Clifford Chance

Consumer litigation over allegedly deceptive trade practices and false advertising tied to ESG-related claims is on the rise, paralleling the attention to greenwashing in securities-related rulemaking and enforcement actions.  

While much recent attention has focused on government rulemaking and enforcement relating to greenwashing (including here), companies should also take note of the rise in consumer litigation regarding statements on product packaging and in advertising about environmental, social, and governance practices. US consumers, nonprofits, regulators, and plaintiffs' lawyers are closely scrutinizing packaging and advertising claims regarding, among others, sustainable sourcing, organic ingredients, fair trade, and environmental benefits.

Consumer claims generally arise as class action lawsuits based on state statutes and state tort law. While each consumer usually may only claim a nominal amount in damages, the class action device allows plaintiffs to sue for many thousands of similarly situated consumers, driving potential damages into the millions.

The principal government enforcers in this area are the Federal Trade Commission ("FTC") and state Attorneys General ("AGs"), which initiate investigations and enforcement litigation under the Federal Trade Commission Act and analogous state statutes. These laws provide for injunctive relief and may also provide for significant civil penalties.

Consumer Suits

Several consumer class actions have involved statements on product packaging and in marketing such as social media and websites. For example, in a recent class action complaint in New York, Commodore v. H&M (July 2022), plaintiffs claim that "greenwashing" led consumers to pay premium prices for what they believed was sustainably-manufactured clothing, when H&M's clothing allegedly was no more sustainable than comparable garments made by H&M's competitors. The action was prompted by a June 2022 investigative journalism piece criticizing H&M's garment "scorecards" claiming, for example, that "30% less water was used" in manufacturing. In addition, plaintiffs challenge general "sustainability" claims on labels, in-store signage, and in on-line marketing.

The viability of similar claims has depended largely on the specificity and verifiability of the statements; challenges to specific statements that are factual and accurate on their face have not been successful.

In Dwyer v. Allbirds, Inc. (April 2022), the plaintiffs alleged deceptive trade practices and false advertising under the New York General Business Law against a wool footwear company based in part on sustainability claims including "Made with Sustainable Wool" and "Sustainable Practices." The plaintiffs questioned the company's use of certain carbon footprint indices whose utility had been questioned by interest groups. The court dismissed the claims because the company's statements regarding its use of these metrics were factually accurate and would not mislead a reasonable consumer. The court declined to second-guess the quality of the metrics themselves.

By contrast, a Texas court in Usler v. Vital Farms, Inc. (March 2022) did not dismiss claims against an egg producer whose cartons stated that the eggs were "ethical" and "certified humane." Vital Farms defended its statements, arguing that they were accurate and consistent with Humane Farm Animal Care ("HFAC") Standards. The court disagreed, reasoning that HFAC’s definitions (which, for example, defined "pasture raised" hens as those who have access to, but not necessarily use of, a pasture) differed from the meaning of the terms as understood by consumers and therefore were potentially misleading.

The results are mixed in challenges to general statements regarding "ethical" or "humane" practices not directly tied to a specific product. The court in Dwyer dismissed challenges to claims that the defendant used "ethical" wool sources (including "Our Sheep Live The Good Life") on the ground that the complaint challenged practices in the industry as a whole, and therefore the claims specific to the company were "subjective, non-specific, unmeasurable, and vague." However, a court in Lee v. Canada Goose US Inc. (June 2021) declined to dismiss claims that a company's commitment to "ethical" and "sustainable" sourcing standards were misleading, on the ground that the complaint plausibly tied the company to suppliers using inhumane methods.

Courts have been even less willing to allow causes of action for omissions where no affirmative obligation exists to disclose facts or where "half-truths" would be misleading. For example, an appellate court in Tomasella v. Nestle (June 2020) affirmed a decision that the failure to state on candy wrappers the existence of known labor abuses in supply chains was not misleading.

Enforcement Actions

A line of cases involving the environmental benefits of "clean" diesel fuel has drawn particular attention due to well-publicized enforcement actions over falsifying emissions data. In 2017, a major auto manufacturer agreed to a guilty plea and paid $20 billion in penalties related to using software designed to mislead the US Environmental Protection Agency and US consumers about vehicle emissions. On the false advertising front, the automaker paid $9.5 billion to consumers through a redress program to settle actions brought by the FTC, the California AG, and related class actions regarding a "Clean Diesel" advertising campaign, which included online social media campaigns, Super Bowl ads, and print advertising, all of which claimed that "Clean Diesel" vehicles were "low-emission," "environmentally friendly," "met emissions standards," and "would maintain a high resale value."

Consumers and advocacy groups have also targeted energy companies over environmental claims. In 2021, environmental groups filed a first-of-its-kind false advertising complaint with the FTC, claiming that Chevron used "unlawfully deceptive advertisements which overstate investment in renewable energy and its commitment to reducing fossil fuel pollution." Although FTC complaints have no legal force on their own, they carry reputational risk and can prompt the FTC to take enforcement action. State AGs have also filed suits against oil companies for allegedly misleading public statements regarding their contribution to climate change – for example, in New York for statements in Exxon's securities filings (see here) and in the District of Columbia for alleged "greenwashing" in advertising.

While courts dismiss many of these actions for failing to allege specific false or misleading statements, plaintiffs and enforcement authorities are likely to search for new ways to hold companies to their representations, including through additional lawsuits and public pressure campaigns.

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Companies can take the following steps to mitigate these risks:

• Examine factual claims on packaging and in advertising to ensure that they have a basis, and that certifications or standards relied upon are vetted.
• Examine broad or "aspirational" claims regarding commitment to ethics or sustainability in their context and against evolving standards, to consider whether they may be actionable.
• Examine statements that consumers may view and claim to rely upon in contexts apart from packaging and advertising, such as social media, securities filings, mission statements, and published reports.
• Closely monitor trends in consumer litigation, along with federal and state regulatory and enforcement developments.