Australian student sues the government to climate-proof her pension

O’Donnell vs Commonwealth and Ors – Equity Generation Lawyers, 2020

Australian Student Sues Government Over Financial Risks of Climate Change – New York Times, July 23 2020

Australian Government sued by 23-year-old Melbourne student over financial risks of climate change – ABC News, July 22 2020

What it is, is capitalism adapting to a changing world. And what these legal cases do is say, look, for decades, the law has protected investors for decades and centuries I might add. And it still needs to protect investors and the climate change is going to cause such damage, that investors need to be informed. 

Denise: Welcome to episode #15 of New Climate Capitalism, and today we’re talking about climate litigation in Australia. 

Australia is a global hot-spot for climate lawsuits, and one of the most interesting cases going on there right now is a world-first involving a 23-year old student from Victoria who is suing the Australian government for failing to disclose climate change risk to sovereign bond investors.

To understand the case, and its implications, I talked to David Barnden, who is the founder of Equity Generation Lawyers, and he represents Katta O’Donnell in the O’Donnell v Commonwealth which was brought last year.

Let’s pause for a moment to reflect on how this case is unusual and potentially game changing. Its the first time anyone has sued a government anywhere on failing to disclose climate risk on sovereign bonds. What’s more, sovereign bonds are basically the bread and butter of pension funds. They are traditionally seen as risk-free long term investments.

But guess what? In 2019, the Swedish central bank decided to dump Western Australian and Queensland bonds from their portfolio because of climate risk concerns.

We talk about how this unusual case came about, what the stakes are and what the rest of the world can learn from it.

Our conversation really gets to the heart of some big questions about the relationship between the law, the state and the interests of capital and the public. Cases like O’Donnell v Commonwealth are not just about a new type of climate action, they could also transform the way business as usual capitalism is encoded into the law.

Personally I find this topic very exciting, so I hope you enjoy our conversation.

Denise: so today I’m talking to David Barden about climate litigation in Australia. Uh, David is founder and principal lawyer at equity generation lawyers. And we’re going to focus on a unique case, which involves a 23 year old law student from Melbourne who’s suing the Australian government over climate risk in bonds. So, uh, welcome David. 

David: Thank you for having me. 

Denise: Uh, now could you just tell us a little bit about your background and, uh, how you became a pioneer in Australian climate litigation? I mean, uh, we’re going to talk about one case, but you are actually representing a raft of different cases at the moment.

Uh, you know, w which, uh, which are all very interesting. 

David: Certainly. So, in terms of what else I studied, I studied law and environmental science as as a double degree, majoring in coastal management. So, so in that degree there was a fair bit of learning around sea level rise and climate change, I went on to work at a plaintiff’s law firm in Sydney, prosecuting shareholder class actions on behalf of investors who were misled or deceived, uh, when they made their investments, I then spent four years at Environmental Justice Australia, which is a community legal service, which focused on environmental issues. And last year I struck out on my own and have a small private practice litigating public interest, climate change cases.

Denise: And so when did you first become aware of this space, uh, because, um, I saw a graphic of, you know, the, the growth and the number of cases, I guess, over the last 10 to 15 years. And, um, you know, one point to notice that Australia is filing a lot of them. And the second point is that we really start to see a spike in these cases after 2015, which is the Paris agreement.

David: Yeah, certainly. So. The climate change litigation, we run is a bit different to the typical judicial reviews and, um, you know, other environmental actions, which might be classified as climate mitigation in Australia, at least. Um, I first ran a case in 2017 on behalf of two shareholders in the Commonwealth Bank of Australia.

Australia’s biggest bank. And they alleged that the bank failed to disclose the material risk of climate change to shareholders in its annual report. And that case ended up with the bank, making those disclosures in the next report it released, and the shareholders were happy with that. And discontinued.

So 2017 was the first time I was involved in climate change litigation. 

Denise: Right. And so right now, um, how many of these cases are you representing? 

David: We have two cases on foot. So the case we’ll talk about today, which is O’Donnell and the Commonwealth about sovereign bonds and the failure to disclose climate risks to those bonds.

The other case we have at the moment is on behalf of eight students aged 13 to 17, they are taking on the Minister for the Environment, um, alleging that she has a duty of care to younger people, to not approve projects, which will create big amounts of emissions. So, so they’re saying that. There is this duty, a Commonwealth duty for, for someone in a position of power, um, to, to protect younger people from the future harms of climate change.

