Bloomberg Law
July 25, 2022, 8:00 AM

The Legal Risks of Greenwashing Are Real

Shawn Collins
Shawn Collins
Stradling Yocca Carlson & Rauth
Lisa M. Northrup
Lisa M. Northrup
Stradling Yocca Carlson & Rauth

“Eco-friendly,” “sustainable,” “net zero, ” and “reusable”—the advertising landscape is increasingly awash with these buzzwords as companies increasingly prioritize environmental, social, and governance initiatives in response to increased consumer demand for sustainable and socially conscious products and services.

For example, the clean beauty market is estimated to reach $22 billion (on a global basis) by 2024, making it one of the fastest growing categories within the cosmetics industry. Cosmetic companies, as well as companies in other industries, are eager to gain market share in the incredibly lucrative and expanding sustainability and eco-friendly movement.

Indeed, 72% of North American executives agreed that their organization has overstated its sustainability efforts in a recent survey conducted by Harris Poll for Google Cloud. This practice of misrepresenting the sustainability or eco-friendliness of a company’s products or services, commonly referred to as “greenwashing,” has caught the attention of plaintiff consumer and activist organizations.

A wide range of companies presently face class action lawsuits including, for example, Whole Foods for touting its commitment to “sustainability” and “environmental stewardship,” Burt’s Bees Cosmetics for advertising that its ingredients “come from nature” and are obtained using “responsible sourcing methods,” Dasani and other bottled water brands for marketing products as “100% recyclable,” and KLM for its “Be a hero, fly CO2 zero” tag line.

While both the law and many of these cases are still in their early stages, recent court decisions shed additional insight into how courts may analyze these types of claims and how companies can proactively take action to minimize their legal risk.

Don’t Assume Ads Will Be Viewed as Puffery

Defendants facing allegations of false advertising have frequently mounted successful defenses by showing the statements were mere puffery, such as “world’s best cup of coffee.”

ALDI Inc. took this approach in defending against false advertising allegations in relation to the statement “Simple. Sustainable. Seafood.” on its Atlantic salmon products. Yet, the court recently rejected this argument.

Kroger Co., as one of several companies in a recent spate of lawsuits attacking advertising of sunscreen products as reef friendly, similarly sought dismissal on the grounds of puffery, pointing to other court decisions where statements such as “pet friendly” constituted puffery. The court rejected this argument.

Context and Visual Proximity Matters

While well-established case law advises courts to examine allegedly false advertising in context, recent court decisions underscore the risks companies assume in relying on context for proving the truth of broad advertising statements.

StriVectin Operating Co. argued its advertising of sunscreen products reading “REEF SAFE* SUNSCREEN” is literally true because on the back of the product package there is an asterisk and fine print stating that the product does not contain two particular ingredients that are widely thought to harm coral reefs. Quickly rejecting this argument, the court described the argument as “absurd” explaining a company cannot have a misleading statement on the front and then escape liability by stating in fine print on the back “that’s not actually what we mean.”

A court, however, also recently rejected ALDI’s argument that its “Simple. Sustainable. Seafood.” advertising is not misleading when read in connection with the third-party best aquaculture practices certification symbol that also appears on the front of the packaging (pictured below as in the court’s order).

The court explained consumers may not connect the slogan with the certification due to the separation by space and color design.

Specificity Is Critical

These recent decisions suggest companies should be prepared to defend an advertising statement as true on its face by a reasonable consumer. Specific representations allow truth to be more readily established.

For instance, Allbirds Inc. faced a class action in which plaintiffs attacked allegedly false advertising statements regarding the environmental impact of its wool shoes as described using a life-cycle assessment tool to estimate the product’s carbon footprint and a sustainability index. The plaintiffs argued that the methodologies Allbirds used were too narrowly focused on the impact of the shoes and failed to take into account the environmental impact of wool production overall.

Not only did the court reject this argument, but the court granted Allbirds’ motion and terminated the case.

On the Horizon

Companies can anticipate forthcoming legal guidance to aid themselves and counsel. While not binding, courts frequently look to the Federal Trade Commission’s guides for the use of environmental marketing claims. The FTC is set to review these green guides this year.

Additionally, there are several greenwashing advertising cases with pending motions to dismiss that should be decided this year.

In the meantime, companies should anticipate that plaintiffs will continue to pursue these types of false advertising claims. While some companies such as Allbirds quickly disposed of these claims, Keurig is waiting for court approval of a $10 million class settlement in relation to claims it falsely advertised its coffee pods as recyclable.

A good practice is to engage in the ongoing assessment and review of advertising to aid in minimizing and understanding a company’s legal and regulatory risk. Companies can proactively manage and minimize this risk by making specific, readily understandable representations in their advertisements that directly align with the company’s present actions.

Companies additionally may benefit from reviewing their insurance policies, which frequently contain exclusions for false advertising claims.

Lastly, companies should not limit their review and risk assessment to advertising statements, but rather should broadly analyze all of their ESG representations.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Shawn Collins, a shareholder at Stradling Yocca Carlson & Rauth in Newport Beach, Calif., helps start-ups and emerging technology companies navigate the rapidly evolving government and regulatory enforcement arena. His practice centers on False Claims Act, Anti-Kickback Statute, and privacy and consumer protection defense.

Lisa M. Northrup is an associate at Stradling in Newport Beach. Her practice focuses on complex commercial and white collar matters including contract disputes, business torts, securities litigation, and class action defense.