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Shareholder sues CBA: What it means for investors

·Finance reporter
·3-min read
The Commonwealth Bank logo on a smartphone (Source: Getty Images)
A Federal Court has ordered Commonwealth Bank Australia to hand over inhouse documents on their oil and gas projects amid concerns it breaches the Paris agreement. (Source: Getty Images)

CBA shareholder Guy Abrahams has had an initial win in the Federal Court which has ordered the Commonwealth Bank Australia (CBA) to hand over confidential documents detailing decisions to finance oil and gas projects, possibly against their own climate policy.

The win was the first time an Australian court has granted access to in-house documents to investigate whether a company complies with its net-zero climate change policy. But what does it mean for investor rights and are we likely to see future wins for shareholder activists?

Threat of ‘honest idiots’

Australia has continuous disclosure laws to protect the integrity of the market. As well as providing twice yearly detailed profit reports, they require companies to immediately inform investors of anything that could affect the share prices of their investment.

All ASX-listed companies that individuals or superannuation funds can buy shares in are obligated under the continuous disclosure laws to inform you. This gave shareholders opportunities for class actions when the disclosure was breached like the 2011 Gunns' class action the Tasmanian wood company who’s managing director John Gay was convicted for insider trading.

However, in August 2021 Treasurer Josh Frydenberg made permanent amends to the laws so that companies and officers will only be liable for civil penalty proceedings around continuous disclosure where they have acted with “knowledge, recklessness or negligence”. 

The news has been seen as a watering down of legislation that allows companies and directors to claim naivety as ‘honest idiots’ to avoid penalties.

Although under the changed laws shareholders could still sue companies for breaches of honest disclosure, they may not succeed in suing directors and officers’ insurance, which could prevent seeing the return of lost investments.

What rights do investors have?

As a shareholder of an ASX-listed company you have rights that include:

  • Attend and participate in the Annual General Meeting and voting either in person or by proxy

  • Receive a detailed annual report including company financials in either a full or condensed form.

  • Be informed of any significant announcements that could affect the share price

  • Receive dividends twice a year which you may receive as additional shares (through a dividend reinvestment plan)

  • Participate in corporate actions such as share buybacks or mergers.

Will more ethical investors to take action?

The real future impact of the current CBA decision will be what the information actually shows. If there is a clear difference in investing practices that conflicts with climate change policy, then there is a potential case for breaching directors duties.

This may be the start of a new era of climate change litigation where shareholders can hold the companies they invest in accountable for their policy commitments.

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