‘A wake-up call’: why this student is suing the government over the financial risks of climate change

Katta O'Donnell bringing class action lawsuit against Aust government. M Townsend

by Jacqueline Peel and Rebekkah Markey-Towler, The Conversation:  https://theconversation.com/a-wake-up-call-why-this-student-is-suing-the-government-over-the-financial-risks-of-climate-change-143359

As the world warms, the value of “safe” investments might be at risk from inadequate climate change policies. This prospect is raised by a world-first  climate change case, filed in the federal court last week.

Katta O’Donnell – a 23-year-old law student from Melbourne – is suing the Australian government for failing to disclose climate change risks to investors in Australia’s sovereign bonds.

Sovereign bonds involve loans of money from investors to governments for a set period at a fixed interest rate. They’re usually thought to be the safest form of investment. For example, many Australians are invested in sovereign bonds through their superannuation funds.

But as climate change presents major risks to our economy as well as the environment, O'Donnell’s claim is a wake-up call to the government that it can no longer bury its head in the sand when it comes to this vulnerability.

O’Donnell argues Australia’s poor climate policies – ranked among the lowest in the industrialised world – put the economy at risk from climate change. She says climate-related risks should be properly disclosed in information documents to sovereign bond investors.

O'Donnell’s arguments

O'Donnell’s claim alleges that by failing to disclose this information, the federal government breaches its legal duty. It alleges the government has engaged in misleading and deceptive conduct, and government officials breached their duty of care and diligence.

This is a standard similar to that owed by Australian company directors. Analysis from leading barristers indicates that directors who fail to consider climate risks could be found liable for breaching their duty of care and diligence.

O'Donnell argues government officials providing information to investors in sovereign bonds should meet the same benchmark.

Climate change as a financial risk

Under climate change, the world is already experiencing physical impacts, such as intense droughts and unprecedented bushfires. But we’re also experiencing “transition impacts” from steps countries take to prevent further warming, such as transitioning away from coal.

Combined, these impacts of climate change create financial risks. For example, by damaging property, assets and operations, or by reducing demand for fossil fuels with the risk coal mines and reserves become stranded assets.

This thinking is becoming mainstream among Australian economists. As the Australian Prudential Regulation Authority’s Geoff Summerhayes put it:

When a central bank, a prudential regulator and a conduct regulator, with barely a hipster beard or hemp shirt between them, start warning that climate change is a financial risk, it’s clear that position is now orthodox economic thinking.

Why safe investments are under threat

Sovereign bonds are a long-term investment. Katta O’Donnell’s bonds, for example, will mature in 2050. These time-frames dovetail with scientific projections about when the world will see severe impacts and costs from climate change.

And climate change is likely to hit Australia particularly hard. We’ve seen the beginning of this in the summer’s ferocious bushfires, which cost the economy more than A$100 billion.

Over time, climate risks may impact sovereign bonds and affect Australia’s financial position in a number of ways. For example, by impacting GDP when the productive capacity of the economy is reduced by severe fires or floods.

Frequent climate-related disasters could also hit foreign exchange rates, causing fluctuations of the Australian dollar, as well as putting Australia’s AAA credit rating at risk. These risks would reduce if the government took climate change  more seriously.

Already, some investors are voting with their feet. Last November, Sweden’s central bank announced it had sold Western Australian and Queensland bonds, stating Australia is “not known for good climate work”.

Unprecedented, but not novel

O’Donnell’s case against the federal government is an unprecedented climate case, even if its arguments are not novel.

Australia has been a “hotspot” for climate litigation in recent years, but the O'Donnell case is the first to sue the Australian government in an Australian court.

Previous cases suing governments have often raised human rights, such as the high-profile Urgenda case in 2015 against the Dutch government – the first case in the world establishing governments owe their citizens a legal duty to prevent climate change.

A Dutch court ordered the government to cut the country’s greenhouse gas emissions by at least 25 percent by 2020. AP Photo/Peter Dejong

The O'Donnell case is also unique in its focus on sovereign bonds. But cases alleging misleading climate-related disclosures are themselves not new.

In Australia, shareholders sued the Commonwealth Bank of Australia in 2017 for failing to disclose climate change-related risks in its 2016 annual report. The case was settled after the bank agreed to improve disclosures in subsequent reports.

