Australia is set to acknowledge the impact climate change poses to its economy and borrowing costs, according to the terms of a class action lawsuit.
The Treasury will issue a statement on its website as part of a proposed settlement of a lawsuit filed in 2020 that alleged Australia misled investors for not disclosing climate risk when selling its debt. A hearing to approve the settlement is scheduled for Oct. 11, according to court documents.
The government acknowledges "investors are making commitments to reduce emissions in their portfolios and that credit ratings agencies are increasingly examining the relationship between climate change and sovereign debt," according to the proposed statement outlined in terms published on Equity Generation Lawyers website Wednesday. "The Commonwealth will continue to engage with asset owners and relevant stakeholders" over its policies and actions related to climate risk and opportunities, it said.
The agreement 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. A government report issued last week estimated Australia could face economic losses of as much as A$423 billion ($274 billion) in reduced productivity if global action fails to halt extreme climate change.
The suit, filed by then-law student Kathleen O'Donnell, alleged the Australian Office of Financial Management and the Treasury deceived investors, and sought to halt all marketing of Australian exchange-traded debt until the disclosures were made. The government at the time, a staunch supporter of the fossil fuel industry and globally seen as a climate laggard, said it didn't have to disclose climate risks, according to court documents seen by Bloomberg.
Since then, a change in Australia's leadership saw the nation set legally-binding emissions reductions targets, committed to almost A$30 billion in climate-related spending and pledged to report annual spending through a so-called green budgeting process. It's also helping establish a sustainable finance taxonomy and a sovereign green bond program to help decarbonize the economy and wean the nation off fossil fuels.
"Having disclosure is going to be good for investors and ultimately good for governments of our economies," said Bill Bovingdon, chief investment officer at Altius Asset Management in Sydney. While bond prices aren't likely to be impacted in the short-term, should investors shun Australian debt in favor of more green issuance, it may cause a rethink of the nation's progress to meeting its emissions reduction targets, he said.
The case came 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. Australia is the world's second most litigious jurisdiction after the U.S. for climate-related cases and has seen pension funds to oil and gas producers sued for allegedly misleading investors with poor disclosures.
