A growing alternative asset class, litigation funding is an attractive option for investors looking to act as a force for good.
In recent years, there has been a sea-change in the opportunities available to those looking to drive positive social change through their investments.
Let’s take a look at how litigation funding can be an effective part of your investment portfolio while achieving ESG objectives.
The ESG investing context
ESG investing, once thought of as niche and low return, has become a major focus for portfolio managers worldwide, driven by rising demand and regulatory requirements.
Legal experts at Practical Law note that ESG and litigation funding now go hand in hand and ‘as ESG continues to grow in importance, the number of ESG litigation matters will become self-perpetuating’.
A report from Reuters about the rise of ESG legal financing concluded that such investments will continue to grow because they have “huge potential to be used strategically by investors of all sizes to drive the global ESG agenda.”
While, in the past, litigation funding has been reserved for high-net-worth private investors backing large-sum cases for high-risk, high-impact and potentially high-reward commercial cases, increasingly, it’s becoming democratised.
Alongside headline-grabbing commercial litigation claims, there now exists the ability to invest in smaller, individual cases where people without deep pockets seek to gain redress for things like housing disrepair or undisclosed commission. These include cases with clear environmental, social and governance (ESG) benefits.
At VWM Capital, we use the latest in algorithm-based lawtech to make investing for social justice possible. By using technology to enhance our case preselection process, we’re able to accurately and efficiently assess a high number of small-sum cases for their chances of success and suitability for our portfolio. Legal experts then review shortlisted cases before they proceed to the due diligence and funding stages.
This approach makes it viable for us to fund hundreds of these sorts of cases each week – opening the doors of justice to people who would otherwise not be able to pursue their claims, and simultaneously spreading investment risk over a greater surface area of smaller litigation claims.
The benefits of litigation funding
Litigation funding levels the legal playing field by enabling individuals, particularly those with limited financial resources, to pursue justice without the barrier of legal expenses preventing them from doing so. It makes the legal system accessible – and not just for those with large sums of money behind them.
In addition, it allows claimants to come together to challenge corporate misconduct or negligence on issues that have broader public interest such as consumer law, environmental harm, or human rights.
Lucy Glyn, Director at Exton Advisors, an independent advisory business in disputes finance, comments that “litigation funding is a way for impecunious claimants to pursue a claim against a company that it may ordinarily not be able to afford, enabling them to ultimately to hold companies to account for ESG failures.”
And with such claims, whether brought by an individual or by class action, litigation funding can not only penalise injustice, but also encourage organisations, from businesses to regulators, to avoid costly legal battles by adopting more ESG-compliant behaviour.
Two examples of ESG and litigation funding going hand in hand
Housing disrepair
Housing disrepair can significantly lower tenants’ quality of life and pose serious health risks. The resulting damp and mould, lack of effective heating, or structural defects that create health concerns and extra financial strain, are often not addressed promptly.
The BBC recently reported that Sheffield City Council is projected only to complete 6.5% of its disrepair requests in its targeted timeframe, and that the number of new cases has risen since 2018 from 117 to 1,970.
While tenants can take legal action against their landlord, including local authorities or social housing associations, for failing to fix disrepair or damage to their rented property, many lack the resources to do so or have access to the streamlined processes needed to resolve such matters quickly.
This is just one example where litigation funding can help deliver justice and a successful resolution.
Climate change
Litigation funding is also being used to force faster action by governments and companies on climate change, with cases already filed in courts from Europe to Australia.
The UN’s special rapporteur on the promotion and protection of human rights in the context of climate change, Ian Fry, has observed that these litigation cases are ‘absolutely necessary to hold people to account for not taking enough action on climate change’.
Much environmental litigation so far has related to redress for specific incidents such as oil spills. But currently, there are a number of potential claims being investigated that aim to hold a company to account for its contribution to global warming.
Alex Cooper, a lawyer at research group the Commonwealth Climate and Law Initiative, says a wave of big corporate climate cases was ‘probably two to three years off. But I think it’s on the way.’
Litigation funding is particularly suited to fund these emerging cases.
Talk to us about ESG and litigation funding
At VWM Capital, we offer niche investment opportunities in UK litigation claims – which are uncorrelated to traditional capital markets and therefore relatively insulated from market volatility.
By combining the power of AI-based algorithmic logic with independent legal expertise and decades of experience, we can offer investments with risk diversification benefits while simultaneously offering financial support to those who need it in order to access justice.
VWM Capital is in a unique place to support the growing number of investors looking to use litigation funding to realise their ESG goals while delivering returns on their funds.
Litigation funding increases access to justice for individuals and promotes more compliance and responsible behaviour in organisations.
To find out more about ESG investment enquiries, please contact the team. You can read more about how litigation funding works here.