Courts are increasingly wary of ‘feel-good’ green marketing claims

"Greenwashing." It is an emerging legal issue that has been the subject of increased litigation and is only likely to grow in prominence. Greenwashing has been a focus of the Federal Trade Commission (FTC) at least since the initial 1992 publication of its "Green Guides" - guidance to marketers to help avoid deceptive environmental marketing claims about products and services. But federal and state consumer prosecutors and the Securities and Exchange Commission (SEC), have recently been applying greater scrutiny on false or misleading environmental marketing claims. Private litigants and environmental groups have also been active in this space and this trend is expected to continue.

Greenwashing has been defined as "a set of deceptive marketing practices in which an entity publicly misrepresents or exaggerates the positive environmental impact or attributes of a product" and can occur when a business promotes itself, a product, or a service as being more environmentally friendly than it actually is. McGinity v. Procter & Gamble Co., 69 F.4th 1093, 1100 (9th Cir. 2023) (cleaned up) (internal citations omitted). With an increase in the number of consumers seeking to purchase environmentally friendly or "green products" and who are considering environmental, social, and governance (ESG) issues in connection with investment decisions, businesses have increased their promotion of environmental and ESG benefits to command a premium for their goods or services (and to promote securities) within their industry. It is no surprise that companies are gravitating towards these claims, with one study finding that 78% of consumers are more likely to purchase a product that is labeled "environmentally friendly." "GreenPrint Survey Finds Consumers Want to Buy Eco-Friendly Products, but Don't Know How to Identify Them," Business Wire, March 22, 2021. The Securities and Exchange Commission (SEC) reported that "[h]undreds of companies today already are making some climate-risk disclosures, although mostly outside of their public filings, and investors managing tens of trillions of dollars in assets are making investment decisions relying on those disclosures."

Greenwashing claims in connection with both direct-to-consumer products and investments are, however, facing increasing scrutiny from consumer fraud prosecutors, private counsel, securities regulators and non-profit environmental organizations. According to a review by TruthinAdvertising.org, 100 greenwashing lawsuits have been filed since 2015, with 49 of those filed in California and the remainder filed in 14 other states. The largest increase in filings occurred in 2021 and 2022. A majority of the allegedly deceptive claims subject to litigation were that products were "environmentally friendly," "recyclable," "sustainable," or included eco-friendly imagery or other statements to suggest the product were "green." Id. The cases spanned different industries with 35% advertising home and garden products; 23% promoting food and beverage products; and 15% involving personal care products. Sixty-two percent of those class action cases have been settled or dismissed; 38 remain pending. Id.

In addition to taking enforcement actions in this space, the Federal Trade Commission (FTC) is now seeking public comment on its "Green Guides for the Use of Environmental Claims" (Green Guides) for the first time in ten years. Although the FTC has already received 7,066 comments on the Green Guides and published 1,360 of them in 2023 alone,[ the deadline to submit comments has been extended to April 24, 2024. The Green Guides contain sections regarding certifications and seals of approval, free-of claims, non-toxic claims, made with renewable energy claims, and made with renewable materials claims. Although the Green Guides are neither rules nor regulations, they offer guidance regarding claims that the FTC may find deceptive under Section 5 of the FTC Act.

The Green Guides have particular importance in California, where in addition to making claims under California's Unfair Competition Law(UCL), False Advertising Law (FAL), and Consumer Legal Remedies Act, claims can be brought under Business and Professions Code section 17580.5 (California's Greenwashing Law) which specifically incorporates the Green Guides into its greenwashing regulations and allows for a safe harbor for those who comply with the Green Guides. Hill v. Roll Internat. Corp. (2011) 195 Cal. App. 4th 1295, 1302-03; Swartz v. Coca-Cola Co., No. 21-CV-04643-JD, 2022 WL 17881771, at *2 (N.D. Cal. Nov. 18, 2022)("The Green Guides published by the Federal Trade Commission provide the standard for environmental marketing claims under California law [Business and Professions Code Section 17580.5].").

Under California law, both express and implied Greenwashing claims can subject a company to liability.

The California Attorney General also acted in this space with his recent litigation against oil companies alleged to have made false greenwashing claims. The lawsuit accuses Exxon Mobil, Shell, Chevron, ConocoPhillips, BP, and the American Petroleum Institute of engaging in a decades-long campaign of deception and creating statewide climate change-related harms in California. ClientEarth and other environmental organizations also are filing greenwashing litigation in the United States and internationally.

Local California prosecutors with authority to enforce false advertising laws have also brought greenwashing actions, including the Los Angeles City Attorney and Santa Barbara District Attorney's action in People v. Sunseeker, in which the defendants were recently preliminarily enjoined, from advertising their product as "non-toxic or environmentally friendly," among other alleged false environmental claims, in a case the People allege involves a falsely advertised home fire-protection product. People of the State of California v. Sunseeker Enterprises, Inc., Case No.: 19CV04083, Order on Preliminary Injunction, entered 11/13/2023 (Santa Barbara Sup. Ct.).

Similarly, in March 2021, the SEC showed its interest in this space when it created a Climate and ESG Task Force within its Enforcement Division to "to develop initiatives to proactively identify ESG-related misconduct consistent with increased investor reliance on climate and ESG-related disclosure and investment." The SEC also has filed numerous enforcement actions, including reaching a recent $1.5 million settlement with BNY Mellon Investment Adviser, Inc. for alleged misstatements and omissions about ESG considerations in making investment decisions for certain mutual funds that it managed. The SEC order alleged that the BNY Mellon unit had implied that investments had undergone ESG review even though that was not always the case.

Entities also can face simultaneous litigation from multiple public regulators and private litigants regarding greenwashing violations. For example, Volkswagen faced enforcement from multiple state and federal regulators, including the FTC, US Department of Justice, the US EPA, the SEC, and Attorneys General Offices across the country, including the California Attorney General, as well as other state agencies, and a myriad of private class action cases that were ultimately consolidated. The California Attorney General and California Air Resource's Board brought a complaint against Volkswagen and others alleging violations of, among other laws, the UCL, FAL, and California's Greenwashing law. For nearly a decade, Volkswagen allegedly used defeat devices to cheat emissions tests. A defeat device detects when a vehicle is being tested and then temporarily changes engine performance so that emissions appear within legal limits. Volkswagen allegedly relied on results from defeat devices to advertise its vehicles as "clean," "green," and environmentally friendly. Volkswagen also advertised that its vehicles could achieve improved fuel economy. Volkswagen ultimately paid over $14 billion to resolve outstanding litigation.

The more businesses go "green," the more marketing dollars are likely to be spent promoting these efforts. With increased green marketing claims comes greater scrutiny, which courts are taking seriously. If businesses promoting environmental benefits want to avoid monetary punishments, injunctive orders, and reputational harm, they must consider federal and state consumer protection laws and regulations as well as the Green Guides.