Two recent cases are putting Australian companies on notice that net zero emission commitments, made by companies, must be credible and substantiated.
The Federal Court on 4 November 2021, granted authority to shareholders, Guy and Kim Abrahams, to inspect all documents created by Commonwealth Bank of Australia (CBA) in relation to seven gas and oil projects that the bank played a role in financing1. The basis for the order is section 247A of the Corporations Act 2001 (Cth), which allows shareholders of a company to apply for a Court order allowing them to inspect a company’s books. The Court was satisfied that the Abrahams were acting in good faith and that the inspection they sought was made for a proper purpose in accordance with s247A.
In 2017, the Abrahams had previously brought proceedings alleging the CBA had breached its obligations under s297 of the Corporations Act to adequately disclose climate-related risk in its annual report. They also alleged that the bank failed to comply with s299A of the Corporations Act, which requires annual directors' reports to contain all information that investors need to make an informed assessment of a company's operations, financial position and business strategies. The Abrahams dropped the proceedings, after CBA made significant new climate change statements and commitments.
Four years later, the Abrahams are now concerned that the CBA’s role in financing specific oil and gas projects, including the Permian Highway Pipeline to carry natural gas in the USA, the purchase of LNG vessels and Santos Limited’s acquisition of the Barossa Gas Field are inconsistent with the bank’s climate change statements and commitments, including its 2019 Environmental and Social Framework and Environmental and Social Policy (E&S Policy).
The documents to be produced include documents relevant to CBA’s assessment of the environmental, social and economic impacts of the projects, whether CBA’s projects are in line with the goals of the Paris Agreement, the discharge of certain obligations or responsibilities under CBA’s E&S Policy, and the adoption of certain commitments in CBA’s 2021 annual report.
Inspection of CBA’s confidential documents will enable the Abrahams, with their lawyers and experts, to consider whether the bank has been involved in “greenwashing”, namely making unsubstantiated or misleading claims about the environmental status of a business or the environmental benefits of a product, service, technology or company practice.
The Abrahams' lawyer, David Barnden was reported by Reuters to claim, “[it] is the first time an Australian court has granted access to internal documentation to scrutinise a company's compliance with its net-zero climate change policy”2.
A further “test case” currently lodged in the Federal Court is the Australasian Centre for Corporate Responsibility’s (ACCR) challenge over Santos’ claims in its 2020 Annual Report that natural gas is a “clean fuel” and that Santos has a credible pathway to net zero emissions by 2040.
ACCR, represented by Noel Hutley SC and Sebastian Hartford-Davies, alleges that Santos failed to disclose in its 2020 Annual Report:
The case is a first for challenging the veracity of companies’ net zero emissions targets and also the viability of carbon capture and storage and the environmental impacts of blue hydrogen, which are commonly being used by companies to meet their net zero commitments.
The increasing litigation and scrutiny from shareholders and activists on companies net zero commitments and green credentials, means that it is critical that all statements made by companies in annual financial reports, director’s reports and disclosure documents are accurate and can be substantiated with materials and actions.
1 Guy Abrahams & Kim Abrahams as Trustee for the Guy & Kim Abrahams Family Trust v Commonwealth Bank of Australia No. NSD864/2021
2 P Duran, Reuters, “Australian court opens CBA records to answer greenwashing concerns”, 11 November 2021.