Australian government accept climate risk to bond value 

September 7th, 2023

In a landmark settlement, the Australian government will acknowledge that the climate crisis is a systemic risk that might impact the value of sovereign bonds.

The government has agreed to publish a statement on the Department of Treasury’s website flagging that climate change represents a significant risk for the Australian economy, the Guardian reports.

The settlement results from a class action lawsuit brought by Katta O’Donnell in 2020, accusing the government of not disclosing the risks of climate change to her and other retail investors.

It is the first, and only, legal action in the world that seeks to hold a sovereign nation accountable for not disclosing the risks of climate change to sovereign bond investors.

O’Donnell noted that her bonds will mature in 2050, at which point the country will likely be facing the repercussions of climate change, which was not mentioned when she purchased the bonds.

In a statement, O’Donnell said: “As an investor, I am pleased with the proposed settlement. This is the first time a country with a AAA credit rating has acknowledged climate change is a systemic risk when talking about risks to government bonds.”

In the original lawsuit, O’Donnell requested that the government declare it had engaged in misleading conduct by not disclosing climate risks. She later dropped this request from the lawsuit.

In the case, O’Donnell represented all retail bondholders who acquired or continued to hold Australian bonds between July 2020 and December 2022.

The settlement is set to be approved by the court in October.

Since the lawsuit was filed in 2020, Australia has made some progress in introducing regulations around sustainable investing. Last month, the Australian regulator ASIC filed a lawsuit against Vanguard’s Australian entity for not applying appropriate ESG filters on some of its funds.