In another headline-making case, 23-year-old council worker  Mark McVeigh is taking his superannuation fund, Retail Employees Superannuation Trust, to court seeking similar disclosures.

The O'Donnell case builds on this line of precedent, extending it to disclosures in bond information documents. As such, courts will likely take it seriously.

What precedent might it set?

If the O'Donnell case is successful it could establish the need for disclosure of climate-related financial risks for a range of investments.

At a minimum, a ruling in O'Donnell’s favour may compel the Australian government to disclose climate-related risks in its information documents for investors. This might make people think twice about how they choose to invest their money, especially as investors seek to “green” their portfolios.

It could also give rise to litigation using the same legal theory in sovereign bond disclosure claims against other governments, much in the way that the Urgenda case has spawned copycat proceedings from Belgium to Canada.

Whether the case provides the impetus for further government action to improve the effectiveness of Australia’s climate policies remains to be seen.

Still, it’s clear climate-related financial risks have entered the corporate boardroom. With this case, they’ve now come knocking at the government’s door.

Australia has an ugly legacy of denying water rights to Aboriginal people. Not much has changed

by Lana Hartwig, Natalie Osborne, and Sue Jackson, The Conversation:   https://theconversation.com/australia-has-an-ugly-legacy-of-denying-water-rights-to-aboriginal-people-not-much-has-changed-141743

Water management in the Murray-Darling Basin has radically changed over the past 30 years. But none of the changes have addressed a glaring injustice: Aboriginal people’s share of water rights is minute, and in New South Wales it is diminishing.

In the 1990s, governments tried to restore the health of rivers in the basin by limiting how much water could be extracted. They also separated land and water titles to enable farmers to trade water.

This allowed the recovery of water for the environment and led to the world’s biggest water market, now worth billions of dollars. For a range of reasons, Aboriginal people have largely been shut out of this valuable water market.

Our research, the first of its kind, shows Aboriginal water entitlements in the Murray-Darling Basin are declining, and further losses are likely under current policies. This water injustice is an ongoing legacy of colonisation.

Aboriginal people have largely been shut out of the market. Shutterstock

An unjust distribution of water

A water use right, also called a licence or entitlement, grants its holder a share of available water in a particular waterway. Governments allocate water against these entitlements periodically, depending on rainfall and water storage. Entitlement holders choose how to use this water. Typically, they extract it for purposes such as irrigation, or sell it on the temporary market.

We mapped Aboriginal water access and rights in NSW over more than 200 years, including the current scale of Aboriginal-held water entitlements.

Across ten catchments in the NSW portion of the Murray-Darling Basin, Aboriginal people collectively hold just 12.1 gigalitres of water. This is a mere 0.2% of all available surface water (as of October 2018).

By comparison, Aboriginal people make up 9.3% of this area’s population.

The value of water held by Aboriginal organisations was A$16.5 million in 2015-16 terms, equating to just 0.1% of the value of the Murray-Darling Basin’s water market.

We wanted to understand how these limited water rights affect Aboriginal people today, and the challenges, if any, they face in holding onto these entitlements. This required examining Australia’s water history and its systems of water rights distribution.

What we found were key moments when governments denied Aboriginal people water rights and, by extension, the benefits that now flow from water access. This includes the ability to use water for an agricultural enterprise, or to temporarily trade water as many other entitlement holders do. We describe these moments as waves of dispossession.

The first wave of dispossession

Under colonial water law, rights to use water, for example for farming, were granted to whoever owned the land where rivers flowed. This link between water use and land-holding remained in place until the end of the 20th century.

As a result, Aboriginal people, whose traditional ownership of land (native title) was only recognised by the Australian High Court in 1992, were largely denied legal rights to water.

Water entitlements held by Aboriginal by catchment in the NSW portion of the MDB (as at October 2018)

The second wave

During the last quarter of the 20th century, governments introduced land restitution measures, such as the NSW Aboriginal Land Rights Act (1983), to redress or compensate Indigenous peoples for colonial acts of dispossession.

We found water entitlements were attached to some of the land parcels that were transferred to Aboriginal ownership under these processes – but this was the exception.