Um, so, so those are the two cases on foot. And recently, uh, in November last year, we settled a case on behalf of the young superannuation fund member against a fund called Rest, um, for. Well, and that case alleged that the trustee of Rest failed to adequately implement into its, into its internal processes, um, climate change considerations, which would protect members from, from losing money.

Denise: So let’s, um, let’s dig into this case O’Donnell versus Commonwealth. Could you first explain exactly what it is and how it came about? 

David: So, Certainly. So it’s a case of a young investor, a 23 year old from Melbourne who owns a number of, uh, sovereign bonds. These are parts of debt that the government issues in order to finance day-to-day governmental operations, um, these bonds that she owns they mature in 2047 and 2050. Uh, so they’re quite long in duration. She alleges that the information available to, to bond holders when, when they buy these bonds is inadequate. So there’s no disclosure of the risks that climate change poses to her investments. And, um, and the case alleges that, that there should be.

It alleges that climate change is a material risk to, to bond holders and will influence whether they trade in government bonds. And it’s the first kind of its case in the world. It’s the only case against a sovereign nation with respect to bond issuance and disclosure of climate change risk. And it’s the only case in Australia against the Commonwealth Government for its actions on climate change.

The case deals with some interesting concepts. It deals with the reputation of Australia, um, and the efficacy of its climate policies, both domestically and it’s ambition internationally. Um, and it came about because, um, our, our client was interested in, um, litigation. We met when I was delivering a lecture at Latrobe University in, um, in 2019. And that lecture was about the Rest litigation, the Superfund litigation that I mentioned earlier. And she began to instruct us to investigate these proceedings, which, which we eventually brought.

Denise:  Um, so I want to ask about, um, uh, the client a little bit.

Katta O’Donnell must be a pretty remarkable young woman. Uh, first of all, I think, um, there are not a lot of 23 year olds out there today who invest, uh, maybe. And who, who are thinking about retirement savings and things like that was this, um, I mean, can you explain sort of a little bit how she, um, even got to the, you know, away, how did she get there?

She was she studying environmental law?

David: Yeah. So I gave a, I guest lecture in the climate law subject, and that, that lecture was about, um, investments and the risks that climate change pose to them. Um, in particular, uh, these investments were, um, superannuation funds. And, um, so there’s a dynamic there where you have younger people who, you know, have nine and a half percent of their pay put into these, um, these, these big funds and they can’t access that typically until they’re around 65 years old.

So the world’s going to look very, very different. Um, and younger people are very concerned about what the world is going to look like, um, in decades time and, and unsurprisingly so. And they will disproportionately feel the brunt of climate change above and beyond, um, older people as it gets worse.

So Katta tells me that lecture, um, inspired her and inspired her to change superfunds and inspired her to look into how, um, how investments work. Most people’s Superfunds will own government bonds. And so. So it’s not just Katta, but almost every working person in Australia will own a part of a government bond by virtue of their superannuation fund investments.

A typical fund might have up to 20% of its portfolio in fixed income or, or assets like, um, like sovereign bonds. So she became interested, um, and, um, and instructed us on this case. Um, and she bought some bonds. Um, she. Um, I don’t, she, she didn’t need to do that to bring the case.

Um, but that she owns bonds and, um, and, and here we are. So the case was filed in July last year and it’s, um, it’s going through the court system. 

Denise: So I wanted to, um, ask you about the, kind of a global context for Australian sovereign bonds. Um, because it’s also part of the context for this particular case.

Australia has this climate bad boy reputation and has done for a number of years. Um, you know, not just in the international diplomacy. Um, but as you, uh, I think you mentioned earlier, The, um, the Swedish central bank, uh, announced in 2019 that it was, uh, getting rid of Western Australia and Queensland bonds from its portfolio because of concerns about climate risk.

David: The Swedish central bank example is a good place to start because what they did in late 2019 was say that Australia as a sovereign, wasn’t known for doing good climate work. Um, and, and that’s understood, um, almost universally to, to refer to our, um, our behavior at, um, international, uh, negotiations, uh, the Conference of the parties in the UNFCCC. Sweden then undertook an analysis of domestic per capita emissions. And they, they did that with Australia and, and all of the Australian dollar bonds that it owned. It figured out that Western Australian and Queensland bonds were the bonds in the jurisdictions with the highest per capita emissions and Sweden said, look, we think that that metric represents financial risk because it shows jurisdictions.

