In a landmark development, shareholders of a major Australian bank have been granted access to internal documents that record the bank's consideration of the environmental and social impacts of oil and gas projects funded by the bank.
On 4 November 2021, the Federal Court of Australia made orders by consent which require the Commonwealth Bank of Australia ("CBA") to permit the plaintiff shareholders to inspect and make copies of books and records that document the bank's decision to finance a number of oil and gas projects. The orders represent a significant new frontier in climate change litigation in Australia. It is the first high profile matter in Australia in which shareholders have sought to exercise the right to inspect the books of a company for the purpose of assessing the company's compliance with corporate ESG policies and climate-change related commitments.
As reported in our earlier Alert, the plaintiff shareholders, commenced the action against CBA in September 2021 (Guy Abrahams and Kim Abrahams as trustees for the Guy & Kim Abrahams Family Trust v Commonwealth Bank of Australia, NSD864/2021). The plaintiffs rely on section 247A of the Corporations Act 2001 (Cth) which empowers the Court to make an order authorising a shareholder to inspect books of the company, provided that the Court is satisfied that the applicant is acting in good faith and the inspection is to be made for a proper purpose.
The Court's orders were made by consent and pursuant to section 247A of the Corporations Act, and grant the plaintiffs access to various bank documents which detail decisions by the bank to fund seven fossil fuel projects. These projects include the Permian Highway natural gas pipeline in the United States and the Energy Infrastructure Investments' Tipton West coal seam gas project in Queensland, Australia (collectively "the Projects"). The orders extend to documents "created for the purpose of complying with the requirements of [certain of the bank's ESG framework and policies]". This includes all documents created by the bank in order to "carry out an assessment of the environmental, social and economic impacts of the Projects"; and to "carry out an assessment of whether the Projects are in line with the goals of the Paris Agreement".
The orders also extend to documents created by the bank which were provided to the bank's board of directors and executive leadership team ("ELT"), or which record decisions by the board or ELT, concerning the bank's adoption or implementation of certain ESG commitments.
Before the plaintiffs are granted access to the documents, the bank will have the opportunity to redact material that is subject to legal professional privilege, or which is commercially or financially sensitive (except to the extent that the commercially or financially sensitive information relates to the decisions made by CBA which are the subject of the orders).
Whilst a shareholder's right to apply to inspect a company's books is well-established in Australian law, the enforcement of that right for the purposes of focusing attention on corporate commitments to climate related risk is relatively novel. This case highlights an additional and, potentially very efficient, avenue by which shareholders might access material for the purpose of exploring a perceived misalignment between the company's business activities and its publicly-stated ESG commitments. These developments may lend themselves to a perceived new disclosure standard that the activist community expects to apply universally, including companies in jurisdictions without such far-reaching shareholder inspection rights.
Corporations and their officers should expect to see an increase in this type of ESG litigation in the future, particularly in relation to the environment, sustainability and climate change. Financial institutions in particular should expect an uptick in climate change focussed litigation because various international environmental rights organizations and plaintiffs' groups, encouraged by their recent successes against fossil fuel companies in courts around the world, have publicly stated their intention to use strategic litigation against financial institutions to deter the financing of fossil fuel projects and companies. Particularly given that context, this case highlights the importance of consistency between corporate actions and climate commitments, as well as alignment between public and internal documentation in relation to such matters.