Land restitution processes intentionally restricted what land Aboriginal people could claim. They were biased against properties with agricultural potential and, therefore, very few of the properties that were returned to Aboriginal ownership came with water entitlements.

At this crucial juncture in land rights reform, federal and state governments entrenched the inequity of water rights distribution by increasing the security of the water rights of those who historically held entitlements. Governments have yet to pay serious attention to the claims of Aboriginal people who see a clear connection between the past and the present in the distribution of water entitlements.

We found key moments when governments denied Aboriginal people water rights and the benefits that come with it. AAP Image/Dean Lewins

The native title framework has not helped the situation either. Native title is the recognition that Indigenous peoples have rights to land and water according to their own laws and customs.

But it’s difficult for those making a native title claim to get substantial interests in land and waters. The Native Title Act 1993 defined native title to include rights to water for customary purposes and courts are yet to recognise a commercial right to water.

The third wave

We also identified a third wave of dispossession, now underway. From 2009 to 2018, the water rights held by Aboriginal people in the NSW portion of the Murray-Darling Basin shrunk by at least 17.2% (2.0 gigalitres of water per year). No new entitlements were acquired during this decade.

The decline is attributable to several factors, the most significant being forced permanent water (and land) sales arising from the liquidation of Aboriginal enterprises.

With water rights held by Aboriginal people vulnerable to further decline, the options for Aboriginal communities to enjoy the wide-ranging benefits of water access may further diminish.

We expect rates of Aboriginal water ownership to be even smaller in other parts of the Murray-Darling Basin (and in jurisdictions beyond the Basin). Research is underway to explore this.

The Productivity Commission is currently reviewing the progress of reform in Australia’s water resources sector. AAP Image/Lukas Coch

Australia urgently needs a fair national water policy

The Productivity Commission is now reviewing Australian water policy, and must urgently address the injustices faced by Aboriginal people.

In developing a just water policy, governments must work with First Nations towards the twin goals of redressing historical inequities in water access and stemming further loss of water rights. Treaty negotiations may offer another avenue for water reform.

Over recent decades, Australia has been coming to terms with its colonial history of land management, returning more than a third of the continent to some form of Indigenous control under a “land titling revolution”.

But a water titling revolution that reconnects water law and policy to the social justice agenda of land restitution is long overdue. Indigenous peoples must have the opportunity to care for their land and waters holistically, and share more equitably in the benefits of water use.

To save our leisure centres from closure, we may need to hand them to the community

by Lindsay Findlay-King, The Conversation:  https://theconversation.com/to-save-our-leisure-centres-from-closure-we-may-need-to-hand-them-to-the-community-142210?

Jacob Lund/Shutterstock

Despite the UK’s coronavirus lockdown beginning to ease in June, the majority of swimming pools, gyms and leisure centres are still waiting to reopen.

This slow return – together with a lack of government financial support and the anticipated tentativeness of consumers – means that many public leisure services are facing significant difficulties. For some, costs already incurred under lockdown may mean reopening isn’t possible.

Most UK leisure services are operated by charitable trusts. Following four months of services being closed, Community Leisure UK – the members’ association for leisure trusts – suggests that up to 35% of all public leisure facilities will be unable to reopen and that 48% face closure by the end of the year.

Last month, Vivacity – a charitable trust running libraries, pools and gyms in Peterborough – gave notice that it would need to return all its facilities to its local authority. Other trusts have received bailouts from local councils, but an urgent need for government support remains.

But with such support not forthcoming, an alternative could be for public leisure services to be passed into the hands of the community. This has happened before in times of austerity, particularly in 2011, when local authorities sought to offload leisure assets that they couldn’t afford to operate. The more marketable assets were taken on by trusts, while communities stepped in to save others.

Now that we have a situation where more leisure facilities may be at risk, communities could again step in. In fact,  research my colleagues and I did shows that community-run leisure services are a particularly viable option.

The rise of community-led services

The provision of public sport and leisure facilities was already vulnerable before the pandemic. Historically, local authorities have been the main provider, after a spurt of leisure centre building from the 1970s onwards. Gradually other types of providers arrived on the scene, although in 2006 local authorities were still the largest operator (controlling 42% of the sector).

