As companies continue to innovate and create goods with a low impact to the environment, pitfalls — including legal action that carry big fines — could lie ahead.
The Securities and Exchange Commission finalized its disclosure rule earlier this year that requires public companies to disclose certain climate-related information in annual reports. Most companies include relevant information via their environmental, social and governance policies.
As climate change continues to become a key issue and consumers increase their demand for eco-friendly and sustainable goods, there are steps companies offering “green” products need to keep in mind.
Over the past few years, several lawsuits have been brought against companies misrepresenting products in marketing as being eco-friendly. In 2022, the FTC settled a greenwashing and bogus bamboo marketing claim against Kohl’s and Walmart over deceptive eco-friendly claims for home textiles. The companies were fined $2.5 million and $3 million, respectively.
According to the case, Kohl’s described the products as “sustainable.” “highly renewable” and “environmentally friendly.” Similarly, Walmart marketed the products using “eco-friendly and sustainable” and “renewable and environmentally sustainable.”
And, it’s not just the FTC and the U.S. Justice Department bringing the lawsuits. Shareholders and consumers are often banding together to bring cases about what they perceive to be misrepresentations over sustainability or green claims.
More recently, Lululemon, the apparel brand, was slapped with a lawsuit this summer over alleged misstatements over its commitment to the environment. Delta Airlines, KLM and United Airlines are facing class actions by stakeholders that allege the airlines misrepresented their emissions-related efforts, as part of a new course in environmental, social and governance litigation.
At the recent Sustainability Conference hosted by the International Sleep Products Assn. in Charlotte, Lindsey Brewer, an attorney with Covington & Burling, offered some advice on the FTC Green Guides that outline how companies can market sustainable products without getting into legal hot water.
The Green Guides, the current standard, provides a road map for brands looking to promote products with a sustainability story. However, the guide can also be challenging. A key point from Brewer is that the rules really focus on how “reasonable consumers” would read a marketing claim.
The FTC is in the process of updating its Green Guides, which haven’t been updated since 2012. There isn’t a timeline yet for when the updates will be complete.
However, as more and more mattress makers begin their journey into sustainable, all-natural and organic products, it behooves the industry to stay on top of the rules and the changes that could lie ahead for the marketing and labeling of products.
Misrepresentation not only could put a company under the government’s magnifying glass with legal challenges from the FTC, the SEC and others, but it could net costly fines, penalties and ongoing monitoring and reporting. Private litigation in the form of class action lawsuits, as in the case of Lululemon, can be costly.
Legal defense fees and fines all add up, of course, but the reputational harm that can result in a lack of consumer trust can last for years and result in declined sales.
At the basis of it all is honesty, which surveys continue to show, consumers care about from the brands they support.
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