Greenwashing Class Action Litigation: An Emerging Risk For Companies' Claims Of Sustainability

I. Introduction

Recent regulatory actions and consumer trends have increasingly motivated companies to make public claims about their products' sustainability.¹ Corporations, either in response to regulation requiring disclosure, or through their own affirmative efforts to market their products and services, are making detailed environmental and sustainability disclosures. In response, the plaintiffs' bar has begun to target these representations as "greenwashing," bringing a growing number of false advertising class-action lawsuits against companies that they allege cannot substantiate their claims.

So far, plaintiffs in greenwashing class actions are mostly targeting retailers and consumer-facing companies in industries like footwear, apparel, food, and beverages. Many of these suits are filed in states with strong consumer protection laws, like New York and California. Recently, a significant number of these class-action cases have survived initial motions to dismiss. This trend signals that courts are seriously considering these claims - and that potential defendants should also consider seriously the prospect of such greenwashing lawsuits. Class claims that proceed past a motion to dismiss stage, especially those that are certified, may have uncertain outcomes, be expensive to litigate, and can result in costly settlements for companies as well as significant reputational harm.

This article describes certain factors driving this surge in greenwashing class actions, highlights some representative cases with different outcomes, and summarizes emerging trends in this area of litigation. It also offers recommendations for minimizing companies' potential exposure to greenwashing claims based on insights gleaned from recent caselaw.

II. Background and Regulator Concerns

"Greenwashing" occurs when companies makes false or inflated claims about the environmentally beneficial nature of their products, services, or their business generally. For example, greenwashing is evident when companies charge a premium for goods or services they misrepresent as "sustainable."² Accordingly, greenwashing claims will often consist of plaintiffs highlighting companies' public statements about their products' environmental impacts and alleging that those statements are unsupported by company actions. There is, however, no broadly accepted definition of greenwashing, and claims will vary by product and service, as well as across different markets, regulators, and jurisdictions. Such claims are typically based on common law allegations of false advertising, fraud, unjust enrichment, breach of warranty, or pursuant to specific state consumer protection statutes. In practice, greenwashing allegations often target companies that sell consumer products and may focus on representations made in marketing, product labelling, and even company websites and corporate filings.

Recently, regulatory entities like the Securities and Exchange Commission (SEC) and Federal Trade Commission (FTC) have turned their attention to greenwashing in the business world. In March 2021, the SEC launched its Climate and ESG Task Force in an effort to "develop initiatives to proactively identify ESG-related misconduct."³ The Task Force's focus is on "identify[ing] material gaps or misstatements in issuers' disclosure of climate risks under existing rules," as well as "analyz[ing] disclosure and compliance issues relating to investment advisers' and funds' ESG strategies."⁴ Since its establishment, the Task Force has charged entities ranging from asset managers to mining companies for failing to follow internal procedures around ESG investment practices or to properly disclose the risks associated with ESG claims.⁵

Apart from its Climate and ESG Task Force, in May 2022, the SEC issued two new sets of proposed rules intended to combat greenwashing by investment funds: "Investment Company Names" ("Names Rule"); and newly required "Environmental, Social, and Governance Disclosures for Investment Advisers and Investment Companies" ("ESG Disclosure Rule").⁶ These rules, when implemented, will provide additional fodder for investors looking to sue over alleged material misstatements or omissions relating to ESG topics. Both initiatives are aimed primarily at investor protection rather than the consumer goods companies now being targeted by class-action greenwashing litigation; however, they illustrate regulators' increasing attention to public-facing representations and marketing around the environmental impacts of goods and services.

Meanwhile, in December 2022 the FTC announced it was seeking public comment on potential updates to its "Green Guides for the Use of Environmental Claims" ("Green Guides").⁷ The FTC first released the Green Guides in 1992 and updated them in 1996, 1998, and 2012; the agency is now doing so again to "ensure the Green Guides provide current, accurate information about consumer perception of environmental benefit claims," in order to both "help marketers make truthful claims and consumers find the products they seek."⁸ The Green Guides provide guidance to companies making environmental marketing claims, including how consumers may interpret particular claims and how marketers can substantiate them.⁹ While the Green Guides can help companies better understand what kinds of statements might invite liability and where to exercise caution, they are non-binding (outside of potential FTC enforcement actions) and do not pre-empt state or federal laws.¹⁰ As a result, compliance with the Green Guides does not necessarily eliminate companies' exposure to greenwashing litigation.

III. Greenwashing Trends and the Private Bar

A. Class Action Requirements

As a preliminary matter, it is helpful to explain briefly the requirements for filing a viable class action claim. A class action is a procedural device that allows one or more "named plaintiffs" to file claims or prosecute a lawsuit on the behalf of a larger group or "class." The device enables courts to adjudicate lawsuits that would otherwise be unmanageable if each individual plaintiff (who suffered the same alleged harm at the hands of the same defendant) joined in the lawsuit as a named plaintiff.

A class action commenced in federal court must meet the procedural requirements of Federal Rule of Civil Procedure 23 ("Rule 23.") Before addressing the requirements under Rule 23, however, a court must first determine whether the named plaintiff in the suit has standing to bring their action. The class representative must first establish that it is a member of the class and suffered the same injury as those it seeks to represent.¹¹ The Supreme Court has noted this implied prerequisite justifies a departure from the "usual rule that litigation is conducted by and on behalf of the individual parties only."¹² After plaintiff demonstrates they have standing to represent their class, plaintiff must next establish the following prerequisites set forth in Rule 23(a): (1) the class must be "so numerous that joinder of all members is impracticable," (2) there must be "questions of law or fact common to the class," (3) the claims or defenses of the class representatives must be "typical" of the claims or defenses of the class," and (4) the class representatives "must fairly and adequately protect the interests of the class."

In addition, to the aforementioned prerequisites under Rule 23(a), a class action must satisfy at least one of the three sections of subsection (b) of Rule 23, which sets forth three categories of class actions.¹³ Greenwashing class actions are typically filed pursuant to Rule 23(b)(3), which requires that a named plaintiff show that all of the following three factors exist: (1) there are questions of law or fact common to all members of the class; (2) the common questions predominate over any questions which affect only individual members of the class; and (3) the class action is superior to all other available methods for the fair and efficient administration of the controversy.¹⁴ While there is some overlap between these two tests, both must be satisfied in order for a court to "certify" a class to proceed with its lawsuit.

Defendants can defeat a class action, rendering it un-certifiable, by establishing plaintiff has failed to plead or establish that any of the aforementioned factors are present. However, if a class meets the procedural requirements of Rule 23 and is deemed certifiable, the size and scope of these actions can be perilous for Defendants. For example, consumer fraud class settlements cost defendants millions of dollars on average between 2019 and 2020.¹⁵

B. Number and Status of Cases

The number of greenwashing class action cases filed by private plaintiffs has significantly increased over recent years. As consumers demonstrate their preference for environmentally-friendly products, companies are increasingly advertising the sustainability of their brands.¹⁶ Such marketing renders companies vulnerable to litigation when plaintiffs allege these representations are unfounded or inflated. There were more than a dozen (at least seventeen (17)) greenwashing class-action cases filed or decided within the two years prior to June 2023.¹⁷

Crucially, a large proportion of these cases have so far survived motions to dismiss. Of the seventeen (17) recent...