The “E” in ESG: Companies Grapple with Expectations and Lack of Guidance Amidst Rise in “Greenwashing” Lawsuits

In Part I of our “The ‘E’ in ESG” series, partner Blair Schilling defines greenwashing, explores why it occurs, and considers recent lawsuits.

Lawsuits related to companies exaggerating ESG (environmental, social, and governance) policies and procedures are on the rise. In terms of environmental considerations, companies must grapple not only with meeting stakeholder expectations but also with deciphering an array of judicial opinions in various jurisdictions on what they can and cannot say about their climate impact.

What is greenwashing?

“Greenwashing” is an umbrella term that describes companies marketing their products or practices as being sustainable or environmentally friendly in ways that may be unsupported by data or perceived as misleading or even false. Greenwashing cases have been filed in both state and federal court.

Why does greenwashing occur?

The results of several studies, including a 2018 McKinsey & Company study, shows that consumers—particularly Generation Z (roughly, those born between 1997 and 2012)— increasingly prefer to patronize companies they perceive as ethical. Gen Z expects brands to be socially conscious and to formulate proactive and effective action plans to combat climate change and reduce their carbon footprint. Data also shows that publicly traded companies with strong ESG programming are outperforming their peers by three times on operating margins and revenue.  These consumer expectations and performance statistics tempt companies to greenwash in the hopes of remaining competitive with consumers. 

Recent greenwashing lawsuits

A class action filed at the end of 2022 in a federal court in New York alleges that the manufacturer of Evian markets its products as “carbon neutral,” even though the manufacturing process releases carbon dioxide. The complaint alleges that customers would not have purchased the products had they known the labels were false. The plaintiff also contends that the manufacturer fails to provide any support for its statement that the product is carbon neutral. The lawsuit includes claims under California and New York consumer laws of unfair deceptive trade practices and false advertising, breach of express and implied warranty, unjust enrichment, and fraud.

Similarly, on August 4, 2022, several plaintiffs accused a Washington, D.C. utility company of violating District of Columbia consumer protection laws by misinforming customers about the effects of methane gas. The suit contends that the company’s promotional materials discuss the environmental benefits of natural gas but do not disclose that methane gas contributes to global warming.

State governments have also joined the chorus. At least 20 states, cities, and counties around the United States have filed suit against the oil and gas industry for failing to disclose connections between its products and climate change. For instance, the State of New Jersey alleges that five oil companies, including ExxonMobil, Shell Oil, Chevron, BP and ConocoPhillips, and the industry’s top US trade group, the American Petroleum Institute, “continue to peddle climate misinformation” to the public in the face of contrary information about the effects of fossil fuels and greenhouse gases on climate change. The lawsuit includes the following causes of action: failure to warn, negligence, impairment of public trust, trespass, public nuisance, private nuisance, and violations of the New Jersey Consumer Fraud Act.

McDonald’s was also sued by a consumer in March 2022 in the Southern District of Illinois over the company’s “farm to fork” claims. The suit alleges McDonald’s marketing is misleading because its packaging contains chemicals that are dangerous to customers’ health and harmful to the environment.

The fashion industry is also in the greenwashing hot seat. On November 3, 2022, a class action was filed against the fast fashion giant H&M. The lawsuit alleges that apparel company’s “Conscious Choice” clothing line deceives consumers into buying products claiming to be made from environmentally friendly and sustainable materials even though the garments include reformulated polyester that is harder to recycle and breaks down faster than the plastic bottles the garments are made from. The lawsuit claims H&M violated both Missouri and California state consumer protection laws with its unfair and fraudulent business practices. The complaint also included state law claims of unjust enrichment, negligent misrepresentation and fraud. As part of their requested relief, plaintiffs are seeking an order requiring the fashion brand to “undertake a corrective advertising campaign.”

Recent claims regarding environmental statements raise the question:  Are corporate ESG-related statements merely lofty intentions or direct promises to consumers?

In Part II of our “The ‘E’ in ESG” series, Schilling explores what the courts are saying on greenwashing cases and offers insight on what companies should be prepared to do when making climate-related statements.