The changing ‘climate’ of litigation in Australia

20 June 2022 By Jason Gray, Anna-May Berry and Brittany Ryan

Companies should reconsider disclosure requirements in the wake of an evolving litigious landscape, write Jason Gray, Anna-May Berry and Brittany Ryan.

Recent climate litigation cases commenced in Australia alongside regulatory developments have highlighted the increasing focus of both the public and government actors on climate disclosures and environmental claims made by companies.

Companies operating in Australia should be increasingly aware of the potential risks of climate change to their businesses and how they communicate environmental and sustainability claims.

The regulatory landscape

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Several of Australia’s key regulators have made climate and sustainability-related issues a top priority. The Australian Competition and Consumer Commission, the chief competition regulator, announced that “consumer and fair trading issues in relation to environmental claims and sustainability” is an enforcement and compliance priority for 2022-2023.

Similarly, the Australian Securities and Investments Commission (ASIC), the corporate watchdog, has recently drawn attention to sustainable finance and climate change-related disclosures. ASIC has clearly stated their support for the establishment of the International Sustainability Standard Board to develop high-quality baseline climate and sustainability disclosure standards, and ASIC is also a member of the IOSCO Task Force on Sustainable Finance.

Further, the Australian Prudential Regulation Authority released its prudential practice guide on climate change financial risks in November 2021, highlighting that many of Australia’s regulators are aware of the effect of climate change on companies and are encouraging companies to consider and manage those risks.

Public interest and non-government actors

Beyond a focus from regulators, the public and non-government organisations are taking action. A number of climate-related litigation cases have been brought against companies. In 2021, the Australasian Centre for Corporate Responsibility, a research and shareholder advocacy organisation, commenced action against an Australian energy company for misleading or deceptive conduct under s1041H of the Corporations Act 2001 (Cth) and s18 of the Australian Consumer Law (schedule 2 of the Competition and Consumer Act 2010 (Cth)).

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The claim is centred on statements made by the company in its 2020 annual report that the natural gas it produces is a “clean fuel” providing “clean energy” and that they have a “clear and credible” plan to achieve “net zero” scope 1 and 3 greenhouse gas emissions by 2040. The case is ongoing and is listed for a case management hearing on 14 June 2022.

This case highlights several key takeaways for companies to consider: 

  • Companies should ensure any environmental claims they make are specific and able to be substantiated.
  • Overstated, general, or unqualified statements may be considered misleading or deceptive.
  • Companies should have reasonable grounds for making net zero and other climate or environmental commitments. This may include having clear and transparent policies and evidence of positive steps taken towards reducing emissions.
  • Any setbacks should be promptly disclosed to the market.

In another case, McVeigh v Retail Employees Superannuation Pty Ltd [2019] FCA 14, a fund member brought an action against a superannuation company for failing to disclose information relating to climate change business risks and failing to identify ways of responding to those risks in breach of the Corporations Act. Allegations were also made that the trustee failed to act with care, skill, and diligence and failed to act in the plaintiff’s best interest by not properly considering climate change risks on the fund’s investments. The case was ultimately settled in 2020. As part of the settlement, the Retail Employees Superannuation Trust agreed to take further steps to ensure the risks posed by climate change were actively considered, measured, and managed.

This case highlights that shareholders, investors, and the broader public are increasingly expecting companies to publicly disclose climate risks even where Australia does not have a mandated climate-related disclosure policy. Companies should also consider disclosing the systems, policies, and procedures in place to respond to those risks.

Changing corporate governance landscape

Australia’s corporate governance in relation to climate and environmental risks has trailed behind other countries. Earlier this year, the United States Securities and Exchange Commission proposed a new rule requiring certain companies to disclose particular climate-related information in registration statements and annual reports. The proposed rules would phase in over time, and align the United States of America alongside several countries that have already introduced mandated climate reporting. For instance, New Zealand and the United Kingdom mandated climate-related disclosures based on the Task Force on Climate-related Financial Disclosures (TCFD) framework in late 2021 and early 2022, respectively.

Broadly, the TCFD recommends organisations disclose: 

  • The organisation’s governance around climate-related risks and opportunities;
  • The actual and potential impacts of climate-related risk and opportunities;
  • How the organisation identifies, assesses, and manages climate-related risks; and
  • The metrics and targets used to assess and manage relevant climate-related risks and opportunities.

While Australia has not mandated similar disclosure requirements, both ASIC and APRA consider the TCFD framework to be best practice and have recommended that companies follow the TCFD framework. Several large companies in Australia have voluntarily implemented or are working towards implementing the TCFD recommendations, with 58 per cent of ASX 100 companies following the TCFD in 2020, according to KPMG research, including Macquarie Bank and AGL. Additionally, the growth of investor activism and climate litigation, evidenced in cases such as McVeigh, clearly demonstrate that companies (including superannuation funds) will be faced with potential claims from investors if they fail to manage climate-related risks and comply with the TCFD.

With the recent election of Labor in federal government and a record number of climate-change-focused independent and Green candidates, the Australian public has strongly signalled that it is keen for more action on climate change. We expect the federal government, alongside shareholders, investors, and regulators, to pay increasing attention to how companies are proactively managing, responding to, and communicating about climate change and sustainability.

Jason Gray is a partner, Anna-May Berry is a senior associate, and Brittany Ryan is a graduate at Allen & Overy.

The changing ‘climate’ of litigation in Australia
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