{"id":207281,"date":"2023-06-06T17:59:41","date_gmt":"2023-06-06T17:59:41","guid":{"rendered":"https:\/\/dominiclevent.com\/blog\/?p=207281"},"modified":"2023-06-06T17:59:41","modified_gmt":"2023-06-06T17:59:41","slug":"the-money-behind-the-coming-wave-of-climate-litigation","status":"publish","type":"post","link":"https:\/\/dominiclevent.com\/blog\/the-money-behind-the-coming-wave-of-climate-litigation\/","title":{"rendered":"The money behind the coming wave of climate litigation"},"content":{"rendered":"


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In 2009, huge volumes of oil spilled into the Timor Sea from a well off the coast of Western Australia. The two and a half month long leak caused catastrophic damage to marine wildlife and upended the livelihoods of thousands of Indonesian farmers whose seaweed crops were destroyed.\u00a0<\/p>\n

At the end of 2022, the company that operated the well settled a years-long legal fight with over 15,000 Indonesian farmers who had brought a class action suit against it. PTTEP Australasia agreed to pay them A$192.5mn, the equivalent of \u00a3102mn, in compensation without admitting liability.<\/p>\n

\u201cThis was a strong settlement\u2009.\u2009.\u2009.\u2009it was quite a thrill when we settled\u201d, says Rebecca Gilsenan, a lawyer at Maurice Blackburn who represented the farmers. PTTEP declined to comment.<\/p>\n

But it was not only the Indonesians who were relieved when the settlement was finally reached. Harbour Litigation Funding, a UK-based firm that provides financing for complex lawsuits in return for a share of the proceeds, spent more than \u00a317mn on the case, a budget that included money for a boat and the off-road motorbikes needed to reach farmers in remote locations and recruit them to the action. In return, Harbour took \u00a343mn, or just over two-fifths, of the award. <\/p>\n

\u201cIt\u2019s always tough for people to have significant amounts deducted from their compensation,\u201d says Gilsenan. \u201cBut each and every one of [the farmers] struck that bargain.\u201d<\/p>\n

Maurice MacSweeney, director of legal finance and sales planning at Harbour, says PTTEP \u201cput up quite a fight\u201d and notes that companies with \u201cdeep pockets\u201d make bringing such challenges difficult for those without the financial firepower.<\/p>\n

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\"Carrageenan<\/source><\/source><\/picture>
Carrageenan, a seaweed harvesting village on the Bukit Peninsula in Bali, Indonesia. PTTEP Australasia has agreed to pay compensation to over 15,000 Indonesian farmers after a class action suit \u00a9 Sean White\/Zuma Press\/PA <\/figcaption><\/figure>\n<\/div>\n

The volume of international litigation relating to environmental and climate issues has grown rapidly over the past few years, with cases seeking compensation from companies for environmental damage of rising interest. <\/p>\n

In London, mining company BHP is facing one of the biggest: a \u00a336bn class action lawsuit<\/a> brought by over 700,000 claimants for losses relating to the 2015 collapse of the Fund\u00e3o tailings dam in Brazil. The disaster released huge quantities of mining waste and polluted hundreds of kilometres of waterways.<\/p>\n

\u201cIf you ask [Brazilians], \u2018Where were you when it happened?\u2019 people know,\u201d says Ana Carolina Salom\u00e3o, chief investment officer and partner at law firm Pogust Goodhead, which is representing the claimants. \u201cIt\u2019s kind of like our 9\/11.\u201d <\/p>\n

The case has already cost \u00a370mn to bring, funded by litigation investors including Brazil\u2019s Prisma Capital and the UK\u2019s North Wall Capital.<\/p>\n

BHP said it \u201cdenies the claims brought in the UK in their entirety and will continue to defend the case\u201d.<\/p>\n

Litigation is also becoming a tool of choice for forcing faster action by governments and companies on climate change, with cases filed in courts from Europe to Australia.<\/p>\n

\u201cI think we\u2019re entering\u2009.\u2009.\u2009.\u2009a golden moment for climate litigation,\u201d says Jolyon\u00a0Maugham, founder of the non-profit Good Law Project. \u201cIt\u2019s a function both of what resonates in their social milieu and an understanding of the limits of what can be done by politicians.\u201d<\/p>\n

Such cases are \u201cabsolutely necessary to hold people to account for not taking enough action on climate change\u201d, according to Ian Fry, the UN\u2019s special rapporteur on the promotion and protection of human rights in the context of climate change, who is compiling evidence on climate-related legislation and litigation.<\/p>\n

