Keurig’s SEC Penalty Shows Company ESG Disclosures Still Matter

A recent settlement between the Securities and Exchange Commission and Keurig Dr. Pepper Inc. shows that despite significant recent setbacks, the SEC is still focusing on environmental, social, and governance issues.

The SEC announced a settlement with Keurig in September over allegations that the company’s annual reports claiming K-cup pods could be recycled were inaccurate. In response, Keurig agreed to pay a $1.5 million civil penalty.

According to the allegations, the 2019 and 2020 reports claimed that tests validated that K-Cup pods, the single-use plastic cups used to brew coffee in a Keurig machine, “can be effectively recycled.” In truth, Keurig had heard from two of the largest American recycling companies that they couldn’t feasibly handle K-cups in curbside recycling.

The SEC pursued Keurig for violating Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-1, which requires companies file accurate annual reports. So how “recyclable” must a product be to pass as accurate for SEC disclosures?

Curbside collection in the US accepts only certain types of plastics, and even the ones that make it to a recycling center aren’t all reprocessed. In the end, only about 10% of plastics in the US get recycled, according to the National Academies of Sciences, Engineering, and Medicine. Should any company producing plastic be able to claim in filings that its product is green?

But Keurig’s SEC filings say the company did testing to confirm that K-cups are recyclable, which seems aimed to reassure investors that the company could continue to sell K-cups to an increasingly climate-conscious public.

In 2021, the SEC rolled out a task force dedicated to investigating ESG-related misconduct by issuers. But last month, word began to spread that the SEC seemed to have surreptitiously untasked the force.

The ESG task force website disappeared from the newly redesigned SEC site. ESG was conspicuously absent from the SEC’s Division of Examinations’ priorities list for 2024 after appearing on the list for several years running.

In March, the SEC published climate disclosure rules that were years in the making. The rules were significantly watered down from their original form after strong corporate resistance. Nonetheless, there was a predictable slew of litigation challenging the rules, and the SEC voluntarily stayed their effect in April. Litigation is ongoing.

Still, there are lots of good reasons for ESG enforcement to stay on the SEC’s radar. Investors increasingly want to know whether the companies they invest in are being fully transparent about their ESG commitments. When companies talk a big game about their ESG accomplishments but fail to live up to them, that can mislead investors who are trying to evaluate where to put their money.

The SEC has had some blockbuster ESG cases. There was a $55.9 million settlement with Brazilian mining company Vale, which put out sustainability reports touting its supposedly safety-certified dams. The settlement alleges that a Vale dam that broke in 2019, killing 270 people, didn’t meet international safety standards.

There was also a $19 million settlement with a Deutsche Bank subsidiary that claimed to consider ESG in its investment strategies while failing to live up to the evaluation processes it touted.

There are other signals, beyond the Keurig case, that the SEC is still keeping an eye on ESG misconduct. In February, Gurbir Grewal, the director of the SEC’s Division of Enforcement, described holding companies to their public statements about ESG as a way to protect investors and restore faith in the markets.

While acknowledging that the SEC is “not an environmental regulator” and “not the values police,” he explained that the commission remains dedicated to ensuring that corporate ESG disclosures are truthful. He noted, “We are here to protect investors, and if they care [about ESG], then we care.”

Let’s hope the Keurig case, however small it may be, is a sign that the SEC is still going after misleading ESG claims by corporations and ensuring that investors have accurate information. We need ESG enforcement that’s stronger than decaf.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Liz Soltan is an associate at Whistleblower Partners and focuses on financial fraud, anti-money laundering, and sanctions evasion cases.

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