But since then, mounting financial pressures on local authorities have seen a year-on-year decline in their involvement. Many leisure facilities have closed; the majority of those left are now operated by charitable trusts. The pandemic means that these are now feeling the pinch.

Alongside these, there have always been some facilities run by local community groups. Often these arrangements developed from campaigns to save facilities threatened with closure. Community-led set-ups differ from the larger trusts as they are small, led by volunteers and usually operate only one facility.

We’ve explored the transfer of sport facilities to volunteer-led community groups over the past 10 years, and our findings  have shown many benefits. Services are more responsive to local needs, programmes are more creative and – importantly right now – costs can be reduced.

Community-led leisure centres can be more responsive to what people want – if a class isn’t popular, it’s replaced. stockfour/Shutterstock

The small size of these community groups means they are able to closely monitor expenses, such as energy and other utilities and services, and shop around for the best prices. Having volunteers who help with day-to-day tasks and staff with interchangeable job roles can also keep staffing costs down.

We also found that activities running in centres are often reassessed so that space use is maximised. If a gym class fails to attract customers, it’s swapped out of the programme straight away to save money. Community-led provision allows for quick decisions to be made that are well suited to a specific facility and community. Larger organisations often don’t have this flexibility – they may be forced into providing set offerings.

Indeed, as one of the community trustees in our research said: “If you’re a larger local authority or even a larger leisure trust … you get told to roll out the corporate offers, and those corporate offers might not necessarily be what the local community wants or needs.” But when you’re a small organisation, “you can make decisions based on what locals want”.

However, behind the benefits, many people we interviewed also spoke of challenges. The transfer and management of these facilities requires volunteers to give up significant time. Volunteers also need to have the appropriate knowledge, skills, confidence and tenacity to make the new set-ups work.

Running a community sports facility is therefore more challenging for some community groups than others, depending on levels of social capital, community stability and interest in facilities. We heard evidence of community ownership which had failed for some of these reasons.

It’s important to note that community-run services still rely on support from their local authority to survive – in the form of peppercorn rents and rate relief, but also advice. We found some evidence of effective local authority support being given to community groups, but many we spoke to said support was insufficient and they had to develop their own knowledge and skills base.

But capacity is stretched everywhere

What about this time around? How are communities or grassroots sports organisations placed if they need to step up and take on new facilities?

The pandemic has had far-reaching effects on communities. Changes in job security, the toll on health and stress levels may impact on the capacity to volunteer. Communities may also have multiple needs as they recover and people may volunteer depending on where they view help is most needed. In such a changed landscape, helping save a local sports facility may not be as important as in the past.

The financial position of sport organisations and local authority services which community set-ups might call upon for assistance is also precarious. This may make things more challenging too.

When communities save their local leisure facilities, their model of delivery can be effective, but they need support. Local authorities, sport governing bodies and national sport organisations need to plan now to give communities the best possible chance of succeeding.

VIDEO: What if you could help decide how the government spends public funds?

by Shari Davis, TED 2020: https://www.ted.com/talks/shari_davis_what_if_you_could_help_decide_how_the_government_spends_public_funds 

What if you could help decide how the government spends public funds in your community? That's the idea behind participatory budgeting, a process that brings local residents and governments together to develop concrete solutions to real problems close to home. In this inspiring call to action, community leader Shari Davis shows how participatory budgeting can strengthen democracy, transform neighborhoods and cities -- and give everyone a seat at the table. "We've got to open the doors to city halls and schools so wide that people can't help but walk in," she says. 

This talk was presented at an official TED conference, and was featured by our editors on the home page.

Modern Monetary Theory: the rise of economists who say huge government debt is not a problem

by John Whittaker, The Conversation:  https://theconversation.com/modern-monetary-theory-the-rise-of-economists-who-say-huge-government-debt-is-not-a-problem-141495

There is no limit to the quantity of money that can be created by a central bank such as the Bank of England. It was different in the days of the gold standard, when central banks were restrained by a promise to redeem their money for gold on demand. But countries moved away from this system in the early part of the 20th century, and central banks nowadays can issue as much money as they like.

This observation is the root of modern monetary theory (MMT), which has attracted new attention during the pandemic, as governments around the world increase spending and public debts become all the more burdensome.

