World’s first climate disclosure lawsuit to set ‘important precedent’ for businesses
Pressure is mounting on the private sector to consider climate change risk in annual reports after the world's first climate disclosure lawsuit was lodged today (8 August).
Lawyers from Environmental Justice Australia (EJA) have filed proceedings on behalf of two shareholders against one of Australia’s top four banks, the Commonwealth Bank (CommBank), for failing to adequately disclose climate risk in the lender’s 2016 annual report.
This oversight means that the bank failed to provide a true and fair view of its financial position and performance, as required by the Corporations Act, the claim alleges. It also seeks an injunction to prevent the bank making the same omissions in future annual reports, and raises concerns about reputations risks to the bank regarding funding required for a proposed coal mine in Queensland.
“We believe the matter is of significant public interest,” Environmental Justice Australia lawyer David Barnden said. “It should set an important precedent that will guide other companies on disclosing climate change risks.”
The announcement comes amid mounting pressure for the business community to treat climate change risks as a serious financial problem. Experts suggest that the value at risk, as a result of climate change, to global manageable assets ranges from $4.2trn to $43trn between now and the end of the century. Investors already fear that the next financial crisis will be climate-related.
Earlier this summer, the G2O’s Task Force on Climate-related Financial Disclosures (TCFD) recommended that firms should disclose climate information as part of mainstream financial statements. A host of major companies, including eleven of the world’s top banks, such Barclays and Santander, have since committed to adopt key elements of the TCFD’s new framework.
Commenting on today’s announcement, UK-based environmental law firm ClientEarth said that the case against the CommBank could signal a new trend in climate risk litigation.
“With this case, the risk of litigation over poor climate disclosure has become a clear reality for companies,” ClientEarth lawyer Daniel Wiseman said. “It’s unsurprising that investors are demanding companies properly disclose climate change risks – particularly where these companies have clear exposure to the fossil fuel sector. Shareholders will not be content to stand by silently without reassurance that climate risk is being adequately managed.
“Many other countries already have similar disclosure requirements to Australia. In the UK, the Bank of England and other financial regulators have now made clear that financial institutions like banks and insurers should be considering climate risk. To limit exposure to this sort of litigation, business leaders need to get acquainted, and quickly, with their legal duties and with emerging industry standards, like the TCFD recommendations.”
Around 60% of the world’s biggest investors are taking steps to protect their portfolios. HSBC has launched a $1bn green bond portfolio aimed at the renewable energy sector, while Goldman Sachs announced it will leverage $150bn into clean energy financing and investments by 2025.