[co-author: Amy O'Connell]
While the Securities and Exchange Commission’s (SEC) new climate-related disclosure rules remain stayed, the SEC has not abandoned its focus on sustainability-related issues. On September 10, 2024, the SEC charged Keurig Dr Pepper Inc. (“Keurig”) with making inaccurate statements regarding the recyclability of its K-Cup single use beverage pods. Keurig, without admitting or denying the SEC’s findings, agreed to settle the charges, paying a $1.5 million civil penalty and agreeing to a cease-and-desist order. Commissioner Hester M. Pierce released a dissenting statement questioning the basis for the SEC’s action.
The SEC’s order references statements that Keurig initially made in its 2014 Sustainability Report regarding Keurig’s goal to make 100% of its pods recyclable by 2020. The SEC notes that Keurig began performing tests of its pods at various recycling facilities around 2016, with the purpose of obtaining feedback on the recyclability of the pods from the facilities and others in the industry. According to the order, although the testing determined that the pods could be sorted from other materials at an early stage of the recycling process, Keurig nevertheless received negative feedback from two of the largest recycling companies in the U.S. concerning the feasibility of recycling the pods. Both of these companies indicated to Keurig that they did not intend to accept pods at their recycling facilities.
The SEC’s charges focus on statements subsequently made in Keurig’s annual reports on Form 10-K for 2019 and 2020, such as “we have conducted extensive testing with municipal recycling facilities to validate that [pods] can be effectively recycled,” and in 2020 adding “[w]e continue to engage municipalities and recycling facilities to advance the quantity and quality of recycled polypropylene and have committed $10 million toward the advancement of polypropylene recycling.”
The SEC alleged Keurig’s statements were not appropriately qualified by providing the negative feedback Keurig had received from recycling companies. In charging Keurig with violations of its reporting obligations under Section 13(a) of the Exchange Act and Rule 13a-1 thereunder, the SEC asserted that “[b]y not including this additional information, Keurig’s statements about the conclusion to be drawn from the testing concerning recyclability of pods were incomplete and therefore inaccurate.” Against this allegation, Peirce notes that the recyclability itself of the pods is not rendered false by the decisions of the recycling companies not to recycle them. Rather, in Peirce’s view, the company’s statements noted only that the pods could be recycled, not that they would be recycled.
The SEC’s order also noted that for “certain customers,” environmental considerations were “a significant factor, among others” in determining whether to purchase Keurig systems, though Peirce notes that the SEC’s order does not address whether it believes Keurig’s statements regarding recyclability were material to investors.
Notwithstanding Peirce’s dissent, the SEC’s action highlights the importance of ensuring disclosures are complete and not misleading due to the omission of adverse information known to the company. While this is the case for all disclosures and is nothing new, the context in which this action arises serves as an important reminder of the SEC’s continued focus on environmental and social disclosures and the agency’s willingness to look outside of SEC filings for additional context surrounding such disclosures.
