Consumer awareness about climate change and the environmental and social implications of the goods and services they buy is only growing. In response, products marketed with these sentiments in mind are also on the rise. A recent study of $400 billion worth of sales data from 2017-2022, “products making ESG (environmental, social, and governance)-related claims averaged 28% cumulative growth” [and] “account for nearly half of all retail sales in the categories examined.” This trend has not gone unnoticed by regulators, nor consumers themselves, nor the plaintiffs’ bar.
While consumer protection and state attorneys general actions are broadly on the rise, certain categories of claims are being brought with increased frequency; one being alleged greenwashing. While greenwashing has no universally recognized definition (and is further complicated by the nature of the products and the different jurisdictions where the products are sold), allegations that companies are misleading consumers to choose their product or service over others by implying that the company, product or service has environmental or social merits are on the rise. These types of cases typically seek statutory penalties, attorney’s fees, disgorgement of monies, and potentially most damaging, can harm consumers’ trust in and loyalty to a brand. Increasingly, consumers are also using this type of litigation to strongarm policy changes (usually coming about as part of out-of-court settlements). In just a few examples of an issue that’s impacting many (many) consumer product brands, on Oct. 28, 2022, a class action lawsuit was filed in Washington federal court against REI, alleging that REI markets the company and its products as environmentally friendly and cites statements made regarding the steps the company is taking regarding chemical use in its products while not disclosing the presence of PFAS in its products. Burt’s Bees and CoverGirl are also subject to class action lawsuits over their marketing of products as “100% Natural” or in the case of CoverGirl, “safe for use” and “sustainable,” while allegedly containing forever chemicals, or PFAS. And recently, Nike and Dick’s Sporting Goods were named in a lawsuit over certain duffle bags.
Two-thirds of Americans say large businesses and corporations are doing too little to reduce the effects of climate change, whereas only 10% say they are doing too much. However, whether and how these sentiments translate to purchasing decisions, and if consumers truly understand what various labels and claims mean, is where things get more complicated. McKinsey, following their U.S. consumer sentiment survey, notes over “60% of respondents said they’d pay more for a product with sustainable packaging … [and] 78% of U.S. consumers say that a sustainable lifestyle is important to them. Yet many CPG executives report that one challenge to their companies’ ESG initiatives is the inability to generate sufficient consumer demand for these products.” Beyond gray areas in how exactly these claims generate demand, the lack of clarity on what is a fair or misleading claim and how to define and measure terms, does not just potentially harm customers, but also creates confusion and risks for companies.
In light of the concerns, the Federal Trade Commission (FTC) announced in December 2022 it was undergoing a review of its Guides for the Use of Environmental Marketing Claims (“Green Guides”), a guidance document intended to inform marketers on best practices to avoid greenwashing. Section 5 of the FTC Act affords the FTC the enforcement authority to prevent companies from “using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.” The review of the guidance is notable given that updates have not occurred in over a decade. Moreover, the FTC’s action is not in a vacuum: in March, the Division of Examinations of the United States Securities and Exchange Commission (“SEC”) debuted its use of the term “greenwashing.” The FTC specifically asked for comments (which closed April 24, 2023) on the following issues and terms:
- Carbon Offsets and Embodied Carbon: specific to offsets and the carbon associated with a product or service—the FTC is looking into how to address claims of “low carbon,” “carbon neutral,” “net zero emissions” and the doozy of all claims—“carbon negative.”
- “Recyclable” and “Recycled Content”: the FTC is reviewing potential thresholds for when marketers can make unqualified recyclable claims, details around claims for products that are collected curbside; and whether recycled content distinctions such as “pre-consumer” and “postindustrial” content are reasonably understood.
- As well as if further guidance is needed relating to terms around energy use and efficiency as well as “sustainable,” “organic,” “compostable,” “degradable,” and “ozone friendly.”
While the Green Guides do not preempt state law and are not legally binding, the guides are often cited in greenwashing lawsuits. Below provides a rough overview of the existing risks companies face.
CURRENT LITIGATION TRENDS
According to Bloomberg Law, federal courts in 2022 and the first quarter of 2023 saw 47 complaints filed against companies for deceptive claims related to environmental impact or social responsibility. Bloomberg Law’s analysis of these cases broke claims down into categories: general environmental claims; third-party certifications; environmental supply chain; climate impact; labor supply; responsible disposal. Below we outline some key takeaways:
- General environmental marketing claims and claims related to product disposal were the top two claims targeted in the cases.
- The vast majority of cases were filed in California, under the state’s Unfair Competition and False Advertising laws.
- Consumer staple products such as household products, followed by retail consumer staple products, were the most targeted categories.
- The third and fourth most targeted categories were retail discretionary and food.
Nearly all of the cases filed during this time frame were brought by consumers, suggesting that those with purchasing power, rather than regulatory power, are the more pressing risk to companies in this area.
