The Carrots and Sticks of Environmental Social Governance (ESG) Performance: How to Get Your ESG Carrots
Source: Sustainable Investment
How terms like “net zero,” “carbon neutral” and “sustainable” are defined and how such standards are measured are critically important to companies seeking to accurately brand their services and products. Lawsuits related to greenwashing are on the rise, with consumer groups and environmental non-governmental organizations (eNGOs) utilizing consumer protection laws to challenge statements made in green marketing campaigns and how companies account for their claims of environmental-friendliness.
Though there are currently no uniform or legally enforceable definitions of the terms used in environmental marketing or the methodology used to support a claim that a product or service is in some respect “green,” updates to domestic and international guidelines are currently being considered by the Federal Trade Commission (FTC) and World Resources Institute (WRI).
The FTC’s Green Guides for Use of Environmental Marketing Claims are the major source of definitions of terms used in environmental marketing, providing guidance as to what the FTC would consider “unfair or deceptive” under the Federal Trade Commission Act. The Green Guides are currently nonbinding, but the FTC is considering codifying them into regulations enforceable by civil penalties. The FTC is seeking public comment on this and whether there is a need for additional or revised guidance on over a dozen terms related to carbon offsets and climate change, recyclability, energy use and efficiency, and sustainability, including “sustainable,” “carbon neutral” and “net zero.” Public comments on the Green Guides are due February 21.
Also this month, the World Resources Institute is surveying stakeholders on updates to its Greenhouse Gas (GHG) Protocol, the global carbon accounting standard used nearly universally to define and measure GHG emissions. While generally used for voluntary accounting, the SEC and the Biden Administration have recently proposed incorporating the GHG Protocol’s definitions and standards into enforceable regulations.
Two recent cases are illustrative of the changing landscape related to “green” marketing claims which bear closer examination for any company considering how to update their branding to capture greater market share by appealing to the growing Millennial and Generation Z consumer base.
Most notably, in Washington, DC, an eNGO challenged Coca-Cola’s use of green slogans and social posts regarding its commitment to a “world without waste,” “doing business the right way,” and “sustainability.” Coca-Cola was also sued in California by the Sierra Club, which argued that labeling bottles “100% recyclable” when most end up in landfills was misleading. Both suits were dismissed, with the DC court finding Coca-Cola’s statements to be merely “general, aspirational corporate ethos,” and the Northern District of California finding that no reasonable consumer would understand “100% recyclable” as a guarantee that the bottle will be recycled, but rather that it can be recycled.
Another recent lawsuit was based on the methodology a shoe company used to support marketing claims related to its products’ sustainability and carbon footprint. The plaintiff alleged Allbird’s claims were misleading because the tools it used to calculate its footprint did not measure all types of environmental impacts. The Southern District of New York disagreed and dismissed the case, finding the plaintiff’s criticisms of the company’s methodology did not allege a misleading statement by the company, such as that it falsely described how it calculates its environmental impact or misrepresented the results.
Litigation will likely gain steam if supported by the proposed updated guidance, and, if codified into law, companies may face administrative enforcement and imposition of penalties. Navigating this dynamic landscape will be crucial to companies who seek to market themselves or their products as environmentally friendly. Including counsel when evaluating the need for any changes in branding or marketing to meet environmental, social and corporate governance (ESG) goals but refrain from running afoul of applicable guidance, binding regulations, or case law maximizes compliance as well as protections afforded by the attorney-client privilege. Case law and regulatory changes are dynamic and can vary widely depending upon jurisdiction. Pillsbury attorneys can assist companies who seek to ensure that the “E” in ESG is comprehensively addressed.