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July 17, 2023

US enforcement bodies up the ante on greenwashing

Delta Air Lines planes at airport
US airline Delta has been accused of misrepresenting its carbon offset scheme and is currently being sued under California’s false advertising and consumer protection laws (Photo: Angus Mordant/Bloomberg)

Three US supervisory authorities and private actors across the country are focusing on tackling greenwashing issues arising in their regulatory frameworks.

Corporate net zero pledges, the marketing of sustainability products and reporting on environmental, social and governance factors has triggered scrutiny from supervisory authorities the US Securities and Exchange Commission, the Federal Trade Commission and the Commodity Futures Trading Commission.

According to an overview by law firm Cleary Gottlieb, companies operating in the US are vulnerable to greenwashing risks under provisions in securities law and consumer protection statuses.

Companies should be mindful about how their environmental disclosures compare with federal and state regulatory frameworks, and reveal the methodology and underlying data on which corporate sustainability claims and commitments are made.

While the SEC has the power to enforce fines for alleged greenwashing practices under securities law — such as misleading disclosures on financial products’ environmental impact — the FTC’s environmental marketing claims, or so-called “green guides”, aim to assist companies in making transparent and substantiated statements.

However, the green guides, which are under review, are not binding, meaning the US consumer and antitrust agency must demonstrate that any conduct, act or practice is unfair or deceptive before it can pursue an enforcement action.

The law review mentions the case filed by the FTC last year against department store chain Kohl’s. The regulator accused the company of marketing certain products as made from bamboo and more eco-friendly materials, whereas they were actually made from the semi-synthetic fabric rayon. Kohl’s ended up settling with the FTC by agreeing to pay a $2.5m penalty and to stop making statements that have the potential to mislead.

Moreover, although the green guides are technically not binding, certain US states such as California have made them enforceable under their own state laws. This decision has led to the airline Delta being sued under California’s false advertising and consumer protection laws. The claimant, who filed the case against Delta, alleges the airline has misrepresented its carbon offset scheme. The airline’s response to the complaint is due on July 28.

Other companies have successfully defended themselves from greenwashing accusations. The law review notes that in the US, defendants have been granted motions to dismiss cases by courts based on: the use of different carbon footprint methodologies; instances where sustainability claims were not seen as harming competition; or sustainability statements considered as “general, aspirational corporate ethos” rather than grounded in measurable data points.

In addition to detailing several types of greenwashing litigation on US soil, the report also highlights that in June 2023, the CFTC announced it would form an environmental fraud task force to investigate misconduct in regulated derivatives markets and in voluntary carbon credit markets, “relating to purported efforts to address climate change and other environmental risks”.

You can read the full summary here.

A service from the Financial Times