Litigation, ESG Are Accelerating Shift To Circular Economy

But municipal governments aren't the only parties driving policy in this space. Earlier this month, a group of consumers filed Peterson v. The Glad Products Co. in the US District Court for the Northern District of California, alleging that trash bag manufacturers falsely labeled and advertised their bags as "recyclable" and "designed for municipal use," even though "no municipalities allow the bags, which end up in landfills or incinerators."

Below, we will provide some background on recycling in the US, and tie it to other trends in policy litigation, and the concept of a circular economy, defined by the US Environmental Protection Agency as one that "keeps materials, products, and services in circulation for as long possible."[1]

Recycling in America

Americans have been recycling since colonial times. However, it wasn't until the 1960s that Americans began viewing recycling ― often provided alongside rubbish removal ― as a more formal solution to problems posed by consumer waste. Still, consumers blue-bagging newspapers, cereal boxes and empty beer cans could not provide a full solution to the problem of waste.

The 1970s saw the popularization of the 3 R's campaign: "Reduce, Reuse, Recycle." This shift in emphasis from, "do what you want, but recycle if you can" to individuals having a broader obligation to minimize product waste might be a small step, but one that has been mirrored in broader culture ever since.

The developing field of environmental, social and governance litigation has brought renewed attention to claims related to product sustainability, and the broader pattern of a circular economy. ESG reporting has imposed a similar burden of waste minimization on businesses, through an often statistical focus on organizations' waste-related impacts and waste prevention, and the circularity of the product cycle.

Below, we examine how wastes are regulated under environmental laws — and discuss why companies are likely to be faced with civil litigation related to waste in the ESG space, as part of broader campaigns to force environmental policy changes.

Circular Economies and the Historic Regulation of Waste

Traditionally, the US government did not regulate waste, except through tort theories of liability like trespass and nuisance. It wasn't until the late 1970s that the major waste statutes and regulations on waste took shape.

Even then, the primary federal waste-focused statutes dealt and continue to deal only with defined types of waste, such as hazardous substances listed under the Comprehensive Environmental Response, Compensation, and Liability Act — also known as the Superfund law — and certain kinds of waste management units, or wastes that "may pose imminent and substantial endangerment" under the Resource Conservation and Recovery Act. 

Importantly, no federal waste-focused laws are particularly concentrated on consumer goods waste, or pushing businesses toward sustainability or a more circular economy — meaning an economy that keeps products and materials in circulation and away from landfills, and avoids reliance on raw materials and single-use products.

To fill the void, several states have started to regulate waste at the consumer goods level by imposing circular economy directives on businesses. For example, state and local bans on single-use plastic bags are active in California, Massachusetts, Colorado, New York and Illinois, banning single-use plastic bags at large retail stores.

But even these states and localities are not legislating fast enough on these issues for certain people. Some groups are turning to tort-based litigation to force changes in corporate behavior across the board, regardless of the jurisdiction in which a business operates.

Trends in Sustainability and ESG-Focused Litigation

Claims against companies related to sustainability have proliferated over the years.[2] ESG reporting will likely shine a light on waste-related practices by imposing reporting obligations.[3]

Corporate disclosures related to waste-related practices will likely provide fodder for circular economy-focused litigation. Novel legal theories often end up being deployed against businesses perceived in some quarters as being under-regulated under more traditional regulations.

These types of lawsuits generally seek to hold businesses accountable for their waste-related impacts, and to compel changes in corporate practices. Plaintiffs range from federal, state and local governments to consumers, nongovernmental organizations and even company shareholders.

No matter the type of plaintiff, recent circular economy-focused litigation has generally fallen into two main categories.

Waste-Related Lawsuits

Circular economy-based litigation challenging corporate waste impacts are on the rise. Use of ESG-related theories often occurs hand-in-hand with use of public nuisance tort theories.[4]

Plaintiffs have challenged sustainability goals selected by companies themselves and sought to impose external ESG principles to corporate practices. One example is Mayor and City Council of Baltimore v. Philip Morris USA Inc., filed in November 2022 in the Circuit Court for Baltimore City. 

This suit, brought by the city of Baltimore against various cigarette manufacturers, aims to recoup the costs associated with cleaning up cigarette filter litter, damages to natural resources and decreased property values allegedly caused by the dumped filters.

