Commonwealth Bank of Australia Shareholders Sue Over Climate Risk

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By Murray Griffin and Chuck McCutcheon

An Aug. 8 lawsuit in Australia against one of the country’s largest banks alleging it failed to adequately disclose climate change risks is being seen as a wake-up call for other global financial institutions.

The action against Commonwealth Bank of Australia was filed in Federal Court by Environmental Justice Australia on behalf of Guy and Kim Abrahams, who have held shares in the bank for years. The couple says the bank knew—or should have known—that climate change risks might have a material or major impact on the bank’s operations, financial position, and prospects. They allege the bank did not report on these risks or its management of them in its 2016 annual report.

“There’s a hope this kind of suit will raise a red flag to the larger banking sector to look at the merits and take action before they have litigation facing them as well,” Lauren Compere, managing director of Boston Common Asset Management, a firm that focuses on socially responsible investing, told Bloomberg BNA.

Financial sector shareholders have a reasonable expectation to know of the growing risks that climate change poses, Daniel Kreeger, director of the Association of Climate Change Officers, told Bloomberg BNA.

“There has to be information [to investors] that’s somewhere between ‘there’s nothing happening’ and ‘the sky is falling,’'' said Kreeger, whose organization works with public and private employees who focus on climate issues. The institution “needs to be responsible and to have identified meaningful and tangible and plausible risks—to not just articulate them but address them strategically and convey they are addressing them strategically. That will make investors feel a lot better than pretending that nothing’s happening.”

Kreeger said he was unaware of any similar litigation involving another bank, though he noted similar shareholder pressures have arisen regarding climate change. In May, investors holding 62 percent of Exxon Mobil’s shares voted at the company’s annual meeting in favor of greater disclosure around the effects of global policies that seek to limit global warming to 2 degrees Celsius (3.6 degrees Fahrenheit).

‘Deeply Concerned’ About Climate Risk

In their lawsuit, the Commonwealth Bank shareholders argued that the bank’s omission of climate change information constituted a breach of the Corporations Act of 2001, which requires companies to give a true and fair view of their financial position and performance. They also said the bank breached a provision of the Corporations Act requiring companies to provide investors with information allowing them to make informed assessments.

“We are deeply concerned about the serious risks that climate change poses to the environment and society,” Guy Abrahams said in a statement. “The bank should tell investors about the risks climate change will have on its business.”

Commonwealth Bank rejected the lawsuit’s allegations, saying in a statement it takes its statutory reporting obligations “very seriously.”

“Commonwealth Bank understands that climate change is a topic of public and shareholder interest and we are committed to playing our part in limiting climate change to well below 2 degrees in line with the Paris Agreement and supporting the responsible global transition to net zero emissions by 2050,” the bank’s statement said.

Commonwealth ‘Not the Worst’

Compere said her firm did outreach to 62 banks globally in 2014 in connection with research into whether banks had yet incorporated climate considerations into their risk management practices or developed long-term climate strategies. She said Commonwealth Bank was found to have taken the issue more seriously than some other large banks.

“They were not the worst,” she said.

The firm is now doing followup research with those banks in the hope of “tying up the conversation and the dialogue,” she told Bloomberg BNA.

Barrier Reef Coal Export Route

Also in their suit, the Abrahamses refer to the prospect that the bank might fund a large proposed coal mine in Queensland state that would export coal through the Great Barrier Reef. The Adani Group’s Carmichael coal mine has faced repeated questions about potential climate risks from environmental activists as well as politicians.

The suit says the prospect of the bank financing the mine was “a matter of substantial controversy and concern” during the 2015-2016 financial year, and that the bank should have known it constituted a risk to the bank. Yet, it says, the annual report did not mention the risks that Carmichael presents to the climate.

The suit seeks an order from the Federal Court of Australia that the bank breached the Corporations Act. It seeks an injunction restraining the bank from “continuing to fail to report” on climate risks.

To contact the reporters on this story: Murray Griffin in Melbourne at correspondents@bna.com; Chuck McCutcheon at cmccutcheon@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

For More Information

The lawsuit is available at http://src.bna.com/rtD.

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