Shareholders in the Commonwealth Bank of Australia (CBA) have filed an application in the Federal Court of Australia to obtain documents relating to the bank’s decision to finance certain oil, gas and coal projects in light of its public climate commitments. The application refers to climate commitments published by CBA in 2019, and requests all documents which show how CBA assessed whether the projects were consistent with those commitments.
Although cases have been brought against financial institutions previously for disclosure of potential climate risks and of how the institution is managing those climate-related risks, this is the first case worldwide in which a claimant has requested disclosure of the way in which a financial institution is monitoring and adhering to its climate commitments.
Basis for the application
The claimants, Guy and Kim Abrahams, are shareholders in CBA and are bringing the application in their capacities as trustees of the Abrahams Family Trust. The application is made under s.247A of the Australian Corporations Act 2001, which allows a court to give shareholders the right to inspect and make copies of certain company documents if it is satisfied that they are acting in good faith and for a proper purpose.
The claimants’ application focuses on CBA’s commitment in its 2019 environmental and social policy ('E&S policy') that: 'We ensure our business lending policies support the responsible transition to a net zero emissions economy by 2050, by… only providing Banking and Financing Activity to new oil, gas or metallurgical coal projects if supported by an assessment of the environmental, social and economic impacts of such activity, and if in line with the goals of the Paris Agreement'.
CBA’s environmental and social framework ('E&S framework') clarified that 'Banking and Financing Activity' encompassed direct corporate lending, project finance, trade finance, IPOs and their distribution, risk management and transaction banking services.
The application identifies certain projects associated with oil, gas and coal which CBA is reported to have been involved in after the date of the E&S policy, and requests all documents which were created for:
- carrying out an assessment of the environmental, social and economic impacts of the projects;
- carrying out an assessment of whether the projects are in line with the goals of the Paris climate agreement;
- discharging any obligation or responsibility that any CBA unit, division or employee has under the E&S policy; and
- implementing the E&S policy more generally, and around the decision to revise the E&S policy in 2021.
The claimants’ implication is that CBA’s financing of the projects cannot be consistent with its commitments, and that if the application is successful then substantive proceedings will be brought (although the application does not say how any substantive claim would be framed).
The Abrahams previously brought a case against CBA in 2017 alleging that CBA had breached the Corporations Act 2001 by failing to disclose climate-related risks in its annual report, which they dropped when CBA made the requested disclosures in its next report.
Climate-related litigation against financial services firms is increasing steadily, and this is yet another example of litigation being brought for strategic reasons, to encourage financial services firms to change the way that they consider the allocation of capital (see our previous blog posts in relation to other strategic climate-related litigation in a financial services context here and here).
It remains to be seen whether, if the Abrahams’ application for disclosure of this material is successful, they would go on to bring substantive proceedings (and what the basis for those proceedings would be) or whether a successful application would itself be a sufficient demonstration of shareholders’ ability to hold the bank accountable for its commitments.
This is a predictable development, with the focus moving beyond prior cases that have focussed on financial institutions’ need to adopt ESG policies and their corporate disclosure. Many financial institutions are now making public climate-related commitments, and the Abrahams’ application is a good reminder that claimants are scrutinising firms’ reported activities against the commitments they have made. It also demonstrates the importance of firms having good governance and clear records around the decisions they make and the monitoring of their climate commitments.
Climate-related litigation against financial services firms is increasing steadily, and this is yet another example of litigation being brought for strategic reasons, to encourage financial services firms to change the way that they consider the allocation of capital.