In the wake of President Donald Trump’s June 1, 2017 announcement that the United States will withdraw from the Paris Climate Accord, one of the things I predicted was that the administration’s action likely would trigger a host of reactions on the state, national and international stage. Among other things, I conjectured that activists facing setbacks on the political stage might try to use judicial processes to advance their agenda. Though it lacks a direct connection to the U.S.’s actions on the Paris Climate Accords, a recent Australian lawsuit confirms my suggestion that activists are increasingly likely to try to use the courts as a way to promote their objectives.
On August 8, 2017, Environmental Justice Australia filed an action in the Federal Court of Australia, Victoria Registry, against Commonwealth Bank of Australia, on behalf of two Commonwealth Bank shareholders. Commonwealth Bank is a banking and financial services firm organized under the laws of Australia. Pursuant to the relevant provisions of the Corporations Act 2001, Commonwealth Bank annually prepares an Annual Report. Commonwealth Bank’s 2016 Annual Report was dated August 15, 2016.
The plaintiffs’ Concise Statement (complaint) in the recently filed lawsuit, a copy of which can be found here, alleges that in its Annual Report reflected a number of omissions with respect to climate change-related issues. Among other things, the complaint alleges that the Annual Report did not report on the company’s climate change business risk or its management of climate change risks. The complaint alleges that in making these omissions, the Annual Report “contravened” the requirements of the Corporations Act, by “failing to give a true and fair view of the financial position and performance” of the company and by failing to include information that the company’s shareholders “would reasonably require to make an informed assessment of: the operations of CBA; the financial position of CBA; and the business strategies, and prospects for future financial years, of CBA.”
In making these allegations, the complaint alleges that climate change impacts “have posed, and will increasingly continue to pose, material or major risks to: the business and financial position of many of CBA’s customers; the business and financial position of entitles in which CBA has a financial interest; [and] the operations, financial position, business strategies and prospects for future financial years of CBA.”
The complaint seeks a judicial declaration that in failing to report the company’s climate change risks, the 2016 Annual Report “contravened” the relevant sections of the Corporations Act. The complaint also seeks an injunction restraining the company from continuing to fail to report on its climate change related risks.
An August 8, 2017 news.com.au article (here) states that shareholders lawsuit is the world’s first of its kind to test the obligation to disclose climate change risk in annual reports. The article also states that Commonwealth Bank is Australia’s biggest company. Client Earth’s August 8, 2017 statement about the lawsuit can be found here.
In an August 8, 2017 press release (here), Commonwealth Bank acknowledged the filing of the climate change disclosure lawsuit, noting that “Commonwealth Bank takes its statutory reporting obligations very seriously and rejects that the 2016 Annual Report is not compliant with those statutory reporting obligations.” The press release also included the comment that “Commonwealth Bank understands that climate change is a topic of public and shareholder interest and we are committed to playing our part in limiting climate change to well below 2 degrees in line with the Paris Agreement and supporting the responsible global transition to net zero emissions by 2050.”
The lawsuit has only just been filed and it remains to be seen how it will fare. While the shareholders who filed the lawsuit undoubtedly would be happy to have the court grant their requests for declaratory and injunctive relief, their objectives in filing the lawsuit do not depend on successfully obtaining this relief. Rather, the litigants and the lawyers that represent them are seeking to draw attention to climate change related issues and to use publicity measure to put pressure on companies to focus on and to address climate change issues.
As I noted in a post just last week (here), climate change-related disclosures in general are attracting attention on a variety of fronts and from a variety of sources. Among other things, in connection with the recent G-20 meeting in Hamburg, the Financial Stability Board’s Task Force on Climate Change has released its final recommendations on climate change-related financial disclosures, along with supporting materials.
The likelihood is that the focus on climate change-related disclosures will increase. Indeed, the setback for interest groups on the political front associated with the U.S. Presidential administration’s withdrawal from the Paris Climate Accords increases the likelihood that the various actors may resort to other measures – including among other things litigation activity — to try to advance their agendas. The recent lawsuit filed in Australia against Commonwealth Bank reinforces the point. The lawsuit surely will not be the last one of the type, as activists seek to use the use the courts and the publicity surrounding lawsuits that they file as a way to advance climate change related awareness.
A couple of observations about the recently filed Australian lawsuit. The first has to do with the statement in the Australian press that the lawsuit is the first of its type. It may indeed be the first to try to use the courts to compel additional Annual Report disclosure. But it is not the first lawsuit filed about climate change disclosure. As discussed here, in November 2016, Exxon shareholders filed a lawsuit in federal court in Texas against the company and certain of its directors and officers (including the current U.S. Secretary of State, Rex Tillerson) pertaining to the company’s climate change-related disclosures.
The other interesting note about the Commonwealth Bank lawsuit is that it is filed only against the company itself, not against the company’s board or senior executives. The lawsuit does not allege that any specific individuals violated their duties to shareholders and does not seek the recovery of damages (by contrast to the Exxon lawsuit filed late last year in the U.S.). It may be that in order to accomplish their objectives of trying to put pressure on Commonwealth Bank to modify its disclosures going forward, the claimants and their attorneys did not feel obliged to include these kinds of breach and damages allegations.
A couple of final predictions. I think we will see more of these kinds of lawsuits, in a number of different countries, as activists continue to try to force companies to address climate change issues. The recent action of the Financial Stability Board ensures that these issues will remain in the forefront. My other prediction is that lawsuits increasingly (and particularly in the U.S.) will include allegations against individual corporate officials of breach and damages.
To be sure, I have been predicting a rise of climate change related litigation for some time now, and notwithstanding the Commonwealth Bank and Exxon lawsuits, climate change-related corporate litigation has not yet accumulated in significant amounts. Climate change-related corporate litigation may not amount to a significant litigation phenomenon. I still think it represents a risk that companies face as they look ahead.