Environmental Marketing Claims: Regulatory and Litigation Outlook

As consumers, investors, and other stakeholders are focused more than ever on the impacts of their purchasing and investment decisions, companies are seeking to convey information on the environmental attributes of their products and services as well as their sustainability performance. Yet the risks associated with these claims and communications are increasing. In recent months, there has been a notable uptick in lawsuits, NGO reports, and consumer protection agency actions alleging that corporate environmental or sustainability-related statements are overstated, false, deceptive, or misleading. Meanwhile, in response to the latest environmental concerns, companies are making new kinds of claims that are not sufficiently addressed in existing regulatory guidance.

Against this backdrop, the U.S. Federal Trade Commission (FTC) appears poised to significantly refresh its Guides for the Use of Environmental Marketing Claims (Green Guides). On July 2, 2021, the FTC published its ten-year regulatory review schedule indicating that the agency will initiate a review of the Green Guides in 2022. This action is in line with the global trend toward more scrutiny of claims and substantiation, including the European Union’s recent “sweep” of greenwashing claims on websites as well as its pending initiative to mandate enhanced substantiation for environmental claims. 

Key Takeaways

• The FTC intends to revise the Green Guides in 2022. This will be the first revision since 2012.
• Companies should expect heightened attention across stakeholder groups to these revisions, in line with changes to consumer behavior, investor preferences as well as regulatory action in the European Union and other jurisdictions worldwide.
• While the FTC has not yet indicated any specific focus areas for the revisions, the agency may revisit some of the categories of claims it considered but declined to cover in the 2012 revision, such as “sustainable,” “organic,” or “natural.” The FTC may also revisit the level of substantiation that should be required for environmental claims and the role of life-cycle assessment.
• Other areas that appear ripe for revision include “recyclable” and “reusable” claims, particularly in light of the recent emphasis on plastics pollution, as well as climate-related claims including those relating to carbon offsets and “renewables” (and renewable power more broadly), along with “net zero” type claims.

Background

The FTC first issued the Green Guides in 1992 to help businesses avoid violations of the FTC Act based on misleading environmental claims to consumers.[1] While the Green Guides are not independently enforceable, practices that are inconsistent with the policies laid out in the Green Guides can serve as evidence of a violation of Section 5 of the FTC Act[2], or state-specific false advertising, consumer protection, and unlawful business practice laws.

The FTC revises the Green Guides infrequently. The last revision was in 2012. During that round of revisions, the FTC updated certain sections and also added content covering certifications, carbon offsets, “made with renewable energy” claims, and “made with renewable materials” claims, among others. Given technological and market advances over the last decade, these areas are ripe for revision. In addition to the forthcoming revisions, there are a number of recent enforcement, oversight, litigation, and other legal activities related to environmental or “green” claims and advertising that emphasize the importance of clear and consistent guidance for industry and indicate the FTC will continue to be more active in this area of the law in the coming years.

Where Enforcement or Liability May Arise

Federal and state agencies can bring claims relating to “green” advertising or marketing. Private litigants may also have standing and are increasingly interested in the public statements companies make regarding environmental claims. Below are a few examples:

National Advertising Division. The National Advertising Division (NAD) of BBB National Programs investigates advertisers who voluntarily participate in their program. Through its investigations, called inquiries, the NAD may ask advertisers to substantiate or change their claims in advertisements after making a determination that a claim is not adequately transparent. If an advertiser ignores the NAD’s determination, the NAD may refer the advertiser to the FTC or other consumer protection agencies.

Federal Agencies. While the FTC is one of the main agencies regulating marketing claims through its authority under the FTC Act, other agencies also have authority to protect consumers against deceptive, unfair, or unsubstantiated marketing including the U.S. Department of Agriculture, which regulates “organic” claims given the Green Guides do not currently address “organic” claims.

State Lawsuits. State governments may also choose to pursue enforcement through the authority of their attorneys general who have broad authority to protect consumers, including under state consumer protection or marketing laws, from deceptive and predatory business practices which can include green marketing claims. A few states have issued guidance or policy documents addressing aspects of green marketing, but the state law landscape remains fragmented and evolving.

Private Party Lawsuits. Consumers with demonstrable injuries most commonly bring class action lawsuits against marketers that might make unsubstantiated, unfair, or deceptive claims. Consumers may bring these claims under the FTC Act or one of the many state consumer protection laws, like California’s Business & Professions Code § 17500 which prohibits businesses from making untrue or misleading statements in their advertising. In addition to class action lawsuits by consumers, there have also been recent shareholder class action claims (based on short seller reports) alleging that a company’s sustainability claims were overstated in a manner that affected stock prices.

Types of Claims that May Trigger Liability

There are a number of different types of environmental or sustainability-related claims that are regulated. Below are just a few examples of types of claims and lessons learned from various legal actions, which tend to focus on the guidance provided in the current Green Guides.

Sustainability and General Environmental Claims. Companies may make general environmental claims including that their products are “environmentally-friendly” or “sustainably sourced.” Under the Green Guides, the FTC may view such statements as overly broad and require further qualification or substantiation in order to avoid misleading consumers. Additionally, plaintiffs may target these claims as deceptive in class-action lawsuits. For example, plaintiffs in recent class-action cases accused a few vehicle manufacturing companies of using defeat devices for their emissions and included allegations that the named companies deceptively advertised their vehicles as “clean” and “environmentally friendly.” While many of the suits were dismissed due to failure to adequately allege an injury, the example allegations still show the potential for liability based on environmental or sustainability-related claims.

