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Food, Beverage Makers Rethink Marketing After Flood of ESG Suits

June 28, 2022, 3:02 PM

The food and beverage industry faces pressure to clean up its marketing following a flood of lawsuits that target big-name companies like Coca-Cola Co. and Nestle SA over greenwashing and other misleading claims.

Lawsuits targeting advertising in the food industry are at a peak, lawyers say. As a result, companies are looking to alter the way they present products and better back up claims they make about sustainability and other ethics-based selling points.

“The industry is kind of a magnet for these types of claims,” said Joshua Margolin, a partner at Selendy Gay Elsberg, noting that food companies can be targeted for advertising on their environmental impact as well as for labor and animal rights violations.

One prominent case involved milk producer Fairlife, which faced backlash when a video of violent animal abuse went viral two years ago. Fairlife LLC, which is owned by Coca-Cola, agreed to a $21 million settlement in April to resolve allegations that it misled consumers about mistreating cows.

Coca-Cola was also in hot water last year when it was sued along with several other beverage companies for falsely marketing bottles as “100% recyclable” when US facilities don’t have that capacity. Other companies such as BlueTriton Brands, whose products include Poland Spring and Deer Park water, have been sued over their recycling claims in recent years.

“It’s an area where I get more and more questions every day,” said Emily Lyons, a partner at Husch Blackwell, explaining that a variety of food and beverage companies are asking for advice on how—and if—they can prove their marketing statements are true.

“It’s increased in the last two to three years significantly,” Lyons said, adding that she gets these questions on at least a weekly basis now.

The demand for marketing advice over assertions made on packaging, for example, is rising because of legal and regulatory concerns. Also, because many businesses are expanding their product lines after early pandemic uncertainty settled, companies have more claims and products that need to be vetted, Lyons said.

Class Action Spike

There were 170 new class actions concerning labeling filed since the end of March, including 60 that targeted food and beverage products, according to a McGuireWoods webinar on 8 June.

“I keep thinking these class actions have to slow down at one point, but they just keep increasing,” said McGuireWoods partner R. Trent Taylor during the presentation.

An annual food litigation review by Perkins Coie in February said that, in the last year, more new class action lawsuits were filed against the food and beverage industry than in any other year in the past decade.

The McGuireWoods webinar also highlighted that restaurants and quick-service businesses have been hit with an increasing number of lawsuits in recent months, including over concerns that they use manufactured chemicals known as PFAS. McDonald’s Corp. was sued in March over its alleged use of PFAs in packaging, and Burger King Corp. was sued the following month.

While it’s hard to predict how judges will respond to this raft of environmental, social and governance cases, one corporate giant’s motion to dismiss such a lawsuit was recently rejected in March.

The judge sided with a plaintiff that said she bought Nestle’s products, including its hot cocoa, because of social and environmental benefits that were featured on the packaging. She said she later found out that the Swiss company’s practices are harmful to the environment, and that its cocoa comes from plantations that rely on child and slave labor.

The case was brought in the Southern District of California, in a state where a large chunk of food industry litigation is playing out—California is a class action hub because of its dense population. The Northern District of California is known as “the food court” because it’s seen as friendly to false advertising class action lawsuits brought against the industry.

Proof in the Science

Because of the growing litigation pressure, companies are going to get better at producing reliable scientific evidence to back up their claims, lawyers said.

“Some might say [lawsuits are] just the cost of doing business, but it can be an extremely high cost,” said Lyons.

There’s also a potential enforcement threat driving the food industry’s need to get more specific with its marketing. The Federal Trade Commission is set this year to update its guide on environmental marketing claims that will likely shake companies into reevaluating how they make certain statements, like calling their products “sustainable.” The guidance has not been updated since 2012.

Companies “will be more careful about what they’re saying” as a result, Margolin said.

While many of the lawsuits over misleading marketing are brought by disgruntled consumers, an investor lawsuit taking issue with a company’s advertising could be more complex. Margolin pointed out that it’s not yet clear what avenues shareholders can take to pursue damages if a false claim didn’t lead to large monetary losses.

Businesses need to be more transparent in their marketing overall to avoid greenwashing, said Marjella Lecourt-Alma, CEO of ESG software company Datamaran.

“Beyond misleading claims, it’s also [about] avoiding the temptation to address one issue while ignoring others, which might be as, or even more important,” she said.

To contact the reporter on this story: Clara Hudson at chudson@bloombergindustry.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com, Melissa B. Robinson at mrobinson@bloomberglaw.com