It shows areas which, which bond issuers are in control that they’re not ready for a transition. They have really, really high emissions per, per head. Um, and that represents financial risk. Um, so, so you have a, like a combination of. Of our Australia’s top level, um, reputation and how it acts, and also how that flows through and, and because Australia’s climate policies, um, internationally and domestically, uh, uh, seem to be very poor that flows through.

And it, it means. Australian States will have very high per capita carbon emissions. And if the Swedish central bank were to ratchet up its policy, the next, um, issuer with the highest per capita emissions on its books in Australian dollars is Australia as a sovereign. 

So, so look, we, we, we see. Here a concrete example of, of, um, an investor saying, look, the reputation of Australia is contributing to my decision to sell bonds as is, um, the effectiveness of its, of its climate change policies and ambition.

So, so it’s, it’s really indicative. And it really crystallizes that risk. And it’s a good example to point to, and, and more and more we see central banks around the world. Um, members of the, the Network for Greening, the Financial System, uh, ratcheting up their policies on climate change risk.

Denise: So if these concerns and I mean, you shared with me a number of resources, um, such as report by Schroeder’s last year and other articles suggesting that, you know, there is growing awareness, um, that Australia is, uh, holding Austrlian and sovereign bonds.

Um, you know, this is increasingly risky. Uh, I wonder if that awareness. Um, has translated back home. I mean, are there any examples of, for example, Australian super funds, um, uh, which may be shifting around the way they’re the kinds of, um, domestic bonds that they’re holding?

David: It’s a good question. Um, I don’t know the answer to that.

We haven’t tracked Superfunded investment in Australian bonds. Um, I know that some of the, the Super funds, the more progressive funds and the funds more attuned to climate risks don’t actually hold Australian government bonds. Um, so that’s, that’s interesting. 

Denise: Um, is that, is that a recent development or?

David: Um, I don’t know the reasons behind that, but in our research week, we did come across some certain funds that, that didn’t hold sovereign bonds. Um, they were amongst the minority, I should say. Um, so, so it’s difficult to say in Australia, but you are exactly right. There’s more and more research, which, which points to, um, both transition risks and physical risks that Australia faces and concludes that almost out of all the countries I look at Australia has one of the worst profiles and, and is set to do the worst when it comes to bond yields and, um, and the returns that that investors can expect from their bonds. 

Denise: Um, let’s, I’m going to track back to the O’Donnell case. Um, could you talk a little bit about the timelines for the case? Uh, because, um, um, I guess it’s, it’s, it’s work in progress and you’ve been, um, you’ve had a couple of milestones in 2020, uh, uh, so could you just talk about what the timelines are and then what.

What’s your looking, you know, what are the, the, the different options for outcomes? 

David: Certainly. So the case was filed in July last year, 2020. We had our first case management conference. So the first appearance before the court, mainly to timetabling, um, on the next steps that occurred in November. At that hearing the, um, the Commonwealth and the, um, the other two respondents who, uh, uh,vernment officials, um, their representatives, uh, disclosed their intention to attempt to strike out the claim.

So, so that’s to say that the claim should never have been brought and didn’t have any, um, legal value. What the judge did after that was say, well, that might be so, but, um, we want all the parties to have all the information. And so when we filed the claim, we did it in a very, um, in a short form narrative style pleading.

Uh, so it was about five pages. Uh, and so, so the judge ordered a process where we would fully plead out the claim. Um, we now have a claim that was filed on the 23rd of December that runs to 25 pages. And in it, there’s a lot more detail on things like the reputational risk that the government faces and the reasons for that.

Um, the next step will be that the Commonwealth writes to us by the 1st of February and, um, tells us what it thinks is wrong with the claim. And then two weeks later, we get the ability to, um, to remedy that. So we, we file another version of the claims and after all of that, uh, then, then the government can make a decision on whether to, to strike it out or not.

We’re backed by very eminent barristers. So Ron Merkel QC was formerly a federal court judge. Um, so, so he’s the lead barrister on the claim. Look we’re confident about the claim and, um, if there’s no application to strike it out, or if, if the government does bring in an application we end up losing it, then we go ahead with the normal legal process and that looks like the government putting on a defense. It looks like us, um, putting on evidence and there’s usually a process of discovery as well, which means getting a hold of internal documents. So, that plays out and then you go to trial, um, and that is likely to be next year.

