Shareholders sue CBA (Commonwealth Bank of Australia) on climate risk disclosure. The claimants argue the lack of disclosure contravenes parts of the Australian Corporations Act law.
I think this is an intriguing new development in the activism front. Mainly activism has focused on AGM activism, where shareholder take climate related disclosure and risks to a proxy vote (see recent actions by Share Action, Aiming for A; and the recent debate over Exxon's proxy). This relies on a companies' articles of association etc. and a shareholder vote. It is often non-binding.
This approach relies on Company / Corporation Law - which varies country to country but tends to have similar principles (see below). It is likely much more costly, but an assessment by an independent judge and enforcement by law courts carries potentially more weight. It will be binding.
This also opens up a possibility that certain claimants will use ERISA law in the US to pursue a similar line of argument with Fund Managers / Trustees. (see my arguments on this in a forthcoming post).
The Australian case focuses on sections 297 and 299A of the Corporations Act. Section 297 says annual financial statements must present a “true and fair view” of the financial position and performance of the company. Section 299A says the financial report must contain enough information to allow people to make an informed assessment of the company’s financial position, business strategies and future prospects.
You can read the short form claim here.
"The Applicants seek a declaration that CBA, by failing to report on CBA’s Climate Change Risks, the Carmichael Risks, CBA’s Management of its Climate Change Risks and CBA’s management of the Carmichael Risks in the 2016 Annual Report contravened ss292(1)(b), 295, 297, 298(1) and (1AA), and 299A(1) of the Corporations Act; and
an injunction under s 1324(1) of the Corporations Act:
i. restraining CBA from continuing to fail to report on the risks set out in sub-paragraph a,
and on CBA’s management of those risks, in CBA’s Annual Reports; alternatively
ii. requiring CBA to report on the risks set out in sub-paragraph a, and on CBA’s management of those risks,in CBA’s Annual Reports;"
"Guy Abrahams, one of the claimants and a chief executive of not-for-profit Climarte Inc, said in a statement: “We bought Commonwealth Bank shares more than 20 years ago as an investment in our children’s future.
“We are deeply concerned about the serious risks climate change poses to the environment and society. The bank should tell investors about the risks climate change will have on its business.”
Also from the Guardian article: "The sorts of risks the Commonwealth Bank might face as a result of climate change are diverse, said David Barnden, a lawyer at Environmental Justice Australia.
“CBA has exposure to the Australian economy in general. We could be talking about anything from extractive projects to the housing market, which might face risks from sea level rise,” Barnden said.
Reputational risks for the bank as the economy moves away from fossil fuels could also be significant, Barnden said, with the shareholders raising concerns about the bank’s position on funding Adani’s proposed Carmichael coalmine and associated infrastructure.
“There is an aspect of the claim that looks at the reputational and financial risks the Carmichael mine might pose to the bank,” Barnden said. “We say that CBA ought to have known of those risks and should tell investors what its plans are with respect to the mine and if it is considering financially supporting the mine.”
Another part of the claim focuses on the Commonwealth Bank not disclosing any climate-related risks as major or material risks. “When the bank talks about major or material risks to the bank, we say it should be talking about climate change,” said Banden."