Managing the trillions of dollars Australians have invested in banks and superannuation funds is vitally important to the transition to a clean energy economy. Our team has been hard at work this year providing legal support to investors and shareholders who are challenging their financial institutions on climate risk and our hard work has paid off.
In a critical step to bring Australia’s corporate sector in line with the enormity of climate risks, the Australian government’s accounting and auditing bodies have released best practice guidelines for financial statements that use two of EJA’s court cases as key examples.
The guidelines conclude that all industries impacted by climate-related risks, including banks and super funds, must consider those risks when preparing financial statements. Auditors in particular are asked to consider their professional and legal obligations.
The guidelines draw on two recent, landmark court cases brought by Environmental Justice Australia.
The first is Abrahams v CBA, a Federal Court case filed in August 2017 by investors against the Commonwealth Bank. In this case, two mum and dad shareholders alleged the bank failed to present a true and fair view of its financial position by not considering climate change risks.
The second is McVeigh v REST filed in July 2018. Mr McVeigh, a 23-year-old member of REST super fund, alleges that the fund has a legal duty to its members to consider climate risks and to share that information with its members. This case is the only case in the world seeking to clarify legal duties around climate risk for super funds that control trillions of dollars of people’s super funds. The matter is currently before the Federal Court.
These cases have shown companies they need to take climate risk seriously. Companies are warned that investors like the Abrahams and McVeigh want to know about climate risks in order to choose their investments. Directors and auditors are on notice that climate-related risks need to be incorporated into financial statements.
The bulletin Climate-related and other emerging risks disclosures: assessing financial statement materiality using AASB Practice Statement 2 can be found here.
— David Barnden, Principal Lawyer, EJA