The state of New Jersey is suing several fossil-fuel companies such as Exxon, Chevron, and BP, for their impact on climate change. More precisely, New Jersey argues that these companies have made deceptive statements about their climate impact. This is commonly referred to as greenwashing, an activity that is coming under more and more scrutiny. Greenwashing has become a hot-button issue in the legislature of many western countries. Future Bridge has created a more thorough overview of greenwashing around the world can be found here. So how does NJ plan to prove its case in court? And why should the industry at-large pay attention?
The Background
The United States’ legal system is based on precedents. Simply put, this means that the outcome of this case would potentially open the gates for further litigation. Companies that, in the public eye, are seen as responsible for climate-related damages will find themselves in court. Exxon and the other defendants are also being sued by a myriad of other states and cities, most notably, New York City. Unlike the NJ case, NYC claims that these energy companies have engaged in greenwashing. Similar lawsuits have also been filed in a number of other states, including Rhode Island, Delaware, Connecticut, and Massachusetts.
The case so far
New Jersey wants energy companies to cover the costs of cleanup after natural disasters. Superstorm Sandy and Hurricane Ida were both used as examples of catastrophes exacerbated by the environmental impact of energy companies. The defendants are currently appealing a Supreme Court decision to have the case held in state court, as opposed to federal court. While this case does not exactly fall into the category of greenwashing, there is a good chance that both sides will use common greenwashing lawsuit tactics. Companies have successfully defended themselves from similar allegations using hard evidence to back up their claims. For example, the apparel brand Allbirds was sued over statements it made about its supply chain. The plaintiffs ultimately lost their case after the company provided evidence that it did indeed use sustainably farmed wool.
What do the plaintiffs claim?
Since it would be impossible to directly blame a natural disaster on a company, NJ is focusing on a “failure to warn” approach. The basic logic of the argument is that current cleanup and prevention costs are higher due to energy companies misleading the public about the impact of climate change. Most greenwashing claims come from statements a company has made and not followed up. This case might be unique as it revolves around statements the energy industry should have made, according to the plaintiff. Similar cases revolve around energy companies not communicating their role in climate change.
How could this case affect greenwashing legislation?
As previously mentioned, the US legal system is based on previous cases and currency, there are no strictly defined conditions for greenwashing. In fact, the US does not require companies to disclose climate risks in securities filings if they deem such risks immaterial. Additionally, the US does not mandate environmental or social impact reporting. There are currently no formal definitions of what qualifies as a sustainable activity and no uniform standards for measuring corporate environmental goals or quantifying and reporting climate risks. Currently, some US legislators and the EPA is working on a greenwashing regulatory framework. For a more in-depth look at the possible future of greenwashing in the US, one of our other articles.
What should the industry pay attention to?
The amount of greenwashing cases over the past 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, because the shifting nature of greenwashing laws means legal teams need to keep track of ongoing cases, companies must be prepared. This also means businesses should track how the public defines guilt and damages. 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 like social media posts or securities filings. “Aspirational” claims should be avoided even if the company plans to enact them in time. Legal teams should review recent updates to the GHG protocol to help the business provide itself with a tried and tested method of defense – hard evidence.
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. Visit future-bridge.eu or follow us on our social media to keep track of other events about greenwashing and legal risk.