As greenwashing litigation evolves, companies face increased scrutiny and legal risks across multiple fronts, from product claims to carbon neutrality statements
Earlier this year, the Thomson Reuters Institute predicted greenwashing would increase in sophistication, and this would add to its already expanding reputational, regulatory, and litigation risks. In fact, with no consistent legal definition, the concept of greenwashing still varies by product, service, regulator, and jurisdiction.
In fact, since the beginning of the year, litigation related to claims around environmental initiatives, net zero statements, and forced labor issues, are the key areas of increased legal activity around greenwashing, including:
Allegations of contaminants in consumer products — There has been an increase in cases alleging that consumer products contain contaminants, such as lead and PFAS, according to Molly Moriarty Lane, a litigation partner at Morgan Lewis. For example, a lawsuit filed in Connecticut alleged that products, which were being marketing towards children, contained unsafe levels of lead.
Forced labor in supply chains — Forced labor cases are also on the rise, with a focus on those that involve supply chain issues. This reflects a broader trend towards holding companies accountable for their supply chains and the ethical implications of their sourcing practices.
Franco Corrado, a litigation partner at the Morgan Lewis, says he sees the novel application of forced labor statutes in recent legal cases being focused on consumer claims related to economic harm caused by unethical labor practices in supply chains. These claims argue that human rights violations, such as forced labor abroad, have a direct impact on consumers who buy the end products.
Carbon neutrality claims — Litigation that is targeting companies’ net zero statements have become increasingly prevalent as companies seek to show their commitment to sustainability and appeal to environmentally conscious consumers. “You’re seeing some companies no longer making claims they’re currently carbon neutral,” says Carl Valenstein, co-head of the Environmental, Social & Governance (ESG) practice at Morgan Lewis. “They still have their aspirational goal of getting there by 2030, but these legal claims are causing companies to be more conservative in statements and disclosures, rather than making specific claims about current achievements.”
At the same time, however, there is growing recognition of the need for greater regulation of carbon offset markets and more rigorous standards for verifying carbon neutrality claims. As the regulatory landscape evolves, companies will need to carefully evaluate their carbon-related disclosures and ensure they can substantiate any neutrality claims.
In addition to the expanding areas of greenwashing cases, recent changes in European Union regulations have provided more precise guidelines for judges, resulting in a shift towards more judgments confirming greenwashing claims, says Daja Apetz-Dreier, a litigation partner at Morgan Lewis based in Germany. Historically, many greenwashing allegations brought by non-governmental organization (NGOs) or consumers were dismissed. This makes this current shift noteworthy, according to Apetz-Dreier, because it represents a move towards stricter scrutiny and accountability for companies on their environmental claims.
Double-edged sword of CSRD
The EU’s Corporate Sustainability Reporting Directive (CSRD) is having a significant impact on greenwashing concerns and practices in the EU. As companies prepare to comply with CSRD’s extensive ESG disclosure requirements, there is an increased focus on accurate data collection and reporting.
Indeed, the highly prescriptive nature of CSRD is pushing companies to be more cautious and specific in their sustainability claims and disclosures to potentially reduce greenwashing risks.
However, the expanded disclosures required by CSRD may also create new litigation risks themselves, as the information reported can be scrutinized by stakeholders and potentially used as a basis for further greenwashing claims. Companies are having to carefully balance compliance with CSRD against potential legal exposure, especially as the disclosures made in Europe may have implications for litigation risks globally.
Guidance for in-house lawyers
As a result of these trends and growing risks, corporate in-house lawyers need to focus their efforts to best mitigate the increasing risk exposure of greenwashing. Some of these mitigation tactics include:
Carefully reviewing marketing strategy and disclosures — Corrado recommends for corporate legal functions to take extra care in inspecting their companies’ marketing strategy, product labels, and other advertising to ensure that corporate leaders are not making misleading or exaggerated claims about their companies’ ESG practices or sustainability. The same goes for disclosure documents.
Offering forward-thinking advice and risk management — Valenstein notes that in-house lawyers should give forward-thinking advice to their internal clients, including ways to identify areas of risk exposure and develop strategies to mitigate that. They also need to educate their boardrooms and C-Suites on the risks and consequences of greenwashing.
To execute, corporate lawyers need to stay close to their companies’ external counsel in order to remain up to date on the latest legal developments and trends in greenwashing litigation. For example, “one of the things that we’ve been watching closely is when the FTC [U.S. Federal Trade Commission] is going to issue its new set of the green guides because it could lead to additional litigation based on guidance the agency puts out there about what types of disclosures companies can and should be making,” explains Lane.
Seek collaboration across departments —Lawyers at companies should collaborate with other in-house corporate functions, such as sustainability, communications, operations, and marketing, to ensure that companies’ messaging and disclosures are accurate, consistent, and compliant with regulations.
This collaboration is key to mitigate greenwashing risks. Compliance with CSRD is making data collection and accuracy — without exaggerating — in disclosures a critical activity in risk mitigation. Not doing so “can lead to future greenwashing claims, because those documents for the disclosure are also advertising materials,” Apetz-Dreier adds.
As the landscape of greenwashing litigation continues to evolve, companies must remain vigilant in their sustainability claims and practices. By having internal legal functions prioritizing these actions, companies can protect their reputations, avoid legal liabilities, and ultimately contribute to a more sustainable and trustworthy future for themselves and their stakeholders.
