Australia to Acknowledge Climate Change Impact on Economy and Debt Costs
Australia is set to make a significant move by acknowledging the impact of climate change on its economy and borrowing costs. This decision is a proposed settlement of a class action lawsuit that alleges Australia misled investors by not disclosing climate risk when selling its debt. The terms of the settlement include a statement to be issued by the Treasury on its website, which will address this acknowledgment.
The proposed statement outlines that the government recognizes the commitments made by investors to reduce emissions in their portfolios, as well as the increasing scrutiny by credit ratings agencies regarding the relationship between climate change and sovereign debt. The Commonwealth pledges to engage with asset owners and stakeholders to address climate risk and identify opportunities. This move signifies a shift in Australia’s approach to climate change and reflects a growing understanding of the importance of addressing climate-related concerns.
Debt investors worldwide are grappling with the long-term effects of rising global temperatures and the extent to which economic growth may need to be sacrificed for countries to adapt. A recent government report estimated that Australia could face economic losses of up to A$423 billion ($274 billion) in reduced productivity if global action fails to curb extreme climate change. This emphasizes the urgency and significance of recognizing and addressing climate risks.
The lawsuit was initially filed by Kathleen O’Donnell, a law student, who accused the Australian Office of Financial Management and the Treasury of deceiving investors. The lawsuit sought to halt the marketing of Australian exchange-traded debt until climate risks were disclosed. At that time, the government, known for its support of the fossil fuel industry, maintained that climate risks did not need to be disclosed.
However, following a change in leadership, Australia has made notable commitments to combat climate change. It has set legally-binding emissions reduction targets, allocated almost A$30 billion for climate-related spending, and pledged to report annual spending through a green budgeting process. The country is also working towards establishing a sustainable finance taxonomy and a sovereign green bond program aimed at decarbonizing the economy and reducing reliance on fossil fuels.
Bill Bovingdon, Chief Investment Officer at Altius Asset Management in Sydney, believes that disclosure of climate risks will benefit investors and governments. While the impact on bond prices may not be immediate, if investors prefer green issuance over Australian debt, it may prompt a reevaluation of the nation’s progress towards meeting its emissions reduction targets.
This case is part of a broader trend of increased climate-related litigation across the world. Australia is now the second most litigious jurisdiction after the United States when it comes to climate-related cases. Pension funds and oil and gas producers have faced lawsuits alleging misleading disclosures.
Australia’s decision to acknowledge climate change’s impact on its economy and debt costs represents a significant step forward. By recognizing and engaging with climate risks, the country shows a commitment to addressing these challenges and adapting to a changing global landscape. The impact of this decision will not only resonate with investors but could also have implications for Australia’s emissions reduction targets. As the world faces increasing climate-related risks, it is crucial for governments and businesses to take decisive action and work towards a sustainable future.
