In recent months, many companies have found themselves under fire from conservative advocates for their stances on ESG-related issues. At the same time, other companies have found themselves facing litigation based on allegations that they have overstated their green credentials (a set of allegations sometimes called “greenwashing”). As two recent cases show, companies can face challenges and potential liability over their sustainability claims.
Keurig Dr. Pepper
On September 10, 2024, the SEC filed settled charges against the beverage company Keurig Dr. Pepper alleging that the company had misleading claimed that its single-serve pods, known as K-Cups, could “effectively” be recycled. The company neither admitted nor denied the allegations but did agree to pay a $1.5 million civil penalty. The SEC’s September 10, 2024, press release about the enforcement action can be found here. The SEC’s September 10, 2024, Order in the case can be found here.
At the relevant time, K-Pod sales constituted a significant component of the company’s coffee segment sales. The company’s research showed that environmental concerns were a significant factor that consumers considered in deciding whether to purchase a Keurig brewing system.
The SEC alleged that in its annual reports for 2019 and 2020, the company has stated that testing had “validated” that the K-Pods “can be effectively recycled” but omitted to mention that two of the largest recycling companies in the U.S. had expressed concerns about that and stated that they didn’t intend to recycle the pods.
The SEC alleged that the Company had violated Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-1 thereunder. The SEC’s press release quotes and agency spokesperson as saying that “When a company speaks to an issue in its annual report, they are required to provide information necessary for investors to get the full picture on that issue so that investors can make educated investment decisions.”
Coca-Cola
On August 29, 2024, the DC Court of Appeals reversed a lower court’s dismissal of an action brought against beverage company Coca-Cola, in which the advocacy group plaintiff, Earth Island Institute, alleged that the company had violated the DC Consumer Protection Procedures Act (CPPA). The advocacy group had alleged that the company’s efforts to promote its sustainability efforts and goals amounted to greenwashing. A copy of the appellate court’s opinion can be found here.
The plaintiff organization has sued Coca-Cola in the DC Superior Court in 2021, alleging that Coca-Cola wasn’t taking sufficient steps to meet the company’s stated goal of making 100% of its packages recyclable by 2025, using 50% recycled material in its packages by 2030, or recycling a bottle or can for every one it sells by 2030. The advocacy group also alleged that due to low recycling rates, even if the company managed to make all of its packaging recyclable, that would do little to mitigate “plastic pollution on the scale that Coca-Cola produces it.”
The DC Superior Court had ruled that statements about the company’s future goals, such as that the company was committed to a world without waste,” were mere puffery. However, the Court of Appeals disagreed with the trial court’s puffery analysis, saying that “Even aspirational statements can be actionable under the CCPA because they can convey to reasonable consumers that a speak is taking (or intends to take) steps that at least have the potential of fulfilling those aspirations. Earth Island alleges that Coca-Cola neither takes nor intends to take any such steps, and if that is correct, then its representations could mislead reasonable consumers.” The appellate court declined to determine whether the statements whether the statements were actual puffery but held that it is an issue for the fact finder to determine.
Discussion
In its September 10, 2024, article about the SEC’s action against Keurig, the Wall Street Journal noted that the SEC’s action “comes as regulators take a hard look at green claims made by companies.” The Journal article notes that the EU and the FTC, as well as the SEC, have recently signaled that they are scrutinizing company’s green claims. The action against Coca-Cola, which the DC Court of Appeals revived, shows that advocacy groups are also scrutinizing companies’ efforts to promote their green credentials.
The allegations in both of the actions referred to above describe behavior that is sometimes described as “greenwashing.” In fact, the DC Court of Appeals called the advocacy group’s action against Coca-Cola as a “classic greenwashing” claim.
It is interesting that both of these claims involve beverage companies, and in particular refer to the companies’ product packaging. The similarity of these aspects of the actions highlights that companies in this industry are under scrutiny for their sustainability claims. There likely are other industries within which companies’ sustainability claims will likely face particular scrutiny. D&O underwriters considering how to underwrite in connection with potential liability for sustainability claims will want to consider what industries are likeliest to face this kind of scrutiny.
At a minimum given the type of scrutiny companies apparently will face with respect to their sustainability claims, well-advised companies will want to carefully review their sustainability-related statements – even just the company’s aspirational statements — to ensure that the companies are not open to allegations that the statements misled consumers or investors.