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One Aussie ESG hurdle down, many more to go

GlobalCapital Australia over ESG hurdle 001.jpg

Landmark Australian climate settlement removes a stumbling block but action is still needed

More than three years after then student and Australian retail government bondholder Kathleen (Katta) O'Donnell filed her legal challenge against the sovereign, the two have finally come to a settlement.

O’Donnell’s legal representatives, Equity Generation Lawyers, had accused the Australian sovereign of misleading investors by failing to disclose the risk that climate change poses to their holdings.

Although the settlement stopped short of requiring the sovereign to spell out explicitly just how badly climate change will wreck its debt programme, the Treasury will publish a statement on its website referring to “climate change a systemic risk” for its bond programme.

This landmark admission — the first from a triple-A sovereign — is a big step forward, but the Australian government must ensure that it does more than just make court mandated statements on its websites.

Of course, Australia has taken steps towards a more sustainable future since the suit was filed in July 2020. Labour Party leader Anthony Albanese's general election victory last year over the coal doting Liberal candidate Scott Morison ushered in a more climate-friendly administration. Labour swiftly introduced the Climate Change Act 2022 that legally enshrined a commitment to net zero emissions by 2050.

But the clock is ticking. Although year Net Zero is still 27 years away, Australia has a lot of work to do. As recently as August 31, the government was still granting new mining licences, despite the new direction of travel. The exploitation of the country's bountiful natural resources remains a key component of the economy — with close to a 10th of Australia's GDP coming from the sector.

The sovereign is set to enter the green bond market for the first time next year and its ESG credentials will be firmly in investors’ crosshairs. This week's settlement removes one albatross from around the sovereign's neck, but its strong commitment to climate intensive industry remains.