In the United States, companies are facing more and more lawsuits from consumers and even local governments over allegations of greenwashing. Many of these lawsuits allege that the environmental claims of a company do not match reality. Many states now have a legal framework around what a company can and can’t assert with its ESG contributions. The US Securities and Exchange Commission is already developing new regulations for how companies must disclose their climate-related expenditures. So what should companies know about greenwashing in the United States?
The Legal background
The shifting regulations around greenwashing are forcing companies to reconsider and reevaluate how they present their ESG contributions and impact. When a company violates greenwashing laws, it risks fines and other legal measures. There is a reputational risk associated with greenwashing as well, as the public demands actions to back up words.
The United States’ legal system is based on precedents. This creates a degree of legal uncertainty for any company evaluating its greenwashing risks. Since there isn’t a simple statute to refer to, companies operating in the US must keep track of recent cases around greenwashing. An additional layer of complexity comes from the variety of different greenwashing definitions and regulations in each state. So what are some recent examples of this phenomenon and what can a company learn from them?
Greenwashing Lawsuits
- In 2022, Aldi faced a consumer lawsuit regarding the slogan “Simple. Sustainable. Seafood.” Consumers were led to believe that Aldi’s salmon was farmed or fished in an environmentally friendly manner. The supermarket chain was in fact not sustainably farming its salmon. Even worse, it had even been implicated in the collapse of wild fish stock in certain areas. While this case is still ongoing, in May of 2022, a federal district court in Illinois rejected Aldi’s claims that its statements should not be taken at face value.
- SC Johnson, the creator company of the glass cleaner brand Windex also faces a number of Greenwashing cases. Firstly, consumer advocacy groups dispute its claim that Windex bottles are made from recycled plastic from the ocean. This statement was found to be partially false and was retracted by the company. A second lawsuit filed against SC Johnson alleges that Windex products contain ingredients that are harmful to the environment. Similar to the Aldi case, the courts have not yet ruled on the outcome.
- New York City sued several energy companies, including Exxon and BP in 2021 over “deceptive statements.” The city presented a plethora of examples of alleged greenwashing, including social media posts, advertisements, and public statements. Similar cases have been filed in New Jersey and Massachusetts among others. In most cases, the state’s supreme judicial courts have ruled that the lawsuits will go forward. The Federal court has also sided with the states, rejecting Exxon’s motion to get the case thrown out. These companies now face multiple lawsuits across the entire United States.
- In April of 2022, the footwear and apparel company Allbirds was sued over statements it made regarding the sustainability of its products. For example, Allbirds claimed that its wool was fully sustainable. The plaintiffs also questioned the companies’ use of carbon footprint indices which they argued were not accurate representations of climate impact. It is worth noting that the court ultimately sided with Allbirds in this particular case. Since the company had not made any factually inaccurate statements, the court dismissed the case. Their defense benefited from clear and honest ESG data that they could present as evidence.
Reputational risks
Regardless of how the courts rule in greenwashing cases, companies need to be aware of how the public perceives ESG contributions. Just a headline with “company x faces greenwashing allegations” already paints a picture of deception. In some cases, companies have exacerbated the issue through poor public communication. Take, for example, the energy giant Shell. In November 2020, it put out a poll asking people what they do to fight climate change. While not a controversial question, Twitter users reacted with hostility to the implication that they were not doing enough. The Twitter poll quickly backfired, garnering negative attention from US congresswoman Alexandria Ocasio-Cortez, Greta Thunberg, and a variety of climate scientists. Similarly, Unilever’s cleaning brand Persil attempted to market itself as “kinder on the planet.” The company used hashtags like #plantmoretrees, without detailing exactly how their product was “kinder on the planet.” The public outcry was significant enough to get the UK’s Advertising Standards Agency involved. Many court cases in the US will be decided by a jury, so companies need to protect their reputation if they want to protect themselves.
What can we learn?
The amount of greenwashing cases over the last few years is an indicator that companies will come under more and more scrutiny over what they claim. Companies must be proactive in mitigating risk. Firstly, the shifting nature of greenwashing laws means that legal teams need to keep track of ongoing cases. Arguments used by the plaintiff in one case can be used against your company, so it is best to be prepared. This also means keeping track of how context is defined for consumers. Secondly, a company should do a holistic overview of its labeling, packaging, and other public-facing information. This should also apply to all public statements, from social media posts to securities filings. “Aspirational” claims should be avoided, even if the company plans to enact them in time. Thirdly, it helps to be prepared. As in the Allbirds case, companies need to be able to present the data behind their claims clearly and concisely.
In general, companies should explore the methods and means that their competitors use to avoid the legal risks associated with greenwashing. The Global Summit on Greenwashing Legal Risk Management & Compliance Strategies 2022 conference will be held in Brussels on November 8th. It is the perfect opportunity to do just that. Decision makers and legal experts from a variety of industries will come together to discuss how to best protect themselves from the risks of greenwashing.