MMT proponents argue that governments can spend as necessary on all desirable causes – reducing unemployment, green energy, better healthcare and education – without worrying about paying for it with higher taxes or increased borrowing. Instead, they can pay using new money from their central bank. The only limit, according to this view, is if inflation starts to rise, in which case the solution is to increase taxes.

MMT’s roots

The ideas behind MMT were mainly developed in the 1970s, notably by Warren Mosler, an American investment fund manager, who is also credited with doing much to popularise it. However, there are many threads that can be traced further back, for instance to an early 20th-century group called the chartalists, who were interested in explaining why currencies had value.

These days, prominent supporters of MMT include L Randall Wray, who teaches regular courses on the theory at Bard college in Hudson, New York state. Another academic,  Stephanie Kelton, has gained the ear of politicians such as Bernie Sanders and, more recently, Democrat US presidential candidate Joe Biden, providing theoretical justification for expanding government spending.

There are more strands to MMT besides the idea that governments don’t need to worry overly about spending. For instance, supporters advocate job guarantees, where the state creates jobs for unemployed people. They also argue that the purpose of taxation is not, as mainstream economics would have it, to pay for government spending, but to give people a purpose for using money: they have to use it to pay their tax.

But if we overlook these points, the main policy implication of MMT is not so controversial. It is not too far from the current  new-Keynesian orthodoxy which advises that if there is unemployment, this can be cured by stimulating the economy – either through monetary policy, which focuses on cutting interest rates; or through the fiscal policies of lower taxes and higher spending.

Against this position is the monetarist doctrine that inflation is caused by too much money, and the common belief that too much government debt is bad. These two principles explain why central banks are strongly focused on inflation targets (2% in the UK), while the aversion to debt in the UK and elsewhere was the driving force behind the “austerity” policy of cutting government spending to reduce the deficit – at least until the coronavirus pandemic made governments change direction.

The crux

So, who is right – the MMT school or the fiscal and monetary conservatives? In particular, is it sensible to pay for government spending with central bank money?

When a government spends more than it receives in taxation, it has to borrow, which it usually does by selling bonds to private sector investors such as pension funds and insurance companies. Yet since 2009, the central banks of the UK, US the eurozone, Japan and other countries have been buying large amounts of these bonds from the private-sector holders, paying for their purchases with newly created money. The purpose of this so-called “quantitative easing” (QE) has been to stimulate economic activity and to prevent deflation, and it has been greatly expanded in response to the pandemic.

At present in the UK, over £600 billion or 30% of government debt is effectively financed by central bank money – this is the value of government bonds now held by the Bank of England as a result of QE. There are similar high proportions in the other countries that have been undertaking QE.

Despite all this creation of new central bank money and the large increase in government debt in the UK and other large economies since the financial crisis of 2007-09, nowhere has there been a problem with inflation. Indeed, Japan has struggled for three decades to raise its inflation rate above zero. This evidence – that neither large debt nor large money creation has caused inflation – seems to vindicate the MMT policy recommendation to spend.

UK public debt as a % GDP

Trading Economics

Of course, there are many counterexamples in which these conditions have been associated with hyperinflation, such as Argentina in 1989, Russia at the breakup of the Soviet Union, and more recently Zimbabwe and Venezuela. But in all these cases there was an assortment of additional problems such as government corruption or instability, a history of defaults on government debt, and an inability to borrow in the country’s own currency. Thankfully, the UK does not suffer from these problems.

Since the outbreak of the coronavirus pandemic, UK government spending has been rapidly increasing. Debt is now about £2 trillion or 100% of GDP. And the Bank of England, under its latest QE programme, has been buying up UK government bonds almost as fast as the government is issuing it.

Thus the crucial question is: will inflation remain subdued? Or will this vast new increase in QE-financed government spending finally cause inflation to take off, as the easing of lockdown releases pent-up demand?

If there is inflation, the Bank of England’s task will be to choke it off by raising interest rates, and/or reversing QE. Or the government could try out the MMT proposal to stifle the inflation with higher taxes. The trouble is that all these responses will also depress economic activity. In such circumstances, the MMT doctrine of free spending will not look so attractive after all.