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Freshfields Sustainability

| 3 minutes read

Settlement terms agreed in claim for non-disclosure of climate risk to bondholders

The Australian government has agreed to publish a statement in relation to the impacts of climate change as part of the settlement of a claim brought by Kathleen O’Donnell, a student and retail investor, against the Commonwealth of Australia. That claim related to the lack of climate change risk disclosure in the published information about the Commonwealth’s exchange-traded Government Bonds (Bonds). Ms O’Donnell was not seeking damages, but instead was seeking declaratory and injunctive relief.  The settlement terms must now be approved by the Federal Court of Australia. 

The settlement follows a period of progress in climate legislation in Australia. The Climate Change Act 2022 was passed by Parliament a year ago and includes emissions reductions targets. It also requires preparation of an annual Climate Change Statement, which is intended to improve climate change accountability. The report must cover areas such as progress against the targets set, climate change policy and the climate change risks faced by Australia. It may be that legislative developments implemented since the claim was commenced in 2020 have already achieved the strategic purposes of the litigation, and therefore Ms O’Donnell did not need to progress the claim any further.  

Allegations of misleading and deceptive conduct

Ms O’Donnell’s case would have been the first case globally in which a court considered how governments should disclose climate risk in the context of sovereign bonds, and was of particular relevance to issuers and financial institutions grappling with the practical challenges of disclosing climate risk as global markets transition towards a net zero economy. Our previous blog post on this case is available here. In short, Ms O’Donnell alleged that the Commonwealth’s failure to disclose the risks of climate change in its published information about the Bonds to investors and potential investors (including in Information Statements, Term Sheets and Information Memorandums) constituted misleading and deceptive conduct in breach of the Australian Securities and Investment Commissions Act. Ms O’Donnell successfully defended part of the Commonwealth’s strike out application in 2021, with the claim relating to misleading or deceptive conduct being allowed to proceed. However, earlier this year the Court referred to case to mediation, and a mediation took place in May.

 Terms of settlement

The proposed notice of settlement is publicly available. The settlement terms envisage that each party will bear their own costs, and that a public statement on the case will be made by the Commonwealth.

The statement includes recognition by the Commonwealth that climate change is a systemic risk to the Australian economy, and that the likely economic and climatic changes will have fiscal impacts (although the precise impact of these changes is uncertain).  

The statement also details how the Australian government is now responding to climate change, with particular focus on the steps that the government is taking to increase transparency around climate reporting and to assist investors in making their investment decisions in a way that aligns with net zero goals, as well as general developments towards a sustainable transition.   The statement culminates with the undertaking that “The Commonwealth will continue to engage with asset owners and relevant stakeholders to ensure that investors are informed as to the Commonwealth’s policy settings and actions in relation to the risks and opportunities posed by climate change.

The settlement is subject to Court approval, with the hearing scheduled for 11 October 2023.


This proposed settlement is another example of the focus by claimants in climate litigation on achieving changes in strategic direction, in particular commitments to further action and dialogue, rather than pursuing orders for declarations or an award of damages.

 Parallels can be drawn with the settlement of the Australian case of McVeigh v Retail Employees Superannuation Trust (REST) in 2020 (see our previous blog here. As part of the settlement of that case, REST acknowledged that climate change is a material, direct and current financial risk to the fund across many risk categories, including investment, market, reputational, strategic, governance and third-party risks, and also made certain commitments about future work.

The terms of both settlements go further than the Court could have ordered if breaches of the relevant duties were established – particularly in relation to the agreements to engage with relevant stakeholders. However, the settlement terms in the present case do not require far-reaching or onerous changes on behalf of the Commonwealth. As set out above, it may be the changes in the climate policy and regulatory landscape in Australia since the case was commenced in July 2020 are such that further commitments were not considered necessary.

Overall, this latest settlement, coupled with the English High Court’s recent dismissal of ClientEarth’s application for permission to bring a judicial review against the Financial Conduct Authority for approving allegedly inadequate disclosures in an energy company’s prospectus (originally reported here), means that the proper scope of climate change risk disclosures will still not be tested by the courts – in circumstances where they are increasingly important and where there are industry concerns that climate risks are being underpriced.  It therefore seems likely that the issue will resurface again soon.

"This latest settlement [...] means that the proper scope of climate change risk disclosures will still not be tested by the courts"