\"Maurice<\/source><\/source><\/source><\/source><\/picture>
\n\t\t\t\tMaurice Blackburn lawyer Ben Slade, second-left, arriving with lead plaintiff Daniel Sanda, centre, at the Federal Court of Australia in Sydney in 2019. Sanda has led the class action by Indonesian seaweed farmers \u00a9 Peter Rae\/EPA-EFE
\n\t\t\t<\/figcaption><\/figure>\n

The costs are often met by charities or supported by philanthropic groups such as the Children\u2019s Investment Fund Foundation and the Foundation for International Law for the Environment, along with crowdfunding campaigns.<\/p>\n

But the growing interest in cases seeking compensation for climate and environmental damage, and the new focus of market regulators on corporate greenwashing, is turning legal fights into a business opportunity. Professional litigation funders, backed by investors ranging from pension funds to family offices, want to make money from climate-related claims.\u00a0<\/p>\n

While some have welcomed this development, others point out that investors have different priorities to non-profits and claimants and that their fees are not always transparent. EU lawmakers, concerned about the growing market, have proposed new regulations<\/a> to police the space.\u00a0<\/p>\n

There are also fears that profit-seeking funders will cherry-pick cases based on the likelihood of victory or the potential size of the payout, rather than for maximum environmental or societal impact.<\/p>\n

But funders counter that they are needed. Stephen O\u2019Dowd, senior director of legal finance at Harbour, says the amount of funding needed to bring the challenge against PTTEP was well beyond the means of Indonesian farmers, adding\u00a0that \u201cit was a very hard case\u2009.\u2009.\u2009.\u2009Everybody thought we were mad for funding the claim.\u201d\u00a0<\/p>\n

A turning point<\/h2>\n

Much environmental litigation has related to redress for specific incidents such as oil spills. But specialist law firms, scientists and non-profits are now investigating potential claims in which a company is held to account for its contribution to global warming. Many lawyers say it is just a matter of finding the right case.<\/p>\n

\u201cI am optimistic that we will bring a [damages] case and we\u2019ll be successful,\u201d says Martyn Day, co-founder of law firm Leigh Day. Such a case would \u201chopefully bring about significant change as to how the multinationals operate\u2009.\u2009.\u2009.\u2009it\u2019s about us finding the right case with the right law, and funders who are happy to help.\u201d\u00a0<\/p>\n

Two climate damages test cases against alleged corporate polluters \u2014 one filed against the energy giant RWE and one against cement maker Holcim \u2014 are already under way and are being closely watched.<\/p>\n

Companies also face growing legal risks now that various regulators, including those for competition, advertising and capital markets in various countries, have corporate greenwashing and climate-related disclosures more squarely in their sights, and as activist groups become shareholders in polluting companies in order to challenge climate strategies that they deem inadequate.<\/p>\n

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\"Saul<\/source><\/source><\/picture>
Saul Luciano Lliuya, right, and British external consultant on climate change Noa Walker Crawford at the Palcacocha Lake in Huascaran National Park in Huaraz, northeastern Peru, last year. He is seeking damages from RWE to protect his hometown from a swollen glacier lake \u00a9 Luka Gonzales\/AFP\/Getty Images<\/figcaption><\/figure>\n<\/div>\n

Alex Cooper, a lawyer at research group the Commonwealth Climate and Law Initiative, says a wave of big corporate climate cases was \u201cprobably two to three years off\u2009.\u2009.\u2009. But I think it\u2019s on the way.\u201d<\/p>\n

Companies, especially those producing or consuming fossil fuels, are feeling the heat. In May, 9 per cent of investors in oil major ExxonMobil, including Norway\u2019s largest pension company, KLP, backed a shareholder resolution<\/a> asking the company to disclose the risks it faced from environmental litigation.<\/p>\n

Exxon, alongside other oil companies including Chevron and Shell, is facing landmark legal challenges in the US from cities, counties and states for campaigns of alleged \u201cdeception\u201d about climate change and the role its products played in causing it.<\/p>\n

If even some of the US cases were successful, \u201cyou almost certainly are talking about the largest tort award in US history \u2014 this would be easily over $1tn,\u201d says Lee Wasserman, director of philanthropic group the Rockefeller Family Fund. The fund has donated to EarthRights International, a non-profit that is involved in several of the lawsuits.<\/p>\n