And of course. As you know, litigation, the, um, you know, mediation is open to the parties. Um, but, um, I guess we’ll see how everything plays out. 

Denise: And, um, there was a detail that I was interested in. You mentioned, um, you know, when we spoke before this recording about, uh, how you’ve been sort of developing maturing, the pleading as you go along and, um, you mentioned something about, um, you know, uh, the government’s policy of having a gas-led recovery.

Could you, could you sort of explain that a little bit? 

David: Certainly. So we plead physical and transitional risks to as sub-types of risks to, um, to government bonds. And, and these are very standardized buckets of risks. In terms of transition risk, that can be seen as the readiness of our government or our economy to deal with the transition that’s inevitably going to occur to a low carbon economy. 

What the claim does, is it pleads, these factors that goes to why Australia is not ready. Um, you have things in there, like a lack of a target by which to reach net zero. A pleading which talks about a lack of any policy to restrict coal oil and gas development.

We also talk about this gas-led economic recovery from the COVID recession that the government is promoting. Um, and so that that’s come about, um, as a process last year where a, um, a commission was appointed to advise the government and members of that commission did have very strong links to the fossil fuel industry and they advised the government to embark on, uh, on this so-called gas led recovery and, and that involves shoring up more gas fired power stations.

It effectively means more extraction of our gas, both offshore and onshore by fracking and the climate emissions profile of gas is pretty striking. And, you know, with methane leakage and the requirements to convert any gas to liquid for transportation means it’s very energy intensive and  in many cases, just as bad as coal.

So, the fact that Australia is promoting this as a, as a large part of its economic recovery, suggests to us and suggests to many people around the world that we are not taking climate change seriously and Australia could end up with a lot of stranded assets if this policy is implemented. 

Denise: You know, I’m sitting here in France and, uh, when we look at Australia from a great distance, one would imagine that you have this very polarized atmosphere, not exactly like the US but you know, it’s polarized in the sense that you have a fossil heavy, uh, economy.

Uh, not everyone agrees on this. And plus you have a polarizing media environment, um, uh, you know, with the Murdoch media. How has this case of Katta O’Donnell been represented in the media? 

David: That’s a really good question. The media by and large has respected the case and respected the intentions behind it. And they’ve sought commentary from experts unrelated to the case and they invariably back it in and they say, look, yeah, there’s, there’s no disclosure on climate change by the government.

Um, why should the government be held to a lesser standard and then incorporations or, or other issuers of financial products, um, for which the, the regulators in Australia strongly recommend disclosure of climate change risks. So there’s been very little pushback. Um, um, thankfully there’s been very little, um, criticism of our client who is, is very brave and, and 23 and she’s a student.

And so she’s got a lot on her plate and, um, I think she’s, she’s extremely courageous to bring this claim. That said there’s little bits and pieces around from the more conservative elements of the media. And, um, so I’m talking like Sky news and there’s some sentences or one particular Senator who purports to represent the coal industry.

Um, you know, they’ve given pushback on, on one of their other cases, but. But for this case, it’s, you know, generally, most people agree with the claim and think it makes sense. So it’s, it’s good to see. 

Denise: That’s great to hear. In France there has been quite a lot of Greta Thunberg shaming by certain conservative forces.

David: So, um, yeah, you know, it exists a little bit on Twitter, but. Two of the main newspaper mastheads in Melbourne and Sydney, the Age and the Sydney Morning Herald, hey named, um, our client Katta as one of the 40 people who mattered in 2020. And so, you know, it’s quite quite an accolade from the media, um, and it’s, there’s been no public response to the claim from the government. So it’s all very quiet on their side.

Denise: Uh, do you see this particular case as potentially groundbreaking and where, where, where is it all going? 

David: Yeah, certainly. Um, I mean, we’re, we’re in this to win. We think it’s a good case and we’re ready to prosecute it all the way, even though it may take a year or two. Um, and what we hope is to have a judgment, which says that the government does have a responsibility under Australian law to talk about material risks of climate change, um, and tell retail investors and other investors about them.

Um, and obviously that’s the lesson for other sovereigns out there as major investors start to demand this information and you’d expect to have some sort of standardized recognition of climate change as a material risk to most issuers of bonds. Um, I mean, obviously Australia is very exposed to transition risks that we’ve talked about, but also physical risks, which we saw last year with the bushfires. So that has cost our economy upwards of a hundred billion dollars. 

