ESG Risk Just Got Riskier
U.S. hedge fund makes record investment in environmental lawsuits
Emerging markets credit investor Gramercy Funds Management recently entered into a $552 million investment partnership with Pogust Goodhead, a London-based law firm that represents litigants suing Vale and BHP for the 2015 Samarco Mariana mine disaster, among other large environmental lawsuits the firm is pursuing.
Although this type of funding isn’t new – it’s currently a $16 billion niche of the world’s capital markets, according to the Financial Times – this latest round is considered the largest in legal history and substantially raises ESG risk for companies, in our view. In effect, financial backing of this magnitude enables individuals and communities to not just appoint powerful law firms but to fund a lawsuit for virtually as long as it takes to prevail in court or to provide a considerably stronger hand when negotiating an out-of-court settlement. Here’s what Pogust Goodhead’s Global Managing Partner had to say about Gramercy’s litigation funding:
“This investment will not only ensure we resolve our existing cases successfully, but we now have the financial firepower to hold any company anywhere in the world accountable for corporate wrongdoing.”
From the standpoint of investors, the growing risk that such investments pose will undoubtedly raise the risk premium they may demand in the future and hence the cost of equity and debt capital for companies. From our standpoint, effective communication of how your company is managing ESG risks helps ensure that investors don’t assign a risk premium that isn’t consistent with your risk levels and your ability to manage them.
To learn how InspIR helps companies effectively communicate their ESG strategy, program and performance, please contact:
Zelmira Silva | Partner | firstname.lastname@example.org
Ivan Peill | Managing Director | email@example.com