\u201cWe\u2019re very close to the moment when a number of [law] firms take that leap\u201d and start representing clients in such cases, and then the fossil fuel industry will be facing hundreds, not dozens, of cases, he adds.<\/p>\n

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\"Column<\/source><\/picture><\/figure>\n<\/div>\n

Who pays the lawyers?<\/h2>\n

As climate litigation approaches a potentially transformational period of expansion, attention is turning to who funds it, and how.<\/p>\n

Professional litigation funding is particularly suited to the US legal landscape, where damages awards can run into the billions and the losing side does not normally cover the winner\u2019s legal fees. It has also grown rapidly in Australia and the UK, where it has been used to bring class action claims such as those related to the \u201cdieselgate\u201d car emissions scandal.\u00a0<\/p>\n

For investors looking for an asset class uncorrelated with broader financial markets, and investments labelled as \u201csustainable\u201d, funding climate-related cases has emerged as an intriguing option. Aristata Capital raised \u00a339mn last year from backers including Capricorn Investment Group and the Soros Economic Development Fund to invest in cases with a \u201cmeasurable social or environmental impact\u201d, says founder Rob Ryan.<\/p>\n

\u201cOur investors are predominantly pure impact investors who are looking for good returns and significant measurable impacts,\u201d he says, adding that the group was looking to increase its fund size to \u00a350mn and use it to back around 20 cases.<\/p>\n

Litigation funder Woodsford\u2019s ESG \u201cengagement\u201d business, which has grown over the past four years, helps identify, develop and fund cases that involve \u201csignificant breaches in environmental, social and governance [issues],\u201d says Steven Friel, its chief executive. Most have been about governance issues such as alleged money laundering but \u201cwe\u2019re working towards the \u2018E\u2019 in ESG\u201d, Friel adds.<\/p>\n

Funders invest in a portfolio of cases and might cover the costs of lawyers and expert evidence, and arrange insurance products. Most work on a \u201cno win, no fee\u201d basis, and are only paid if damages are awarded. Their cut of any winnings varies with how risky a case is, with \u201ctypical\u201d somewhere around 25 per cent.<\/p>\n

Law firms can also fund cases under a similar no win, no fee model, but those taking on climate claims tend to be specialist firms rather than big commercial practices that might have conflicts of interest as a result of work they do for other clients, such as oil majors or miners.<\/p>\n

\u201cA lot of firms [are] making a lot of money out of fossil fuel companies, and that\u2019s part of the reason why it\u2019s a small group of firms who are likely to be willing and able to take on climate cases,\u201d says Joe Snape, an associate at Leigh Day, which is bringing a case against Shell on behalf of the Ogale and Bille communities in Nigeria in relation to oil spill pollution. <\/p>\n

But what for-profit investors are prepared to fund often differs from what philanthropic groups will back.\u00a0The landmark RWE case going through the German courts \u2014 brought by a Peruvian farmer who alleges that the group contributed to the warming that is melting the glacier above his hometown \u2014 might end up being of outsized significance if it ends in a precedent-setting victory. But such actions are by their nature risky and expensive \u2014 the RWE case has cost \u20ac750,000 so far, funded by donations \u2014 and may run for years.\u00a0<\/p>\n

\"Jolyon<\/source><\/source><\/source><\/source><\/picture>
\n\t\t\t\t\u2018I think we\u2019re entering\u2009.\u2009.\u2009.\u2009a golden moment for climate litigation,\u2019 says Jolyon Maugham KC, founder of the non-profit Good Law Project, left \u00a9 Jeff J Mitchell\/Getty Images
\n\t\t\t<\/figcaption><\/figure>\n

Patrick Moloney, chief executive of Litigation Capital Management, says he is \u201cwatching what\u2019s going on\u201d in the ESG space, but that \u201cnot a lot of litigation has actually been brought that would meet the criteria we need\u201d.<\/p>\n

\u201cWe tend to want the legal principles associated with the disputes to be reasonably well settled,\u201d he adds.<\/p>\n

Lucas Macedo, a senior case manager at Nivalion, says the funder turns down nine out of every 10 cases brought to it, in line with the industry average<\/a>. \u201cFunders shy away from making new law,\u201d he says. \u201cWe do not want to be seen as a speculative investor.\u201d<\/p>\n

