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Governments, environmental groups, and class action attorneys have all gotten the message and are actively looking to find and punish companies engaged in greenwashing. The litigation risk continues to grow. The article below outlines some examples of claims and cases.
As ESG continues to influence investment opportunities, greenwashing is becoming a big problem globally. When first introduced nearly two decades ago, the aim of ESG was to prioritize environmental, social, and governance standards in addition to profits. Large financial investors announced ESG priorities, and over 1000 mutual funds and exchange-traded funds (ETFs) were created to reward and track ESG initiatives. These investors have created pressure on public and private companies to develop and announce ESG goals. In particular, there is pressure to announce and promote “sustainable” practices and low or zero carbon emissions.
While many of the corporate initiatives achieve laudable goals, there is a temptation to make broad and sweeping pronouncements about a company’s goods and products. Greenwashing is when the management team within an organization makes false, unsubstantiated, or outright misleading statements or claims about the sustainability of a product or a service, or even about business operations more broadly. Some greenwashing is unintentional, due to a lack of knowledge or understanding on the part of management, but sometimes greenwashing is also carried out intentionally through marketing efforts. Greenwashing is such a problem than the UN Secretary-General announced that “we must have zero tolerance for net-zero greenwashing” and appointed an “Expert Group” to study the issues. Their report discussed the problem and ways to combat the issue.
Governments, environmental groups, and class action attorneys have all gotten the message and are actively looking to find and punish companies engaged in greenwashing. The litigation risk continues to grow. Here are some examples of claims and cases:
Examples of Greenwashing
1. Hidden trade-offs
This is where a firm may emphasize that a product is produced (or packaged) using recycled materials, however, they neglect to mention that it was sourced from a supplier with a history or coercive labor practices or humanitarian issues.
2. Baseless claims
For instance, a company advertises a product as being “ethically sourced” but is unable to provide specific information about its procurement or about how it arrived at that conclusion.
3. Presentation of partial truths
Consider an oil & gas producer that presents its 5-year emissions trend as declining. Of course, that’s good, but it only captures that firm’s scope 1 emissions (those it produces directly) and neglects to address the eventual combustion of that fuel downstream by the eventual consumer (scope 3 emissions).
Recent Cases Involving Greenwashing
Marcelo Muto et al. v. The Coca-Cola Co. et al., U.S. District Court for the Northern District of California
A proposed class of consumers and the Sierra Club filed suit against Coca-Cola Co. alleging that Coca-Cola Co. and other bottling companies are liable for alleged greenwashing by advertising their single-use plastic water bottles as “100% recyclable,” when in fact they are not. They allege that the “100% recyclable” labels violate California’s Consumers Legal Remedies Act, False Advertising Law, and constitutes fraud, deceit, and/or misrepresentation, and negligent misrepresentation.
In November, U.S. District Judge James Donato dismissed plaintiffs’ first complaint saying, “No reasonable consumer would understand ‘100% recyclable’ to mean that the entire product will always be recycled or that the product is ‘part of a circular plastics economy in which all bottles are recycled into new bottles to be used again.’” Judge Donato reasoned that a “reasonable consumer would understand that making an object recyclable is just the first step in the process of converting waste into reusable material, and not a guarantee that the process will be completed.”
Plaintiffs amended their complaint to clarify that their claims are that the phrase “100% recyclable” is false because the products are not in fact 100% recyclable. They allege that the use of misleading and deceptive recyclability claims on their products serves to defraud the public about plastic water bottles and falsely informs consumers that they are not generating any waste by buying the products. Plaintiffs are seeking to prevent Coca-Cola from selling plastic water bottles unless the bottles’ packaging and marketing is modified to remove the misrepresentation “100% Recyclable” and/or disclose the omitted facts about their true recyclability. The case is pending.
Lizama et al. v. H&M Hennes & Mauritz LP, U.S. District Court for the Eastern District of Missouri
In November 2022, H&M shoppers filed a class action lawsuit accusing the company of illegally preying on shoppers’ desire to buy sustainable clothing by advertising expensive “recycled” garments that are actually destined for a landfill. The plaintiffs brought claims against H&M for (1) violation of the Missouri Merchandising Practices Act; (2) violation of California’s Consumer Legal Remedies Act; (3) violation of California’s False Advertising Law; unjust enrichment; (6) negligent misrepresentation; and (7) fraud.
H&M argued that “the complaint’s attempt to convert its messaging into allegations that H&M is ‘greenwashing,’ fails because, it selectively ignores the substance and context of H&M’s candid disclosures,” the company said. In response, the shoppers argued that the collection’ clothing made of recycled polyester is primarily sourced from plastic bottles, saying while plastic bottles have the potential to be recycled many times, once turned into clothing, they are destined for landfills. The collection at the center of this litigation is H&M’s “Conscious Choice” collection, which the company purports to use more sustainable materials than those in comparable H&M garments. H&M’s motion to dismiss is pending.
Suggestions to Mitigate Risk
1. Make your claims clear and easy to understand. Include details such as specific units of measurement (e.g., “70% organic cotton” rather than “made with organic cotton”) and specific certifications and verifiable endorsements from credible third-party eco-organizations, such as the Sierra Club or Greenpeace.
2. Back up your sustainability claims with data. Keep current data available and update it on your website and anywhere else you make sustainability claims. Only use data that can be verified. If possible, include credible third-party certification from sources such as the Carbon Trust Standard, Forest Stewardship Council, Rainforest Alliance, or Energy Star.
3. Compare apples to apples. When comparing your product’s sustainability to a competitor’s, make sure to compare the same product type so you’re not misleading consumers.
4. Clean up your operations. If you want to market your products as eco-friendly, you need to walk the walk by making sustainability part of your business model. Institute sustainable practices in your manufacturing, waste disposal and distribution operations.
5. Be honest about your brand’s sustainability practices and plans. Inform consumers about how green your individual products are, as well as your company’s overall sustainability practices. When discussing plans or goals, be specific about your targets and timelines so consumers can hold you accountable.
6. Make sure images on ads and packaging are not misleading. The color green or images from nature, like trees and flowers, may imply that your products or brand are eco-friendly – a concern if that’s not the case.
Mark Henriques, a partner at Womble Bond Dickinson, has more than 30 years of experience defending clients in an array of complex class-action litigation cases.
Reprinted with permission from the January 9, 2023, edition of Corporate Counsel© 2023 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or email@example.com.
This article is part of Womble Bond Dickinson’s Growing Global series. For more insights, click here to visit our Growing Global hub.