As the litigation funding market continues to grow and evolve, funders are placing a higher value on environmental, social and governance (ESG) issues. This development raises questions about the connection between ESG and litigation funding, how funders currently treat ESG, and what the future of ESG in litigation funding will look like.
The following article will provide answers to these questions and provide a general overview of the state of ESG in litigation funding.
What is ESG and why is it important?
ESG encompasses environmental issues such as air or water pollution, social issues such as customer privacy and data security, and governance issues such as transparency. ESG activities have moved to the forefront of the agenda of many companies over the past decade. In some cases, this concentration may be self-imposed, but it is often a legal requirement as well. Even if companies promote ESG to satisfy customers and shareholders, they do not always respect these values and/or laws. As the number of ESG-related laws and regulations increases, compliance will become a higher priority for companies and investors. Litigation exists as both a deterrent and a regulator of ESG non-compliance.
ESG cases in response to corporate non-compliance create the link between ESG and litigation funding. As stated by Tets Ishikawa, Managing Director of LionFish Litigation Finance, ESG litigation financing has a key role to play in helping companies achieve their ESG goals.
However, business leaders are not the only ones concerned by ESG issues; sophisticated investors also recognize the importance of ESG. Responsible investment in ESG causes is often an obligation for pension fund managers and other asset allocators. Even where this is not the case, investors increasingly see ESG as a priority, with 85% of investors interested in sustainable investing.
Donors pursuing ESG matters
Major players in the litigation funding space are already talking about or pursuing ESG investing. Backers like Therium, Woodsfood, North Wall Capital and Litigation Lending Services have prioritized ESG cases, and more backers are likely to join them in the coming years.
One of the leading lenders in litigation, Therium, stresses the importance of ESG as part of broader responsible investment efforts. Funding an ESG legal action, the funder says, makes justice more accessible for those harmed by ESG violations. Litigation funding helps pursue these claims, even when plaintiffs lack the resources to fund extensive legal battles.
Woodsford is another litigation funder touting the value of ESG litigation. Bob Koneck, director of LitFin and legal counsel at Woodsford, highlighted the potential of ESG litigation as a tool for improving corporate reputation. He says companies can position themselves as ESG leaders through litigation, while recovering money to use for other ESG initiatives. This is a unique perspective on the value of ESG litigation that speaks to the potential these cases have for companies.
Last week’s news cycle illustrates how entrenched the concept of ESG litigation has become in the litigation funding ecosystem, as new entrants and established players make waves on the topic. North Wall Capital recently announced a $100 million investment in law firm Pogust Goodhead, specifically to fund ESG cases. Fabian Chrobog, chief investment officer of North Wall, says ESG investing makes practical sense because these cases maintain a higher likelihood of settlement than most other types of claims. And Paul Rand, Chief Investment Officer of Omni Bridgeway, recently revealed that the long-time funder is planning to launch an ESG Finance fund. According to Rand, Omni is currently testing bespoke techniques to value and assess ESG risk management.
ESG Cases Funded by Litigation Funders
Airbus case financed by Woodsford
The Woodsford-funded Airbus case is one of the leading ESG cases organized and financed by a funder. Investigations by international authorities, including the US Department of Justice, have revealed that Airbus SE, a manufacturer of military and civil aerospace products headquartered in Europe, participated in a bribery and large-scale corruption. In 2020, the company was forced to pay billions of dollars in fines to resolve these corruption charges, causing its share price to drop significantly.
Investors in Airbus suffered severe losses as a result of these violations of ESG principles and the failure of Airbus to disclose its conduct to the public in a timely manner. This is where backer Woodsford got involved. Woodsford organized the affected investors into a special purpose entity, Airbus Investors Recovery Limited (AIRL), which is currently pursuing legal action against Airbus in Amsterdam to recover the losses.
Woodsford’s ESG team is funding and organizing this action. Without such involvement, plaintiffs might not have been able to bring an action against such a deep-pocketed large corporation. Being able to hold large companies like Airbus accountable for their egregious ESG violations is one of the most significant benefits of litigation funding.
Litigation Lending Services “Stolen Wages” Claim
Litigation Lending Services, an Australian lender, funded another notable ESG case related to stolen wages.
This class action began in September 2016 and was a lawsuit on behalf of Aboriginal and Torres Strait Islander workers in Australia. Workers had been subject to “protective” legislation from the late 1800s until the 1970s. This wage control legislation resulted in tens of thousands of indigenous workers in various industries never receiving their full wages. , estimated at millions of Australian dollars in total. Salary violations like these fall under the governance part of ESG.
Litigation Lending Services offered support for the case, which resulted in a $190 million settlement in December 2019. To date, the case is the largest human rights case in Australian history . The settlement brought resolution to more than ten thousand First Nations people.
These two cases illustrate the potential of ESG and the possibilities for more ESG cases and lender involvement in litigation in the future.
Global lawsuits related to ESG issues such as climate change are increasing, and the targets of these lawsuits are shifting to include more companies over time, rather than just governments. It should be noted that environmental issues often receive the most attention, but ESG litigation goes beyond simple environmental claims. Lawsuits regarding fraud, breaches of disclosure rules, diversity and equity, misrepresentation, and health and safety issues all fall under the category of ESG litigation. Environmental claims have seen the strongest growth in recent years, but we can expect other types of ESG claims to grow as well.
Another factor driving additional ESG litigation is the lack of clarity surrounding what exactly constitutes ESG. The focus on ESG is relatively new, meaning parties are not in complete agreement on the definition of ESG and how it should be measured and reported.
As the number of ESG claims increases, there is room for growth in the litigation funding market. This industry is constantly evolving to keep up with broader litigation trends, including the evolution of ESG claims. For now, it is clear that ESG will have a key role to play in the future of litigation funding.
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