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Shareholders sue Australian Bank over lack of Climate Risk Disclosure

written by Joel Kenrick

In Australia the Guardian reports that Commonwealth Bank shareholders sue over 'inadequate' disclosure of climate change risks (8 Aug). 'The case will be the first anywhere in the world to test in court how companies are required to disclose climate change-related risks in their annual reports, and follows calls by shareholders, regulators and central banks around the world for greater clarity. The papers were filed (pdf) on Tuesday, after which the federal court will decide how the case should proceed. The claim, brought by lawyers at Environmental Justice Australia on behalf of Commonwealth Bank shareholders Guy and Kim Abrahams, says the bank’s 2016 directors’ report did not adequately inform investors of climate change risks.'

Bar keeps getting raised on what is adequate disclosure: Emma Herd, chief executive of the Investor Group on Climate Change in Australia, said putting climate-related risk into the heart of financial reporting means it is treated very differently by the company. “It means that you have a different level of internal governance processes, a higher degree of audit and scrutiny and you report the information in a much more robust and detailed way." ... A lot of companies – not just banks – would be watching the case for potential implications any decision might have for their reporting requirements. “For banks as well as all companies, this is an area that is moving very quickly. And certainly from the investor perspective the bar keeps getting raised in terms of what is considered adequate disclosure in terms of climate-related financial risk.” (Guardian)

Climate Home report ClientEarth lawyer Daniel Wiseman as saying: “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 must consider 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.

ABC News note that 'Geoff Summerhayes, an executive board member of the Australian Prudential Regulation Authority (APRA), said it expected big companies to carefully consider the risks and warned company directors could be liable if they failed to do so.' CNN, New York Times, Responsible Investor, Reuters, and Business Green also cover. Business Insider note that in trading Tuesday 'Commonwealth Bank, which is facing a new lawsuit over climate risks, fell 1.1 percent while ANZ shed 0.4 percent and Westpac edged down 0.1 percent.'

How Climate Change Can Get You Sued: writing before the Commonwealth Bank case, Bloomberg BNA article says 'The climate is changing and so are the legal risks it will pose.' (26 July). The Task-force on Climate-related Financial Disclosures (TCFD) previously warned 'that banks can be exposed to climate risk through their borrowers, particularly if they provide loans to fossil fuel producers or agricultural and food companies. “Banks could also become subject to litigation related to their financing activities,” it said.' (Bloomberg, 11 July). 11 Banks have started a pilot project to implement the TCFD recommendations. Commonwealth Bank was not one of them. (Bloomberg, 11 July)

Australian superannuation funds criticised over climate risk: 'In a survey of Australia’s 100 largest superannuation funds, representing 99% of all large super fund assets, Market Forces found that only 18 funds, with assets totalling AUD646bn, had adequate disclosure on climate risk management. Meanwhile, 60 funds – responsible for more than AUD393bn – disclosed no tangible evidence of having considered the impact of climate risk on their investment portfolios. (IPE, 4 Aug)

Natasha Landell-Mills, head of stewardship at the UK investment manager Sarasin & Partners, wrote in the Financial Times that "Investors must scrutinise annual reports to ensure reporting on material climate risks is fair, balanced and understandable. Where they fall short, they should use their votes on the annual report and — in jurisdictions where these votes are not provided — on auditors and directors to drive home their message." (FTfm, 22 June)

The Institute and Faculty of Actuaries issued a 'Risk Alert: Climate-Related Risks' (12 May) warning that "Actuaries should ensure that they understand, and are clear in communicating, the extent to which they have taken account of climate-related risks in any relevant decisions, calculations or advice.' (via Hymans Current Issues, August 2017 newsletter)

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