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Climate change recognised as ‘systemic’ investment risk as Australian Government updates bonds advice

The Australian Government has agreed to settle a world-first legal case in which it was accused of misleading potential investors over the risk posed by climate change to government bonds.

In 2020 Katta O’Donnell – a 23-year-old law student from Melbourne – brought a case against the federal government as part of a class action on behalf of current and potential investors in government bonds.

The class action called on the government to make a declaration that it had breached its duty to investors by neglecting to disclose information about how climate change might harm the value of bonds. According to reporting by the ABC, in proposed terms of settlement, published today, the government has agreed to issue a statement acknowledging that climate change is a “systematic risk” which may affect the value of its bonds.

In exchange, Ms O’Donnell has agreed to drop her request for a declaration of deceptive conduct.

What are government bonds?

Government bonds are widely recognised as one of the safest forms of investments. In Australia, most people have a stake in government bonds through their superannuation. Instead of purchasing shares in a private company, investors in government bonds lend money to the government in return for regular interest payments.

The investor has the choice of either selling their bonds early, whereby they would receive the market rate for their investment – or – they can choose to maintain their investment and receive the face value of the bond when it matures.

Why is this case important?

The proposed settlement would be the first time where a country with a AAA credit rating has officially recognised that climate change is a systemic risk which could influence the value of its bonds, according to lawyers representing Ms. O’Donnell.

A credit rating gives potential investors a risk profile for their investment (credit risk). The lower the credit rating, the less ‘safe’ and attractive potential investments are considered to be.

The Australian government’s statement will set out that climate change poses a risk the country’s “economy, regions, industries and communities” and that there is uncertainty surrounding the global shift to net zero emissions.

“As a result”, the statement continues, “there is uncertainty regarding whether the fiscal consequences of climate change might impact [exchange-traded government bonds]”.

This news comes at a time when the threat of climate change is already causing fears of future uncertainty for the Australian economy. Recent research by the University of East Anglia (UK) suggested that 59 nations (Australia among them) would experience a drop in sovereign credit rating within the next decade, without emissions reductions.

On Tuesday, the new governor of the Reserve Bank of Australia (RBA) said that mounting uncertainty brought about by climate change might make managing inflation more complicated.

“Hotter temperatures and more extreme weather will disrupt businesses, damage property and lower productivity growth”, Michele Bullock said.

She also took issue with Australia’s economic reliance on exporting fossil fuels.

‘Investments riskier unless action taken’

Joe Heffernan, Executive Director of the Conservation Council of WA said the case was another sign of the need for dramatic and meaningful cuts to emissions.

“Previously stable investments are becoming riskier as a result of runaway climate change”, he said.

“It is essential that companies and governments take material and meaningful steps to reduce greenhouse gas emissions if they are to retain functional operating models into the future.”



MEDIA INFORMATION: The Conservation Council of WA (CCWA) is the state’s foremost non-profit, non-government conservation organisation representing nearly 100 environmental organisations across Western Australia. 

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CONTACT: For any enquiries relating to this release, please contact Robert Davies

08 6558 5156 / 0412 272 570 or by email, [email protected]

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