Hedge funds cash in on lawsuits against green regulations

Wall Street investors are profiting from lawsuits against governments that impose environmental regulations, often securing multimillion-dollar payouts, a Guardian investigation has found. Fossil-fuel and mining firms, backed by financial speculators, have won over $92 billion in public funds from states.

Litigation finance was once limited to personal injury and employment claims, but now the industry funds arbitration lawsuits brought by corporations against governments. These cases fall under the investor-state dispute settlement (ISDS) system, which allows companies to sue nations for policies that harm profits. Legal experts warn that with no risk of counterclaims and payouts averaging over $200 million, ISDS has become a “gambler’s nirvana” for hedge funds.

A Guardian analysis of 1,400 ISDS cases found that more than $120 billion in public funds has been awarded to corporations, including $84 billion to fossil-fuel companies and $7.8 billion to mining firms. Many settlements remain undisclosed, meaning the true figures are likely higher. The Guardian identified at least 75 ISDS cases backed by third parties, though the real number is believed to be much larger. The US, Britain, and Canada account for half of all third-party-funded cases, with over 50% related to fossil fuels or mining. More than three-quarters of these cases target developing nations.

One example is South American Silver, which won an $18.7 million settlement after Bolivia revoked its mining concession due to protests from Indigenous communities. Similarly, Silver Bull, a Canadian mining company, is suing Mexico for $408 million after the government failed to remove a blockade of protesting miners. Another high-profile case, supported by Burford Capital, is a lawsuit against Greenland regarding a ban on uranium mining, which would compel the nation to pay as much as $11.5 billion in damages.

Critics say third-party funding takes away risk from claimants, leading to more cases against governments. Legal costs and awards are skyrocketing, and some arbitrators say the system has turned into a "lucrative trough" for investors and law firms. Arbitrator Kamal Hossain has suggested that tribunals be able to order legal costs on third-party funders, cutting incentives for speculative cases. In Odyssey Marine Exploration v. Mexico, arbitrator Philippe Sands emphasized "jaw-dropping" legal costs, half of which were paid by third-party financiers.

Litigation finance companies justify their function, saying they only fund robust cases. Burford Capital claims that 93% of its resolved cases have yielded returns to clients. "Legal finance plays a filtering role and eliminates meritless cases," the company asserted. But as the litigation finance sector is now worth $17.5 billion, demands for reform are mounting to stop financial speculators making money at the public's expense.