ESG and Sustainability Litigation as Vehicles to Compel Environmental Policy Change
These efforts are well-funded and have precedent in the environmental and sustainability space. In September, the Bloomberg Philanthropies, in coordination with NGOs, announced a new $85 million campaign entitled “Beyond Petrochemicals: People Over Pollution,” building on past efforts to get “beyond coal” and “beyond carbon.” The Bloomberg announcement explicitly ties the petrochemical industry to three hot-button ESG- and sustainability-related issues — greenhouse gas emissions, generation of plastic waste, and environmental justice — and indicates that significant funding will be deployed in part to “engage with the general public and private sector” to “reduce demand for plastic and petrochemical products.”
This funding is likely to hasten a trend we are already seeing, which is the use of private- and public- litigation in the ESG and sustainability spaces to attempt to compel policy changes different than those pursued through the political branches. Below, we will define what ESG and sustainability mean, discuss recent litigation in this space, and provide takeaways as to litigation avoidance.
Defining Terms: ESG and Sustainability
“ESG” refers to the environmental, social, and governance requirements, industry standards, and stakeholder pressures affecting businesses and non-profit organizations. In 2022, ESG has advanced in the United States from a mere concept to a practically realized vehicle, at least in the corporate space. Around the world, various regulatory agencies are increasingly wading into the green claims space. For example, the United Kingdom’s Competition and Markets Authority has promulgated its Green Claims Code, which provides guidance for businesses making environmental claims. The European Union is pursuing similar regulations. (See our discussion here.) Some jurisdictions go even further in terms of specificity; France’s Climate and Resilience Law outright prohibits certain green claims. Terms like “biodegradable” and “eco-friendly” cannot be used on a product or packaging.
In the United States, however, there are neither comprehensive guidelines nor standards for claims about environmental characteristics such as “green” or “sustainable” or for making green claims and environmental marketing. Regulation in this space – to the extent it occurs – happens as much through litigation as through pronouncements by regulatory agencies.
There is no universal definition of “sustainable” in the United States, and definitions that exist tend to be associated with particular industries. (See the FTC’s discussion here.) Broadly speaking, businesses’ characterization of a product – or their business operations – as being “sustainable” are regulated by laws that deal with product or securities marketing. We will discuss cases evaluating businesses’ sustainability claims below.
“Greenwashing” in the Product Marketing Context
Various federal and state agencies and even state attorneys general, non-profit organizations, and third parties can and do advance product liability claims about product attributes that can lead to “waves” of litigation over particular types of branding, marketing, or representations. Claims of “greenwashing” pre-date the current focus on ESG. Since 1992, the US Federal Trade Commission (FTC) has published its “Green Guides,” providing guidance on “green” marketing claims and has regularly pursued litigation related to deceptive trade practices related to the environment.
While compliance with FTC’s guidance is important for product marketing, product claims related to greenwashing are more likely to be brought by private attorneys pursuing fraud or deceptive trade practices-type claims.
Consumer lawsuits generally allege that a consumer overpaid some premium for a product that was marketed as sustainable or environmentally friendly. Litigation styled as being about deceptive marketing may, in reality, be focused on product materials or manufacturing practices. An example of this is provided by a Missouri federal class action recently filed against the clothing retailer H&M alleging that its “Conscious Choice” collection is marketed as being “sustainable” and “environmentally friendly” though the clothing is largely made out of recycled polyester fibers plaintiffs allege are non-sustainable. Plaintiffs allege that H&M’s advertising and labeling is deceptive, providing examples including clothing hangtags, social media imagery, and statements on the retail website. While the claims were filed under various state consumer protection statutes, theories of common law negligence and fraud, they plainly target a manufacturing practice in as much as an advertising practice. (Our Advertising Team colleagues discuss this case in detail here.)
