Investment firm raises £40m for first ever ESG litigation investment fund

Aristata Capital has raised £40 million ($48 million; €47 million) for the first close of its impact litigation fund, a product allowing investors to directly fund litigation by groups on ESG issues, reports affiliate title Responsible Investor.

Capricorn Investment Group and the Soros Economic Development Fund have anchored the investment, with a number of foundations and family offices also taking part.

The fund works by providing financing for claimant groups which cannot afford litigation, in return for a multiple of its investment or a percentage of the settlement should the litigation succeed.

Rob Ryan, Aristata’s founder and CEO, said there was a justice gap in commercial litigation. “The systemic problem is that if one side has deep pockets and the other side doesn’t, [they] can leverage that cash advantage and say ‘we may be in the wrong but why don’t you come to the table and take 10 cents on the dollar’.” The fundamental aim of the fund, he said, is to level the economic playing field.

The fund has already invested in two cases – an indigenous group in the south Pacific looking to “assert its rights against a monopolistic service provider that isn’t abiding by the terms of the contract” and a group of Australian workers whose employers have found “creative ways” of paying them less than the statutory minimum wage. It is actively looking at a further 40 cases, across topics including environmental disasters, labour rights issues and medical and clinical negligence.

Exploiting the marginalised?

Asked whether seeking investor profit from litigation by marginalised and indigenous groups was exploitative, Ryan said the fund had a hard minimum of 50 percent going towards the claimants, whereas traditional litigation funds generally look to take as much as a judge will allow. The fund’s aim will be to return “the majority” to the claimant groups – who Ryan said would otherwise be unable to proceed with their claims.

The fund is also focusing on litigation cases whose costs put them out of reach for philanthropic or NGO funding. Ryan said that philanthropic funding is less effective “because of the pure economics of large-scale commercial litigation”. His previous roles include director of development at legal NGO ClientEarth, which he said was able to achieve “serious results” for a couple of hundred thousand pounds. The new fund is looking at investments on the scale of £1.5 million to £5 million.

Aristata is looking at a minimum raise of £50 million for the fund, with a hard cap of £100 million. It expects to hold its final close in Q1 2023.

Investors and NGOs are increasingly using litigation against both governments and companies to force change on ESG issues. Sweden’s AP7 has been particularly active in this area, taking legal action against Facebook to force it to shelve a controversial share reorganisation plan and suing Alphabet over sexual harassment.

Richard Gröttheim, the fund’s CEO, told RI earlier this year that AP7 used litigation as an active investment tool. “Often we make decent money out of these cases, which is nice, but not always,” he said. “The key thing is to create impact that might be hard to achieve using other tools. We still have dialogues with companies, and we vote at annual meetings, but they need to know that we can also go to court if necessary.”

ClientEarth has also been launching lawsuits against both governments and corporates on ESG issues. The NGO has taken legal action against Shell, arguing that its directors are not managing climate risk, as well as a number of lawsuits against EU bodies and the UK government over its net-zero strategy.