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Climate class action points to rising trend

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A class action filed against the Federal Government for failing to disclose climate change risks attached to sovereign bonds reflects trends that could see rising actions against companies, legal firm Allens warns.

Directors’ and officers’ (D&O) insurance premiums are continuing to soar as class actions target listed companies over disclosure breaches, raising concerns over trends that could further increase risks.

The action against the Government was filed in the Victorian Federal Court late last month by a 23-year-old student on her own behalf and as a representative of retail investors and bond holders.

“Australia is becoming front and centre as a forum for activist climate change litigation against corporates, financial institutions and government,” Allens says in a note today.

“This case is a stepping stone towards more commercially focussed climate change disclosure class actions against corporations.”

The action filed in the Federal Court is the first worldwide to relate to climate change risk in the sovereign bond market.

It targets individual public office holders in relation to duties that are similar to directors’ roles, and Allens says in that regard it might serve as a caution for members of publicly listed boards.

Global broker Marsh says in a report this month that commercial insurance rates in the Pacific region surged 31% in the second quarter, fuelled in part by a further deterioration in Australia’s D&O market.

Among business lines, financial and professional liability led the way with a record 48% rise in prices, as insurers continued to withdraw from the D&O market over heightened fears of more class action claims in the future.

Allens says the claim against the Government faces some significant hurdles and does not seek compensation, but the proceedings and others like it should not be dismissed as insignificant.

“In light of the increasing focus on risks presented by climate change, governance and systems are likely to come under scrutiny, particularly in the event a climate change-related risk crystallises,” it says.