BEWARE: Overstating Your Product’s Environmental Benefits Could be Costly
In recent years, the impact a company has on the environment has grown in importance with respect to a consumer’s decision to purchase a given product. Consequently, more and more businesses are highlighting their products or services as environmentally friendly or “green.” However, companies that overstate or misstate “green” benefits risk facing scrutiny from regulators, competitors, and consumers. Green claims come in all forms, and related regulations and litigation are evolving. If your company is using or considering using a claim touting certain environmental benefits, we can evaluate whether the claim is appropriately substantiated.
- Federal and State Guidance
In 2012, the Federal Trade Commission (FTC) promulgated the so-called Green Guides, which addresses how the FTC treats certain environmental advertising and marketing practices under the FTC Act. The FTC typically reviews its rules and industry guides on a ten-year schedule to ensure they remain relevant and not unduly burdensome. The FTC intends to review the Green Guides in 2022 and will seek public comment on the continuing need for the guide, as well as the costs and benefits to consumers and businesses.
The FTC is not the only federal agency seeking to address environmental claims. The Securities and Exchange Commission (SEC) recently issued proposed rules that would require public companies to make substantial climate-related disclosures in their periodic reports and financial statements. More on that can be found here.
In addition, many states are reacting to this growing environmental marketing trend and are enacting laws to restrict certain claims. For example, California recently enacted certain restrictions on “biodegradable” and “compostable” claims. This trend is likely to accelerate.
- Unqualified or Unsubstantiated Green Claims Carry Substantial Risk
One overarching principle of the Green Guides is that advertisers should not overstate an environmental benefit. This is exemplified by FTC’s guidance on general environmental benefit claims, which can be boiled down to the following: avoid them. Specifically, the Green Guides state that advertisers should only promote a product or service as having a general environmental benefit if the company can substantiate all related express and implied claims that the purported benefit contemplates. Given that this high substantiation standard is likely very difficult to meet, companies should think twice before making a general “environmentally friendly” claim in their advertisements or marketing materials. Instead, companies should discuss with legal counsel ways to make appropriately qualified environmental claims, tailored to a specific environmental benefit, and supported with proper substantiation.
- Recent Enforcement
In the past, the FTC has brought several enforcement actions against advertisers for allegedly misleading environmental claims. Notably, the FTC recently obtained its largest ever civil penalty award for a case involving allegedly deceptive environmental claims. Notably, the case was brought pursuant to the FTC’s Penalty Offense Authority, which allows the FTC to seek civil penalties of up to $43,792 per violation.
In addition, there has been a recent proliferation in class action lawsuits against companies touting that their products are “natural.” At the moment, there is no uniform guidance on what is considered “natural,” and the Green Guides are silent on the issue, but class action plaintiffs have argued that ingredients that are derived from nature and undergo significant chemical alterations are often not “natural” in the way that consumers expect them to be.
- Claim Specific Guidance
As noted above, many states are enacting laws specific to certain environmental marketing claims, and the Green Guides also include guidance for certain claims. Specifically:
- Degradable, biodegradable, and photodegradable.
- Recycled content.
- Ozone-safe and ozone-friendly.
- Certificates and approvals.
- Made with renewable materials.
- Made with renewable energy.
- Carbon offsets.
The Green Guides provides specific substantiation guidance for each claim. Notably, the FTC is set to revisit its Green Guides this year and will likely provide additional guidance on how to appropriately substantiate certain claims. However, with more and more scrutiny surrounding environmental claims, now is the perfect time to seek advice. Contact the authors to learn more.