The complaint alleges that the manufacturers violated state and local pollution laws, and committed various torts by designing filtered cigarettes in a manner that was unsafe for the environment. The lawsuit is an example of a municipal plaintiff imposing its own ESG principles on a corporate actor.

Product Attribute Lawsuits

In contrast to the waste-related lawsuits, which tend to focus on companies' big-picture policies or actions, product attribute lawsuits tend to focus on claims regarding particular products. We expect these lawsuits ― and others pressing for corporate shifts toward a more circular economy ― to continue.

Product Recyclability

We discuss the Peterson case about "recyclable" trash bags which plaintiffs allege are not accepted for recycling earlier in this article. Peterson is similar to other lawsuits that have been brought in recent years, including Smith v. Keurig Green Mountain Inc. in the Northern District of California, settled last year, alleging that Keurig wrongfully labeled its pods as recyclable.[5]

Greenwashing

Dwyer v. Allbirds Inc. is another recent example of ESG-focused litigation targeting corporate statements on environmental impacts. This consumer class action lawsuit was filed against the clothing company Allbirds, alleging that the company made misleading marketing statements — including ones regarding the welfare of the sheep from which Allbirds sourced its wool.

Ultimately, the US District Court for the Southern District of New York dismissed this suit in April 2022, but these types of claims continue to be brought against businesses at a rapid pace.[6]

Product Biodegradability

In 2021, a shareholder brought a stockholder derivative action in the US District Court for the District of Delaware against members of the board of directors and upper management of Danimer Scientific Inc., a bioplastics company.[7]

The lawsuit, Perri v. Stephen Croskey, alleges that Danimer and its directors made inaccurate statements about the biodegradability of its product, Nodax, and failed to disclose environmental compliance issues to shareholders. The action further alleges that these false statements lead to the artificial inflation of the company's value, from which the directors made a profit.

The case has been stayed since March 2022 at the parties' request, due to overlapping parties and factual allegations raised in related federal securities litigation, In re: Danimer Scientific Inc. Securities Litigation, filed in the US District Court for the Eastern District of New York in May 2021.[8]

Litigation Avoidance in This Context

While we expect companies will continue to make ESG-related transparency a priority, companies can also consider taking various steps to minimize the risk of circular economy-focused litigation:

• Be deliberate when making public statements related to regarding circular economy issues and sustainability attributes related to products and the processes under which they are made. Review the legal basis of product claims and disclosures. Stay current on ESG-related litigation trends to better inform the review of company statements and claims related to circular economy issues.

• Review all current recyclability and other product attribute statements. Any review should include on-product packaging and labeling, as well as other marketing statements made in advertising and social media, and as part of a product's overall branding. Statements should be reviewed to ensure that they are verifiable and documentable, and that they comply with recyclability criteria in the jurisdictions where those products are sold. For example, states like California, Illinois, Oregon and Connecticut have laws that prohibit the use of symbols and other claims suggesting recyclability on product packaging or labeling that fail to meet certain recyclability criteria.

• Make sure that claims related to products on labeling, and claims in documents like ESG reports, are reviewed with an eye toward minimizing the risk of litigation. Ensure that any statement classed as a goal is reasonably attainable based on currently existing plans.

• Assess waste-related impacts and quantify publicly made claims against accepted standards or benchmarks.

[1] See https://www.epa.gov/recyclingstrategy/what-circular-economy.

[2] See https://www.afslaw.com/perspectives/alerts/its-not-easy-being-green-companies-need-be-careful-making-sustainability-and and https://www.afslaw.com/perspectives/fashion-counsel/green-and-bear-it-class-action-alleges-greenwashing-fast-fashion.

[3] See https://seekingalpha.com/article/4544754-putting-the-w-in-esg-the-case-for-a-rethink-on-reporting-of-waste.

[4] See https://www.afslaw.com/perspectives/product-liability-mass-torts-blog/trending-tort-law-part-ii-courts-address-the-growing.

[5] Smith v. Keurig Green Mountain Inc. , No. 18-cv-6690 (N.D. Cal.) (class settlement reached in 2022).

[6] Dwyer v. Allbirds Inc., No. 7:21-cv-05238 (S.D.N.Y. 2021).

[7] Perri v. Stephen Croskey, No. 1:21-cv-01423 (D. Del. 2021).

[8] In re: Danimer Sci. Inc. Sec. Litig., Master File No. 21-cv-02708-MKB-RLM (E.D.N.Y.).