That’s interesting when you know, our, our debt position is standing at slightly over $700 billion. So, um, you know, these are big amounts that we’re talking about and that climate change will contribute to. 

So look, I, I think there’s the big lesson here to most sovereigns and most bond issuers, um, including state and municipal issuers as well to, um, to ratchet up their climate disclosures and tell investors exactly what’s at stake. 

Denise: I just wonder if, if, you know, if you do win the case, um, uh, what the implications, both positive and negative might be, because one can imagine a scenario in which a case like this sort of sends a message to the world that essentially Australian sovereign bonds are junk or near junk.

Right. And what does this mean for. For everybody’s pensions. What comes after that? 

David: Yeah, that’s really up, up to the market. Um, this case seeks disclosures to inform the market about risks. And so the market can make a decision, um, or investors can make their own decisions about it. The claim isn’t prescribing what those disclosures should be. It’s not saying that the government needs to say either way, you know, if they’re doing, uh, you know, bad things or good things for climate change and the economy, but they need to talk about the risks. 

But at the end of the day, look, Australia has a very sophisticated and developed economy.

Um, it has very good ratings with credit ratings agencies, but it doesn’t take away from what we say is that the risk of relating to climate change is material to investors’ decisions on whether to buy or sell bonds and can influence the price. And ultimately, if we’re talking about bonds which mature in 2050, for example. So 30 years away, it, we should be granted a peek into the future and what our economy might look like then that the damage that we might be exposed to by climate change induced events, um, and whether we’re going to transition in time or whether we’ll be punished by, by other. Um, countries or trade blocs, which, um, you know, is, is starting to be discussed, uh, certainly in Europe.

Denise:  I, I guess, um, what’s fascinating about this, um, this, this whole topic is there’s something very profound as you reflect on the possible implications.

I mean, do you see strategic climate litigation as actually a way to almost like reshape capitalism and our economic arrangements, uh, to something that’s fit for purpose in a climate changing world.

David: I think your, your last comment is spot on because what the law does is it is it protects people’s investments. And it, it sits within the broader, you know, capitalist economy. And so. You know, there’s, there’s no, there’s no sort of foreseeable chance of that structure changing, but what it is, is capitalism adapting to a changing world.

And, and what these legal cases do is say, look for, for decades, the law has protected investors for decades and centuries I might add. Um, and it still needs to protect investors and the climate change is going to cause such damage, um, that investors need to be informed. 

Um, in terms of the sort of strategic litigation piece. I mean, it is, it is interesting in that, you know, we. We vote every three years in Australia. Um, it’s, there’s more or less a binary choice between two parties. Climate change may or may not be an important or decisive factor in those elections. And, um, and there’s often not a lot of leverage that people have over  an administration that doesn’t want to do much on climate change or wants to push back.

So it certainly does bring the issue to the attention of the people that we, um, we, we are suing, the people, I guess, being the Commonwealth and these two government officials, which the claims says that in not telling investors the risks these two officials have breached what are effectively the director’s duty standard that Commonwealth officials face.

So, there’s legislation that says, if you work for the government, you need to act with care and diligence, uh, when you do your job for the public. And so, so look, this case might impact the standard at which people in parliament and in the government act, uh, with respect to climate change.

It’s potentially powerful, but at the end of the day, the litigation is, is, is brought by an investor. on behalf of, um, investors and remember this as a class action, um, seeking, seeking more information from the government. 

Denise: Terrific. Wow. So important work and, uh, lots of people all over the world are going to be following this case.

Good luck, David. Thank you very much for coming on the show. One last question. If people want to follow you and your work, uh, where should they go? 

David: Our website has information on the cases. So www.equitygenerationlawyers.com. And that’s your best place for all the up-to-date news on our cases.

Denise: Thanks very much. 

David: Thanks Denise.

Denise: That’s it for this episode, thanks for listening to New Climate Capitalism If you’d like to hear more from David, you can find him on Twitter at @dbarnden, and also go to the shownotes for this episode on our website, climatenarratives.co. 

If you’re enjoying this season of the podcast, I’d like to remind you to sign up for our newsletter, climate narratives annotated. It goes deeper on some of the issues we cover in the podcast, and provides monthly highlights from green and sustainable finance. You can find the link to subscribe in the bio of our Twitter account @NewClimateCap.

A big thanks to Valentine Scherer and Victoria Yates for their help producing this episode, and to Lucas Laufen for the theme music.