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 litigation funders are currently addressing ESG, and what the future of ESG in litigation funding will look like.
The following article will offer answers to those questions and act as a general overview of the state of ESG in litigation funding.
What is ESG and Why Does it Matter?
ESG encompasses environmental issues like air or water pollution, social issues such as customer privacy and data security, and governance issues like transparency. ESG pursuits have come to the forefront of many corporate agendas over the last decade. In some cases, this focus may be self-imposed, but it’s often a legal requirement as well. Even as companies champion ESG to satisfy customers and shareholders, they don’t always stay in compliance with those values and/or laws. As the number of ESG-related laws and regulations increases, compliance will become a greater focus for companies and investors alike. Litigation exists as both a deterrent to, and a regulator of, ESG non-compliance.
ESG cases in response to corporate non-compliance create the connection between ESG and litigation funding. As Tets Ishikawa, Managing Director at LionFish Litigation Finance stated, litigation funding of ESG cases has a key role to play in helping businesses meet their ESG goals.
Corporate executives aren’t the only ones concerned about ESG issues, however; savvy investors also recognize the importance of ESG. Responsible investing in ESG causes is often an obligation for pension fund managers and other asset allocators. Even when that is not the case, investors increasingly see ESG as a priority, with 85 percent of investors interested in sustainable investing.
Litigation Funders Pursuing ESG Cases
Major players in the litigation funding arena are already talking about or pursuing ESG investments. Funders like Therium, Woodsfood, North Wall Capital, and Litigation Lending Services have prioritized ESG cases, and more funders will likely join them in the coming years.
One leading litigation funder, Therium, emphasizes the importance of ESG as part of broader responsible investing efforts. Funding ESG legal action, the funder states, makes justice more accessible for those harmed in ESG breaches. Litigation funding helps those claims be brought, even when the claimants don’t have 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, emphasized the potential of ESG litigation as a reputation-enhancing tool for companies. He claims that companies can position themselves as ESG leaders through litigation, while also recovering money to use toward additional ESG initiatives. This is a unique view on the value of ESG litigation that speaks to the potential these cases have for corporations.
This past week’s news cycle illustrates how cemented the concept of ESG litigation has become within the litigation funding ecosystem, as both new entrants and entrenched players are making waves on the topic. North Wall Capital recently announced a $100 million investment into law firm Pogust Goodhead, with the aim of funding ESG cases specifically. Fabian Chrobog, Chief Investment Officer of North Wall, argues that ESG investment makes practical sense, as these cases maintain a higher probability of settlement than most other claim types. And Paul Rand, Chief Investment Officer of Omni Bridgeway, recently revealed that the longtime funder is planning the launch of an ESG Finance fund. According to Rand, Omni is currently testing bespoke techniques for valuing and assessing ESG risk management.
ESG Cases Funded by Litigation Funders
Airbus Case Funded by Woodsford
One prominent ESG case organized and funded by a litigation funder, is the Airbus case financed by Woodsford. Investigations by international authorities including the US Department of Justice revealed that Airbus SE, a manufacturer of military and civilian aerospace products headquartered in Europe, had participated in a widescale bribery and corruption scheme. In 2020, the company was forced to pay billions of dollars of fines to resolve these bribery charges, causing a major dip in its share price.
Airbus investors incurred serious losses due to these violations of ESG principles and Airbus’ failure to inform the public in a timely manner about its conduct. That’s where litigation funder 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 losses.
The ESG team at Woodsford is funding and organizing this action. Without such involvement, the claimants may not have been able to pursue action against a large company with such deep pockets. Being able to hold major corporations like Airbus accountable for their egregious ESG breaches is one of the most significant benefits of litigation funding.
Litigation Lending Services’ “Stolen Wages” Claim
Litigation Lending Services, an Australian litigation funder, funded another notable ESG case related to stolen wages.
This class action began in September of 2016, and was a lawsuit on behalf of Aboriginal and Torres Strait Islander workers in Australia. The workers had been subject to ‘protection’ legislation from the late 1800s up to the 1970s. This wage control legislation led to tens of thousands of indigenous workers across a variety of industries never receiving their full wages, estimated to be millions of Australian dollars in total. Wage violations like these fall under the governance portion of ESG.
Litigation Lending Services offered its support to the case, which reached a settlement of $190 million 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.
Both of these cases illustrate the potential of ESG, and the possibilities for more ESG cases and litigation funder involvement in the future.
In Conclusion
Global legal actions related to ESG issues like climate change are increasing, and the targets of these lawsuits are shifting to include more corporations over time, rather than just governments. It’s worth noting that environmental issues often get the most attention, but ESG litigation goes beyond just environmental claims. Lawsuits involving fraud, disclosure rule breaches, diversity and equity, misrepresentation, and health and safety issues all fall under the category of ESG litigation. Environmental claims have seen the largest growth in the last few years, but we can expect other types of ESG lawsuits to increase as well.
Another factor driving additional ESG litigation is the lack of clarity surrounding what exactly constitutes ESG. The intense focus on ESG is fairly 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 group claims increases, there’s room for growth in the litigation funding market. This industry is constantly evolving to keep up with broader trends in litigation, including the evolution of ESG claims. For now, it’s clear ESG will have a key role to play in the future of litigation funding.
