ESG claims – TPLF’s next frontier?

July 19, 2023 / 7 min read

As part of the author’s continuing study of Third-Party Litigation Funding (TPLF) issues, I recently reviewed several articles suggesting that litigation funders are expanding their attention (and funding dollars) to environment, social, and governance (ESG) claims. From review of this literature, the author shares highlights regarding this emerging TPLF area as follows:

esg claims blog

General Overview

To start, ESG claims, in general, have been described to include “environmental issues like air or water pollution, social issues such as customer privacy and data security, and governance issues like transparency.”^[1] According to a recent article by Natalie Runyon, an ESG expert from the Thomson Reuters Institute, litigation is increasingly being used by private consumer and shareholder plaintiffs to assert claims in several ESG areas, including allegations of greenwashing, perceived supply chain abuses, and alleged misstatements or omissions regarding sustainability statements.^[2] In relation to these claims, Natalie Runyon notes that TPLF is being used increasingly to “support a range of ESG-related claims, including environmental pollution, climate change, product liability and human rights abuses, and corporate misconduct.”^[3]

Advocates for TPLF’s expansion into the ESG arena see funding as facilitating access and justice for plaintiffs to pursue ESG claims. "For example, the author of one recent blog article argues that [i]t’s not about the industry giving self-congratulatory pats on the back at conferences and on webinars about litigation funding’s role in achieving ESG goals. In a world where money talks, more and more institutional capital managing ESG funds are pro-actively exploring how to enter the litigation funding market. Why? Because litigation is one of the enforcers of ESG compliance; everyone accepts that litigation favours those with money; and litigation funding is an important mechanism of facilitating access to the justice that lies at the heart of ESG … [i]f litigation funding wasn’t aligned with ESG, then ESG institutional capital inflows wouldn’t have made their way into litigation funding in the first place, validating that litigation funding demonstrably facilitates access to the very justice that supports ESG objectives.”^[4]

Expanding on these ideas, the author argues that “[l]itigation funding and ESG go hand-in-hand because ultimately both only exist to address injustices that should not exist in the first place. If businesses feel that litigation funding is ultimately damaging to their interests, then they should remember the role litigation funding has in delivering the ESG objectives they like to champion”^[5] Similarly, in another article, a legal funder is reported to view litigation funding of ESG claims as “mak[ing] justice more accessible for those harmed in ESG breaches. Litigation funding helps those claims be brought, even when claimants don’t have the resources to fund extensive legal battles.”^[6]

Regarding how litigation funders evaluate potential ESG cases for funding, Natalie Runyon notes in her article that funders typically consider the following factors: “(i) the significance and materiality of the ESG issue at hand and the impact of the alleged wrongdoing on stakeholders; (ii) the regulatory environment and legal framework relevant to the ESG claim so that they understand the legal and regulatory risk that will be essential to assessing the potential return on investment; and (iii) the collectability of the damages with regard to the financial strength of the defendant party.”^[7]

While the author has been unable (thus far) to identify figures (or estimates) of the total amounts being funded for ESG claims, one litigation funder recently announced that it was investing $100 million in a law firm to specifically fund ESG claims,^[8] while another funder announced plans to launch an ESG finance fund.^[9]

Looking ahead - will litigation funding of ESG claims increase?

There are signs that TPLF investment into ESG claims will likely continue to increase going forward. In this regard, one article notes that the “major players in the litigation funding arena are already talking about pursuing ESG investments”^[10]and that several funders have “prioritized ESG cases, and more funders will likely join them in the coming years.”^[11] In addition, it was noted that as funders expand into the ESG space “the targets of these lawsuits are shifting to include more corporations over time, rather than just governments.”^[12]

Further, it is predicted that ESG claims will likely expand beyond environmental claims, which have reportedly seen the largest growth over the past few years.^[13] On this point, one article notes that “[i]t’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.”^[14]

As ESG claims are expected to expand, use of litigation funding is also expected to increase. On this point, Natalie Runyon notes in her article that “[u]se of litigation funding in ESG-related claims is likely to expand. Areas in which this is likely to occur include public interest litigation that targets governments or public agencies for failing to implement or enforce environmental regulations, social welfare policies, or human rights obligations. Litigation funding also could be used for legal actions challenging inadequate climate policies, insufficient environmental regulations, or the promotion of fossil fuel activities. Indeed, it has huge potential to be used strategically by investors of all sizes to drive the global ESG agenda.”^[15]

For insurers, TPLF’s expansion into ESG claims opens an additional front of likely concern as insurers continue to grapple with TPLF issues and assess TPLF’s larger impact on claims and litigation costs, and settlements.

Questions?

The author will continue monitoring events in this area and provides future updates as warranted. In the interim, do not hesitate to contact the author if you have any questions. Also, click here to review the author’s other recent article on TPLF related issues.

[1] Litigation Finance Journal, A Snapshot of ESG in Litigation Funding, (August 18, 2022).

[2] Natalie Runyon, How litigation funding drives progress in the ESG agenda, Reuters (June 30, 2023).

[3] Natalie Runyon, How litigation funding drives progress in the ESG agenda, Reuters (June 30, 2023).

[4] Tets Ishikawa, Why litigation funding and ESG go hand in hand, Thomson Reuters, Practical Law Dispute Resolution Blog (September 27, 2021).

[5] Tets Ishikawa, Why litigation funding and ESG go hand in hand, Thomson Reuters, Practical Law Dispute Resolution Blog (September 27, 2021).

[6] Litigation Finance Journal, A Snapshot of ESG in Litigation Funding, (August 18, 2022). Of note, Therium was noted litigation funder in this instance.

[7] Natalie Runyon, How litigation funding drives progress in the ESG agenda, Reuters (June 30, 2023).

[8] Litigation Finance Journal, A Snapshot of ESG in Litigation Funding, (August 18, 2022). The litigation funder referenced in this article is Wall Capital while the law firm is noted as Pogust Goodhead.

[9] Litigation Finance Journal, A Snapshot of ESG in Litigation Funding, (August 18, 2022). The litigation funder referenced in this article is Omni Bridgeway.

[10] Litigation Finance Journal, A Snapshot of ESG in Litigation Funding, (August 18, 2022).

[11] Litigation Finance Journal, A Snapshot of ESG in Litigation Funding, (August 18, 2022). The specific funders referenced on this point in this article are Therium, Woodsfood, North Wall Capital, and Litigation Lending Services.

[12] Litigation Finance Journal, A Snapshot of ESG in Litigation Funding, (August 18, 2022).

[13] Litigation Finance Journal, A Snapshot of ESG in Litigation Funding, (August 18, 2022).

[14] Litigation Finance Journal, A Snapshot of ESG in Litigation Funding, (August 18, 2022).

[15] Natalie Runyon, How litigation funding drives progress in the ESG agenda, Reuters (June 30, 2023).