WHAT TO DO
1. Governance and Accountability—Designate and Train Your Team
- Look at your internal protocols for who prioritizes product goals, reviews labels and marketing. Is there sufficient technical or scientific, regulatory and legal expertise or resources available to your team? Are there systems in place that offer multiple opportunities for review, including involving your internal and external legal teams?
- Ensure processes around disclosure and due diligence are well defined. Good policy in this area includes ensuring each department or business unit that could be implicated in a claim understands, approves and complies with statements made on packaging and in advertising.
2. Supply Chain and Science
- The CDP’s February 2023 report found that while 4,100 companies disclosed they have climate “transition plans” compatible with the Paris Agreement, only 81 actually had a “credible” plan. Common greenwashing themes include statements that omit the full story or use inappropriate assumptions. To mitigate risk when storytelling with data, be sure your team understands what is measurable and provable. Today’s global economy makes supply chains extremely complex, and this often gets brands into trouble when they don’t know all the nuances or have accurate data.
- Get to know and document your supply chain, including the locations of manufacturing centers, what protocols are in place to review production processes and chemical inputs, the demographics of the labor force involved in all elements, and when and if it is acceptable to make certain calculation assumptions. For example, recently in May 2023, the Center for Environmental Health sent legal notices to major athletic wear brands that were found to have “more than 40 times the legal limit” of BPA (Bisphenol A) in their products. The products in question were polyester-based clothing containing spandex. In this case, knowing your supply chain, including each product that contains spandex, where that spandex is manufactured, and how you can quickly contact and address this issue would be critical to ensuring a rapid response.
- Understanding (and documenting!) the elements of how, where, who and why your products are made or processed as they are is essential to knowing if you can back up a claim, can quickly respond to concerns and ensure you are best positioned to adapt to the next wave of issues or regulatory movement.
3. Pay Attention to Stakeholder Sentiment in All Jurisdictions In Which You Operate
- While a large number of cases citing greenwashing as a primary complaint have been filed in the 2nd, 9th and D.C. circuits, every circuit saw cases in this category in 2022.
- Stakeholders touching all jurisdictions in which you operate will have insight into the priorities for consumers and regulators of your product. In particular, pay attention to local sentiment around environmental justice topics, such as water supply in water-stressed regions as well as economic, water and air quality impacts on disproportionately impacted communities. More importantly, work with your counsel to stay on top of the decisions and “standards” being set in various jurisdictions, being particularly mindful of the most conservative rulings.
4. Don’t Lose Sight of the Big Picture.
- When drafting marketing materials, your team should be asking throughout the process: are these claims backed by genuine action your company has taken? Are they supported by meaningful environmental or social impact or merit? How will we defend these claims if challenged by a state attorney general or a class action lawsuit? Lip service is not enough. For example, Patagonia, a notably outspoken company in terms of environmental ambitions, recently came out that it does not consider itself a sustainable brand—begging the question, what would be a sustainable brand? As outlined by Patagonia’s recent article: “According to Roland Geyer, a UC Santa Barbara environmental scientist, there is no such thing as a truly ‘green’ product, as products often change consumer behavior and the marketplace in unexpected ways … some green products can increase overall consumption … [potentially] because the consumer sees them as a license to consume more … [regarding Patagonia] there’s paradoxical evidence that the company is growing because of its reputation as a sustainable company.”
5. Be Specific and Clear.
- Avoid broad and generic claims like “environmentally sustainable,” or grandiose statements such as claiming something will “reverse climate change.” Provide context and supplemental disclosure to ensure you have sufficiently qualified the scope of the environmental claim. For example, if you want to claim your packaging is “compostable,” are you misleading customers into thinking the packaging will naturally break down if they throw it away in their municipal waste stream?
- Know that claims can arise not merely from the specific words used, but also from images or colors on your products or packaging that could be considered to imply there is environmental benefit.
6. Know What Actually Matters.
- Focus on what is most material. For example, if your product is related to seafood, efforts could address issues such as by-catch, overharvesting and other ocean-related impacts.
- Find resources (and do your own homework) on the leading relevant third-party certification programs and understand what metrics and assessment tools they recommend. For example, the Regenerative Organic Certified™ (ROC) is a certification program for food, textiles and personal care ingredients that focuses on animal welfare, farmer, worker and rancher fairness and cultivation impact on soil health and carbon sequestration. The Sustainable Apparel Coalition endorses the Higg Product Tool to assess a product’s environmental sustainability impacts. Whether or not you choose to certify your product, you can spot check your priorities, metrics and risks against their standards.
Consumer-facing companies (especially in the categories found to most often be subject to action) should prioritize analyzing and mitigating their exposure to greenwashing claims. In addition to this risk assessment, ensure you have a long-term, cross-disciplinary team and governance systems in place to prioritize understanding the environmental and social risks and opportunities specific to your industry and products as customer and regulator sentiment evolves. These issues and opportunities are complex, challenging and constantly evolving—remaining diligent and on top of the trends can serve companies well.