Businesses or other organizations that provide third party certifications related to ESG practices or representations may also find themselves as the focus of greenwashing lawsuits. In 2021, a consumer class action lawsuit was filed in New York federal court against the clothing company Allbirds, alleging that Allbirds made misleading marketing statements, including ones regarding the welfare of the sheep from which Allbirds sourced its wool. Plaintiff alleged that Allbirds’ reliance on a ZQ Merino wool certification related to animal farming, welfare, and land management was misleading because that certification process did not fully conform to the People for the Ethical Treatment of Animals’ (PETA) recommendations. Ultimately, the court dismissed this suit and noted that Allbirds’ animal welfare claims were puffery and that no reasonable consumer would expect the ZQ Merino certification program to follow specific PETA recommendations. To date, these cases have largely been unsuccessful in the United States, resulting in dismissal or settlement, but they continue at an increasingly rapid pace and companies incur defense costs, which can be significant.
“Greenwashing” and Policy Change
In addition to product-focused claims, environmental NGOs and state regulators frequently use litigation to collaterally attack businesses that they perceive as being ineffectively regulated at the federal level. As an example, Sierra Club filed serial litigation under its Beyond Coal program against coal-burning power plants to force utilities to get “beyond” coal. State governments, frustrated at federal authorities’ inability or unwillingness to address climate change or address issues like the continued use of single-use plastic bags, may use ESG-focused claims to compel such changes as they can. Bloomberg Philanthropies’ “Beyond Petrochemicals” campaign is certain to produce more instances of this.
ESG claims are plainly being used by NGOs and state attorney generals to advance political ends relevant to the environmental space. Two examples:
- Earth Island Institute, an environmental NGO, has filed District of Columbia tort claims against multiple companies in the food and beverage space based on statements the companies are alleged to have made regarding its sustainability initiatives. In a pleading in its latest case, Earth Island noted that it filed its claims because corporate actions fell short of “what consumers would expect from a ‘sustainable company.’”
- The Massachusetts Attorney General is pursuing claims against Exxon as part of a broader campaign to cause the company to address climate issues. (See here.) The complaint alleges that Exxon has misled investors and consumers related to Exxon’s products and their impact on climate. Additionally, Massachusetts contends that Exxon has misled Massachusetts consumers through so-called “greenwashing” campaigns implying that Exxon is working to address climate change and reduce carbon emissions in an effort to influence purchasing decisions.
Best Practices for Minimizing the Risk of Litigation
Businesses in the United States need to be aware of their operations in the country:
- Be careful about material public statements they make regarding green and sustainability attributes related to their products and the processes under which they are made, including securing the advice of counsel related to these products and disclosures about them.
- Be aware that claims related to ESG issues can come from many different angles, particularly when potential claims relate to issues where well-developed constituencies pushing for social change already exist, such as parties opposing the production/transport/use of fossil fuels; the use of minerals from conflict areas; forced labor, and animal cruelty.
With the risk of legal action, some companies have chosen a strategy of silence, which has become known as “green hushing.” However, this strategy is unlikely to succeed in the long term as regulators continue to push for more reporting and transparency and customers ask for more sustainable projects and information to prove it.
Businesses can take simple steps to protect against legal claims in the context of the ESG space. While ESG-framed goals are laudable, like anything else in the United States, they will eventually serve as fodder for litigation. Reasonable steps that businesses can take when making ESG-related claims:
- Companies need to broadly review all statements made in the ESG space – not just those related to products. Where a company makes ESG-related representations anywhere, those representations should be either aspirational or accurately align with what the company is really doing.
- Ensuring that claims related to products, or claims in documents like ESG reports, are reviewed by counsel with an eye toward minimizing the risk of litigation.
- Making sure that any ESG- or sustainability-related claims are verifiable and that anything classed as a “goal” is reasonably attainable based on currently existing plans.
- Quantifying claims made publicly against an accepted standard or benchmark.
The Firm’s ESG Team advises clients on understanding risks and benefits posed by increased regulatory focus on ESG and greenwashing issues and creating pathways to advance these issues at a corporate level. The Consumer Products Team provides counseling to clients at all stages of the product life cycle, from early-stage counseling and branding to compliance and litigation. Please reach out to any member of the ESG or Consumer Products teams with questions as to how litigation related to ESG could affect your business.