We’ve written before about the world of ESG litigation funding, where investors put money behind ESG lawsuits in return for a portion of any reward or settlement. Recently Bloomberg reported on the huge returns these investments are pulling in, as litigation funders are netting returns over 25%. The article describes ESG litigation as being:
“Regularly bankrolled by hedge funds and other alternative investors, the lawsuits target supposed corporate misdeeds such as broken environmental pledges, exploited workers or corporate governance failings. A successful case can leave a litigation funder with returns well in excess of 25%.”
The article points out that new global ESG regulations are growing this area of finance because as more disclosures are made more actionable ESG information enters the marketplace. However, this practice is not without its detractors. While litigation finance certainly provides resources for claimants to pursue their cases, it also takes a large portion of the reward. Bloomberg highlights that as much as 57% of legal costs and compensation from financed suits goes to lawyers and funders in the US.
This leaves claimants, who have already faced damages from the events leading to the lawsuit, without valuable compensation while hedge funds see the money as a return on their investment. On the other hand, it is possible that many of these claimants would have never received a favorable judgment without the influx of capital from investors funding their cases.
Disregarding the ethics questions raised by ESG litigation funding, the practice is unlikely to slow any time soon as returns are high and the field is growing. However, Bloomberg notes that lawmakers have taken notice and there is mounting pressure in the US and elsewhere for increased regulation and transparency in litigation funding.
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