On September 10, the Securities and Exchange Commission (the Commission or SEC) charged Keurig Dr Pepper Inc. (Keurig) for making inaccurate statements about the recyclability of its K-Cup single-use beverage pods. Without admitting or denying the findings in the order, Keurig agreed to a cease-and-desist order and to pay a civil penalty of $1.5 million.
SEC’s Charges Against Keurig
According to the SEC’s order, in its annual reports for fiscal years 2019 and 2020, Keurig stated that its testing with recycling facilities “validate[d] that [K-Cup pods] can be effectively recycled.” The Commission took issue with this disclosure because, at the time of making these disclosures, Keurig did not also disclose that two of the largest recycling companies in the United States had expressed “significant” concerns to Keurig regarding the commercial feasibility of curbside recycling of K-Cup pods and indicated that they did not presently intend to accept them for recycling. According to the order, K-Cup pods allegedly comprised a “significant” percentage of net sales of Keurig’s coffee systems business segment, and research earlier conducted by a Keurig subsidiary indicated that environmental concerns were a “significant” factor that certain consumers considered, among others, when deciding whether to purchase a Keurig brewing system.
Keurig was charged under Section 13(a) and Rule 13a-1 of the Exchange Act, which requires the filing of “complete and accurate” annual reports. Notably, the charges brought against Keurig were related to “significant” matters, while allegations of “material” misstatements or omissions do not appear in the order.
In her dissent, Commissioner Hester Peirce stated
. . . The pods were recyclable: Keurig chose a type of plastic that was recyclable and ran tests to show that the pods could be recycled. . . Branding Keurig’s Forms 10-K as incomplete or inaccurate because Keurig did not also disclose that two recycling companies “did not presently intend to accept pods” for “commercial feasibility” reasons misreads Keurig’s statement that the pods could be recycled as an implicit assertion that the pods would be recycled . . . In the Commission’s view, the pods cannot be “effectively” recycled because two recycling companies were uninclined to accept them for curbside recycling . . .
Broader Implications of Keurig Charges
While the climate rules are currently subject to litigation and, according to Bloomberg, the SEC closed its Enforcement Division’s Climate and ESG Task Force, environmental disclosures continue to remain a priority at the SEC. This action by the SEC underscores the importance of making sure ESG-related disclosures are complete and not misleading due to the omission of adverse information known to the company.
