and Treasury declined to comment on the lawsuit.

The case comes amid a surge in litigation from Europe to Mexico over the past five years as activists use the courts to pressure governments, companies and investors to act against global warming. Earlier in November, a A$57 billion ($41 billion) pension fund sued in Australia over its disclosure of climate change risks settled the lawsuit with a commitment to net-zero emissions in its portfolio by 2050.

As one of the world’s biggest per-capita polluters, Australia gets almost one third of it’s national income from industries exposed to economic disruption and risk from climate change, according to Deloitte Access Economics. Should it go unchecked, the economy could shrink by 6% over the next five decades -- the equivalent to a A$3.4 trillion loss in gross domestic product, the firm said in report last week.

Still, Australia’s government, a staunch supporter of the fossil-fuel export industry, has steadfastly rejected putting a price on carbon and is steering clear of the net-zero emissions goal that’s increasingly being adopted by countries around the world.

Chris Rands, a fixed-income portfolio manager at Nikko Asset Management, questioned whether the disclosure of climate risk would significantly impact demand for sovereign debt -- particularly at a time the central bank has embarked on quantitative easing to keep yields low.

“If the government got forced to display the risks, it would really just end up as another line in a prospectus that just says ‘here’s what could occur’,” Rands said. “The meaningful change still needs to come from people voting in policies that they want.”

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