Everyone’s got an opinion on lawyers. In fact, there are more than a few quips about how many different opinions lawyers can have themselves.
I’ll resist the temptation to lose an afternoon looking up more legal jokes for this article, as fun as that may be. Instead, let’s consider their role in fighting climate change.
In the business world, the legal profession is generally seen as a necessary evil. Free market types resent their tendency to gum things up and get in the way of decisive action. Their reputation doesn’t fare much better with climate campaigners either; these Davids mostly experience lawyers as briefcase Goliaths, shielding the worst polluters from accountability, or drafting regressive legislation as beltway lobbyists.
I believe that is all about to change. We are on the precipice of a transformation in the role of legal action in the corporate sustainability world – and it’s one we can all get excited about.
Can private markets solve public problems?
Free markets promise a lot, and like it or not, the modern world has hitched its wagon to their principles. But ‘market failure’ is Econ 101 too, with climate change as its contemporary poster child. How can we square this challenge with classic economic theory?
To break it down simplistically, the current model for the transition goes something like this: the private sector will develop the carrots, in terms of sustainable alternatives for consumers; whilst the government will pick up the stick, dealing with producers who continue to force the old externalities upon the rest of us. It’s textbook stuff.
The trouble is that if governments fail to act with enough urgency – and it’s sadly more twig than stick today – it’s not always possible for private agents to pick up the slack. Can free markets really find solutions to public goods or externalities and force them on the rest of the market, whilst turning a profit at the same time? Can capital get to where it needs to be, given asymmetries in information and power?
Maybe they can after all – and strangely, we’ve got hedge funds to thank.
Funding the right fight
Last week, hedgies Gramercy Fund Management announced not only the biggest ever climate litigation funding deal – but one of the biggest ever deals in the market, full stop. This $6bn fund is putting a huge chunk of its AUM on the line to UK law firm Pogust Goodhead $552.5m. This will fund a range of environmental lawsuits, from a million-strong class-action against 14 carmakers over the Dieselgate Scandal to a 700,000-claimant case seeking damages for the collapse of the Fundão tailings dam in Brazil in 2015.
This is just the latest example of private capital powering up green legal challenges. Litigation funding is a $16bn market and one growing by 9% a year, according to Rationalstat and the FT. Money is pouring in because there is even more money to be made. Pogust Goodhead won a quarter of a billion dollars from Volkswagen last year, a track record their LPs are no doubt hoping continues. The full cost of BP’s Deepwater Horizon spill, meanwhile – another climate disaster I discussed in detail with Professor Randall Peterson recently – is still being calculated; academic estimates put it at nearly $150bn, including over $20bn in total settlement costs.
As the world wises up to climate and attribution science continues to get better, these payouts will only grow. It’s good business for Gramercy and the like – but what does it mean for those of us who care more about the climate than the cash?
When everyone cleans up
I see this as a great development for three reasons. Firstly, it will force more and more companies to clean up their act. The traditional approach was for multinationals to see legal action as a shield; they made their money, poisoned the environment along the way, and then lawyered up, relying on deep pockets and short media cycles to ride out any consequences.
This is a simple cost-benefit calculation, but then a new trend in litigation funding changes that calculus. Private capital backing expert-led class actions turns climate cases from a nuisance into a real P&L threat. It also circumvents big businesses’ long-running advantage in lobbying; even if regulatory capture continues to frustrate government action, private-market lawsuits can force change based on the bottom line. These numbers are material – just ask a BP shareholder.
Secondly, it encourages more private capital into a new form of green investment. The returns look good so far, both financially and ecologically, and I predict a flood of cash will soon enter this market. The ESG case is rock-solid too, so a winning case pleases all stakeholders. And for those transforming their businesses for net zero but worried about our common trajectory, it offers a way to financially hedge against climate failure.
Finally, this market should empower green activists. Traditionally, the financial scales have been weighted heavily towards big business; this will finally even things up. SLAPPs will hopefully lose their power, and we’ll see more activist victories in time. The money will also help pull the brightest young legal minds toward the field.
The power of precedent
In a world built on developing expertise and establishing precedent, it will also help those using litigation to change government behaviour. For example, young people across the world are already leading lawsuits against their governments for failing to protect their rights, from the ‘kids climate trial’ in Montana to the Portuguese youth targeting the ECHR. They can struggle for lack of precedent, so a greater flow of private cases may end up tipping greater government action after all.
Yes, there is money to be made; and no, it won’t all end up in the pockets of the plaintiffs. But for all the reasons above, this is one case to cheer on behalf of the climate – whatever you think about lawyers.
illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.