Two private investors are taking legal action against Commonwealth Bank of Australia (CBA) for failing to adequately disclose climate change risk in the bank’s 2016 annual report. The shareholders are being represented by Environmental Justice Australia which has filed a claim against the bank in the country’s federal court.
Environmental Justice Australia said that the proceeding was the first legal action by shareholders against a bank anywhere in the world and this would be a test of how public companies should disclose information about climate change risks in their annual reports. The specialist law firm is acting on behalf of shareholders, Guy and Kim Abrahams.
The claim alleges that as climate change risks pose material or major risks for companies by not disclosing these risks CBA failed to give a true and fair view of its financial position and performance, in contravention of section 297 of Australia’s Corporations Act. Additionally it is alleged that the directors’ report in the 2016 annual report inadequately disclosed climate change risks that investors reasonably required to make an informed assessment of the bank’s operations, financial position, business strategies and prospects for future financial years, as required by section 299A of the Corporations Act.
Abrahams v Commonwealth Bank of Australia also raises concerns about the involvement of the CBA in the Carmichael coal mine project – proposed by Indian-owned company Adani – which has faced considerable opposition in Australia. Environmental Justice Australia said the Concise Statement lodged in the Federal Court said Adani’s Carmichael project and whether it was being or would be funded by CBA was a matter of substantial controversy and concern. As such, CBA knew or ought to have known that the provision of any form of financial assistance for funding for Carmichael posed, and continues to pose, material or major risks to the bank.
The shareholders are seeking a declaration that CBA, in failing to adequately disclose climate change risks in its 2016 annual report, contravened the Corporations Act and an injunction to stop the bank making the same omissions in future annual reports.
Responding to the legal action CBA stated: “Commonwealth Bank takes its statutory reporting obligations very seriously and rejects that the 2016 Annual Report is not compliant with those statutory reporting obligations.
“Commonwealth Bank understands that climate change is a topic of public and shareholder interest and we are committed to playing our part in limiting climate change to well below 2 degrees in line with the Paris Agreement and supporting the responsible global transition to net zero emissions by 2050.”
Separately CBA is facing legal proceedings brought by Australia’s financial intelligence and regulatory agency, AUSTRAC, for what it has described as serious and systemic non-compliance with the country’s Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act 2006. Austrac has alleged that there were over 53,700 contraventions of the AML/CTF Act and that the bank failed to report suspicious matters either on time or at all involving transactions totalling over $77 million.
AUSTRAC acting chief executive, Peter Clark said that this action follows an investigation by AUSTRAC into CBA’s compliance, particularly regarding its use of intelligent deposit machines (IDMs). Austrac said CBA failed to give 53,506 threshold transaction reports (TTRs) to AUSTRAC on time for cash transactions of $10,000 or more through IDMs from November 2012 to September 2015.
Catherine Livingstone, chairman of CBA, said that since the second half of 2015, when the second half of 2015, when the alleged issues relating to TTRs in IDMs were brought to the board’s attention, there had been a programme to improve compliance. The actions taken included promptly fixing the coding error relating to the IDM TTRs; changing senior leadership in the key roles overseeing financial crimes compliance, compliance more broadly, and operational risk and recruiting more than 50 financial crime compliance professionals.
The company has responded to the action against by reducing pay levels for both executive and non-executive directors. The company said the chief executive (CEO), Ian Narev, and group executives would receive no short-term variable pay for the financial year ended 30 June 2017 while the non-executive director fees would be cut by 20 per cent in the current 2018 financial year.
Livingston stated that the decision on pay reflected: “Our view that the board, CEO and group executives take ultimate collective responsibility for the reputation of the Bank. As the Board considers the substance of AUSTRAC’s claims, it will take an active role in addressing any further management accountability for the alleged actions or omissions. The Board notes that it has no reason to believe that the allegations arose from deliberate or unethical behaviour, or any commercial motive.”Last Updated: 13 August 2017