At a non-profit like Good Law Project, the priorities are different. \u201cI could very easily only choose winning cases. We could have a 100 per cent win rate,\u201d says Maugham. \u201cBut we wouldn\u2019t have any impact because we\u2019d be choosing easy, meaningless cases \u2014 and that\u2019s not the right thing for us to do.\u201d<\/p>\n

Professional funders need cases with a damages element, even if policy or regulation change might be more impactful than a fine levied against a single company.<\/p>\n

An example is tobacco, where cigarette makers have paid out billions in damages related to the health impacts of smoking. But they continue to make substantial profits from selling cigarettes. The greater impact has come from the policy response: in many countries, smoking is now banned in workplaces, bars, restaurants and on public transport.<\/p>\n

Adam Heppinstall, a barrister at Henderson Chambers in London, told a legal conference earlier this year that cases driven by factors other than profit might pose a greater threat to polluting companies. \u201cI can see NGOs being ever more creative and spending ever [greater] amounts of money,\u201d he said.\u00a0<\/p>\n

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\"Crude<\/source><\/source><\/picture>
Crude oil pollutes the shoreline of an estuary at B-Dere, Ogoni, Nigeria, in 2020. Leigh Day is bringing a case against Shell on behalf of the Ogale and Bille communities over oil spill pollution \u00a9 George Osodi\/Bloomberg<\/figcaption><\/figure>\n<\/div>\n

Duncan Hedar, a partner at law firm Lanier, Longstaff, Hedar & Roberts, says the profession \u201cneeds to be braver about the type of claims that we are willing to pursue\u201d. To really be impactful, he adds, lawyers and funders \u201chave to accept that new types of claims are going to have to be brought\u201d and that there will be \u201cmore uncertainty about the outcomes of those claims\u201d.\u00a0<\/p>\n

Funding such claims will involve attracting \u201ca new breed of investors, who are willing to take these extra risks\u201d, according to Robert Hanna, managing director at funder Augusta Ventures. \u201cIt\u2019s difficult for the corporate world to invest in riskier or test cases.\u201d<\/p>\n

Chasing green ambulances<\/h2>\n

Some environmentalists wince at the very idea of professional litigation funding, particularly in cases that involve impoverished communities seeking redress for maltreatment at the hands of wealthy corporations.\u00a0<\/p>\n

Litigation funders are sometimes branded \u201cambulance chasers\u201d who exploit a bad situation to turn a quick profit without much regard for the ethics of a case. In the EU, lawmakers concerned with the potential for funders to exploit the model have proposed capping what they can take at 40 per cent of any winnings.<\/p>\n

Professional litigation funding \u201ccould offer some benefits\u201d and is \u201cexpected to play a growing role in the provision of litigation services in the coming years\u201d, concluded a 2021 research paper<\/a> prepared for European lawmakers. But if not properly regulated \u201cit could lead to excessive economic costs and to the multiplication of opportunity claims, problematic claims and so called \u2018frivolous claims\u2019\u201d.<\/p>\n

Tensions could also arise given the potentially divergent interests of funders and claimants. Client Earth, one of the most prominent groups filing climate-related claims, receives funding from trusts, foundations, philanthropists and members of the public but does not work with investors in litigation. \u201cThis allows us the freedom to focus purely on delivering impact,\u201d the group says.\u00a0<\/p>\n

\"West<\/source><\/source><\/source><\/source><\/picture>
\n\t\t\t\tThe West Atlas rig and Montara Well head platform on fire in 2009. The fire, which had started on the oil rig, leaked oil into the Timor Sea for 10 weeks \u00a9 EPA
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But Justice Michael Lee, who presided over the settlement hearings in the case against PTTEP, says that without the funding from Harbour \u201csome 15,456 Indonesian seaweed farmers would not have had the ability to recover their losses\u201d. <\/p>\n

Elena D\u2019Alessandro, a law professor at the University of Turin, says if the \u201conly way\u201d to bring big environmental and climate cases is by turning to professional litigation funders, and if the remuneration fee of funders is fair, \u201cthen why not?\u201d<\/p>\n

Mishcon Purpose, the for-profit sustainability arm of law firm Mishcon de Reya, wants to back \u201ccommercially sustainable large scale litigation\u201d to increase access to justice and drive change, says its head Alexander Rhodes.<\/p>\n

In the context of the worsening climate crisis, lawyers working for free \u201cis not a long term sustainable model\u201d, he says, or one \u201cthat will allow us to bring sufficient litigation\u2009.\u2009.\u2009. to hold people to account or change behaviours.\u201d<\/p>\n<\/div>\n


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