The future of the litigation funding market and the ESG impact on claims

The market for third-party funded litigation has expanded significantly in recent years – with assets held by the UK’s top 15 litigation funders increasing from £1.3 billion to £1.9 billion in the space of two years.

It is perhaps unsurprising, therefore, that so many in the legal sector are predicting further growth in the years ahead, with nearly four out of five respondents to an AlixPartners survey with The Lawyer on the future of third-party litigation funding saying they expect the number of funding organisations to increase.

But beyond the numbers, what might this growth look like, and what will be its key drivers?

These questions came to the fore during a recent panel session we hosted with a number of law firm and litigation funding partners.

One area where the panel agreed litigation funding will continue to flourish is competition law. With antitrust cases often running for years in duration, access to litigation funding helps to give claimants certainty and reduce risk. The introduction in the UK of an opt-out collective regime in 2015 has accelerated the growth in demand for funding. As the current collective proceedings orders (CPOs) make their way through the Competition Appeal Tribunal­ (CAT) - giving the market greater clarity regarding the viability and value of such claims - there is the potential for further growth.

Panellist Lesley Hannah, Partner at specialist litigation practice Hausfeld, said: “Funding will continue to be used in competition cases, whether for corporates, groups of corporates or individuals.” With regard to collective action cases, she added: “Even though we’ve been able to bring these cases for several years, the regime’s only really just got going. There have been four certification decisions, there are six or seven cases filed with the CAT and there are more in the pipeline. I think there will be increasing use of funding and that’s a really exciting development.”

ESG cases considered for third-party funding

While the use of third-party funding in competition cases is well-established, nine out of ten respondents to our litigation funding survey agreed that funding will become available across a wider selection of cases in the near future.

The panel discussed some of the emerging areas of the disputes market that could see increased demand for third-party funding. One area of particular interest could be ESG, especially claims relating to climate and environmental issues.

It has been reported that globally, legal actions relating to climate change have almost doubled since 2018. Until now, most of these lawsuits have been aimed at governments rather than corporations, but the picture is slowly changing.

“In the class action litigation context, we’re seeing an increasing number of cases being brought in relation to environmental actions (e.g. Dieselgate),” said Hannah. “These group claims will increase and there is potential for growth in the funding market. This could include non-profit organisations who have an interest in funding cases with environmental goals or wider social aims.”

Hannah added that high-profile cases brought by non-profits will drive greater knowledge about the availability of third-party funding among those contemplating litigation.

Peter Burrell, Partner at Willkie Farr, agrees that as awareness about the availability and value of third-party funding grows, this could create a snowball effect.

“Experience is everything,” he says. “Once you’ve experienced litigation funding, it becomes much more attractive.”

Watch the full panel discussion or download our survey results.