Climate Change and Carbon Claims. Companies may choose to make claims regarding the carbon footprint of their products or their operations, or their use of carbon offsets. For example, the NAD inquired upon a consumer products company after a competitor informed NAD of the company’s carbon-neutral product claims. The Green Guides state that an advertiser should not make a carbon offset claim unless emission reductions “have already occurred or will occur in the immediate future.” Otherwise, the advertiser “should clearly and prominently disclose if the carbon offset represents emission reductions that will not occur for two years or longer.” The company allegedly did not provide this level of detail and instead relied on its third-party certifications. While many companies properly rely on third-party certifications for calculating carbon footprints and offsets, the Green Guides state that certifications may not be sufficient on their own—the marketer still has an obligation to substantiate all claims “reasonably communicated by the certification” and provide competent and reliable evidence to substantiate its claims. This can be especially tricky in the world of carbon offsets, which remain a largely unregulated market with numerous certification programs and hundreds of types or sources of offsets to choose from.

Recyclability and Compostability Claims. Many products feature claims regarding recycling or composting of a product or its packaging, but don’t consider how widely recycling or composting is available to the consumer. The Green Guides state, “when recycling facilities are available to less than a substantial majority of consumers or communities where the item is sold, marketers should qualify all recyclable claims.” The Green Guides defines a “substantial majority” here as 60%. The Green Guides also state, “if any component significantly limits the ability to recycle the item, any recyclable claim would be deceptive. An item that is made from recyclable material, but, because of its shape, size, or some other attribute, is not accepted in recycling programs, should not be marketed as recyclable.” A current federal class action confirms these Green Guide standards provide sufficient legal basis for a lawsuit. Consumers filed a class action lawsuit against a company marketing its single-use plastic packaging products as “recyclable.” The consumers claimed that the products were not recyclable given that less than 60% of recycling facilities available to the consumers would accept the plastic products for recycling and because the size of the product prevented proper sorting for recycling. The company responded that its recyclable claims were compliant, arguing its claims followed the Green Guides by including a qualification that consumers should check locally to determine whether the products could be recycled in their community given the product may not be able to be recycled in all communities. The court certified the class and found that if the size and design of the product render it non-recyclable, the company’s qualification would be and deceptive. The case is still pending and a second, similar class action initiated in another state against the same company’s claims is also pending. Similar substantiation and product design requirements exist for composability claims where one may need to qualify statements if a product may not be able to degrade through standard disposal methods or where a product may not be able to degrade in the same time frame as the materials with which the item would be composted. As such, companies should be mindful of their claims and their product design in relation to post-consumer or disposal-related claims.

Non-Toxic Claims. The Green Guides permit marketers to make claims that their products are “non-toxic” so long as the claim is based on competent and reliable scientific evidence that the product is safe for both humans and the environment. If those claims cannot be substantiated, marketers must “clearly and prominently qualify their claims to avoid deception.” The Green Guides do not specify standards for substantiating non-toxic claims. Plaintiffs have pursued class actions against several products, such as household cleaners that were marketed with “non-toxic” claims, alleging the products were deceptively marketed because they contained toxic ingredients that were harmful based on a wide variety of evidence. Many of the recent class actions pursuing allegations against such claims have settled or are still pending, and marketers should be mindful of the potential difficulties in substantiating a challenged “non-toxic” claim.

Organic Claims. Marketers may also make “organic” claims on consumer products. The Green Guides currently do not include guidance specific to “organic” claims, or related “natural” claims. Instead, the FTC has stated that the Green Guides’ general principles requiring substantiation of environmental benefit claims still apply to “organic” claims. “Organic” claims made on agriculture products are also regulated by the U.S. Department of Agriculture’s National Organic Program (“NOP”) and the FTC will defer “organic” claims on agricultural products to the NOP. The FTC recently settled an FTC Act-based lawsuit against a bath and beauty product company for deceptively marketing the personal care products in part as “organic.” This allegation relied on inconsistencies with the NOP, lack of NOP certification, and actual use of non-organic ingredients. The settlement was for $1.76 million and the case also involved “vegan” claims. Companies should carefully consider how they market “organic” claims even where the Green Guides do not have specific guidance on a particular category of claims.

Product Origin Claims. Companies also use “made in USA” and similar U.S. origin claims to further promote consumer products. The FTC considers these claims pursuant to its Enforcement Policy Statement on U.S. Origin. The policy provides that the agency will scrutinize unqualified “made in USA” claims with an “all or virtually all” standard: all or virtually all of the significant parts, processing, and labor that go into a product must have U.S. origin or else the claim is deceptive. Similar to the Green Guides’ general principles, marketers using an unqualified U.S. origin claim must be able to substantiate the claim with evidence the product meets the “all or virtually all” standard, and the FTC has brought enforcement action against origin claims under the FTC Act. Effective August 13, 2021, though, the FTC will codify a rule covering “made in USA” claims, including penalties for U.S. origin claim violations. Companies using these origin claims must become familiar with the newly finalized rule to minimize risk of an enforcement action for penalties.

Outlook on the Regulation of “Green” Claims

Recent FTC rulemaking and notice of updates to the Green Guides signal that the FTC is focused on regulating and enforcing environmental and sustainability claims made by consumer product marketers. Considered in conjunction with the Biden Administration’s prioritization of domestic supply chains and climate change, it is likely the FTC will continue to scrutinize and enforce against claims that are inconsistent with the Green Guides and the Made in USA Rule. At the same time, it will be important for companies in many industries, particularly consumer-facing and products industries, to follow and engage on the forthcoming revisions to the Green Guides, since aligning marketing claims with the FTC’s guidance may provide a safe harbor from certain kinds of enforcement and liabilities.