Government concedes bonds will be hit by climate in legal settlement

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The federal government has agreed to acknowledge that climate change is a systemic risk that may affect the value of government bonds in settling a class action over allegations it misled investors.

The class action was brought by a group of climate activists who alleged the government had misled investors by failing to mention climate costs when it issued bonds.

Recent heatwaves around the world are believed to have been accelerated by climate change.Credit: AP

In settling the case, the government agreed to publish a statement on the Treasury website acknowledging that as the impacts and costs of climate change on the Australian economy over the coming years are unknown, there was “uncertainty about whether the fiscal impacts of climate change may affect (if at all) the value of Commonwealth Government Securities”.

“The economic and climatic changes brought about by climate change will have fiscal impacts. For example, the new industries and jobs emerging from the net zero transformation will impact the structure of the economy and, in turn, the tax base. Extreme weather events are also expected to occur with increased severity and frequency, which will increase demand for disaster relief payments and infrastructure repairs.”

Kathleen O’Donnell, who was among those who began the action against the government in 2020, said: “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.”

“When I purchased these bonds as a 23-year-old in 2020, the government did not mention climate change. This was remarkable given that my bonds mature in 2050 and by that time Australia will be facing increasingly serious climate impacts.

“The settlement is an important recognition in the context of recent research that suggests Australia risks losing its AAA credit rating due to climate change.”

The case is part of a legal action in Australia and around the world in which litigants have sought to use the courts to force the government and the private sector to increase action on climate change.

The Australasian Centre for Corporate Responsibility has filed a federal court case against gas giant Santos over its claims natural gas is “clean fuel” and that it has a credible pathway to net zero emissions by 2040.

In addition, last year in the so-called Sharma case a group of young activists succeeded in establishing that the environment minister owed them a duty of care against harm, but failed to block a coal mine extension.

Australia is second only to the United States in climate-related legal action, according to research by the Grantham Research Institute on Climate Change and the Environment last year. The research showed that a total of 124 climate change related legal cases have been launched in Australia, more than the United Kingdom, which had seen 83 cases, and the entire European Union, which had 60.

Dr Anita Foerster, a climate law specialist at Monash University, said cases like this had played a particularly significant role in Australia when there was a reluctance by former federal governments to raise climate ambition or engage actively in climate policy and law.

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