Following our recent blog on climate change risk management and the impact on directors’ duties (read here), a recent case filed in the Federal Court (here) will explore a different angle, as the first of its kind to test the extent public companies are required to disclose climate change risks in their annual reports. The Australian Prudential Regulation Authority (APRA) has previously warned that climate change poses a material risk to the financial system and maintains its stance that companies can no longer ignore the risks of climate change just because there is some ‘controversy’ about the policy outlook.
Environmental Justice Australia has filed proceedings in the Federal Court on behalf of two shareholders of the Commonwealth Bank of Australia (CBA) against the bank, alleging that CBA failed to provide a true and fair view of its financial position in breach of section 297 of the Corporations Act by not disclosing the material or major risk posed by climate change in its annual report.
Not only are the shareholders asking the Federal Court to find that CBA breached section 297 of the Corporations Act, but it is also alleged that the director’s report within the annual report contravened section 299A of the Corporations Act by failing to disclose risks that investors reasonably require to make an informed assessment of the bank’s operations, financial position, business strategies and prospects.
While it was previously the case that climate change risks were a non-financial problem, APRA is explicit that this is no longer the case (read more here). The outcome of this case should provide sought after clarification for shareholders, regulators and banks of how companies are required to disclose climate change-related risks and will provide a great indication of how the management and disclosure of climate change impacts will continue to develop in Australian corporate law. McCullough Robertson will be watching this space with great interest.