As more companies recognize the value of enhanced sustainability reporting and publicize the positive environmental features of their products and services, they should also be attentive to greater public scrutiny of “green” claims.  Companies that engage in greenwashing – asserting exaggerated, misstated, or immaterial environmental claims – are increasingly exposed to reputational damage and legal battles, as regulators, investors, and civil society actors dedicate more resources to scrutinizing environmental claims.  Companies also face growing pressure from investors to publish standardized and rigorous sustainability information that allows for cross-industry benchmarking.

Misleading Sustainability Reporting and Environmental Claims

The public’s appetite for private sector efforts to protect the environment has increased as new projections of the impacts of climate change and environmental degradation emerge.  As companies report more information about their environmental footprints, they expose themselves to greater risks of misreporting environmental impacts and publishing information that regulators would consider misleading or deceptive.  In addition to advertising that highlights environmental claims, formal sustainability reporting has grown in popularity in recent years.  Sustainability reporting among the S&P 500 jumped from 20 percent in 2011 to 85 percent in 2015.  With 93 percent of the 250 largest Fortune 500 companies reporting on environmental metrics, sustainability reporting is now considered standard among large- and mid-cap companies worldwide.  Nearly 100 sustainability reporting laws were introduced around the world in 2016 and 2017, and the host of new legislative instruments to encourage sustainability reporting have likely advanced the prevalence of sustainability reporting in the business community.  Updates to reporting guidelines by non-governmental organizations such as GRI, SASB, TCFD, and CDP, and greater levels of stock exchange involvement in sustainability reporting have also probably contributed to this trend.

Regulators have been active in bringing enforcement actions against companies for misleading environmental labeling practices.  For example, the Federal Trade Commission has continued to police the environmental marketing space by bringing law enforcement actions, most notably its cases against Volkswagen, for making allegedly deceptive “clean diesel” claims.

Investor Interest in Sustainability Disclosures

Investors have demonstrated rising interest in companies’ environmental claims.  Last year alone, assets in sustainable investment funds grew 37 percent, according to Bloomberg. In just five years, the assets managed under Environmental, Social, and Governance (ESG) investment strategies nearly doubled, accounting for $22.9 trillion in managed assets worldwide in 2017. Furthermore, in response to an Ernst & Young survey, 68 percent of institutional investor respondents said that non-financial performance frequently or occasionally played a pivotal role in their decision making in the previous year.

Despite the popularity of sustainability reporting, companies’ reporting strategies remain fragmented. Advocacy groups like sustainability and corporate governance leader Ceres have documented that less than 10 percent of the 476 largest companies in the Forbes Global 2000 engage in third-party auditing or other robust verification processes for their sustainability reporting. The Ceres report published this summer also noted that one-third of companies do not assess the extent to which the sustainability practices they adopt are material based on the significance of the economic, environmental or social impact for the reporting organization. Moreover, 23 percent of companies provide no information about board-level oversight of material sustainability issues. In response, influential investors like BlackRock Inc. and the California State Teachers’ Retirement System have pressed companies this year to adopt standard sustainability reporting frameworks in their annual meetings with corporate boards.

As more investors pay attention to sustainability claims and push companies to strive for more ambitious goals, it is likely that reactions to and consequences for false, misleading, and nonstandard claims will become harsher. Companies would be well advised to scrutinize their sustainability reporting and environmental claims to ensure they are neither misleading nor deceptive, comply with the Federal Trade Commission’s Green Guides and truth in advertising laws, and are premised on justifiable and widely-accepted sustainability metrics.

Tags: compliance, greenwashing
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Photo of Gary S. Guzy Gary S. Guzy

Gary Guzy brings thirty five years of experience in environmental law, regulation, and public policy. He provides counsel to industry leaders in the transportation, energy, technology, and consumer sectors on emerging environmental and clean energy issues. He is skilled at creating strategic partnerships…

Gary Guzy brings thirty five years of experience in environmental law, regulation, and public policy. He provides counsel to industry leaders in the transportation, energy, technology, and consumer sectors on emerging environmental and clean energy issues. He is skilled at creating strategic partnerships that bring together diverse groups to resolve challenging public policy controversies through close work with industry and environmental community leaders. Gary co-chairs the firm’s Energy Industry Group.

Gary served as Deputy Director and General Counsel of the White House Council on Environmental Quality (CEQ). In this position, he helped develop and guide the Obama Administration’s environmental, public health, and clean energy agenda, bringing business insights to government policy and coordinating policy across government agencies. He spearheaded negotiations that achieved the Obama Administration’s agreement to double motor vehicle fuel efficiency standards and significantly cut greenhouse gas emissions with the support of automobile manufacturers, states, labor unions, environmental and consumer groups, and Congress. Gary also led CEQ’s efforts to modernize permitting and environmental review under the National Environmental Policy Act, and counseled federal agencies on how to fulfill their NEPA obligations for dozens of high profile decisions and assisted in resolving NEPA controversies at numerous complicated sites.

Gary served as General Counsel of the U.S. Environmental Protection Agency and Counselor to the EPA Administrator during the Clinton Administration. He was a member of the Administrator’s senior policy team, setting regulatory, legislative, and communications strategy. He led efforts to design regulatory approaches to protect children’s environmental health, develop and defend new air quality and motor vehicle standards, defend EPA from Congressional oversight investigations, and protect iconic ecosystems such as the Everglades and Yellowstone National Park. He also authored climate change opinions that were later ratified by the U.S. Supreme Court in its landmark decision finding that greenhouse gases are pollutants under federal law.

Gary has also served as the chief legal officer, sustainability officer, and climate strategist for a variety of business organizations.

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Photo of W. Andrew Jack W. Andrew Jack

Andy Jack is a broad gauge corporate and securities lawyer who leads multidisciplinary teams to help clients achieve complex business objectives and solve complex business problems.

Andy often serves in outside general counsel or senior strategist roles working closely on strategic matters with…

Andy Jack is a broad gauge corporate and securities lawyer who leads multidisciplinary teams to help clients achieve complex business objectives and solve complex business problems.

Andy often serves in outside general counsel or senior strategist roles working closely on strategic matters with C-suites and boards. His practice spans mergers and acquisitions, strategic alliances and joint ventures, venture capital, capital markets, securities compliance, corporate governance counseling, crisis management and dispute settlements.

With deep experience in the energy, diversified industrials, transportation, technology, sports and hospitality industries, much of Andy’s recent transactional and advisory work focuses on issues arising from global sustainability trends and ESG considerations, including the energy transition, vehicle electrification and advanced mobility.

Some examples of this trending work include:

Energy

Structuring and negotiating joint ventures to produce sustainable aviation fuels and to develop and deploy shared resources to respond to offshore well blowouts.
Advising on a carbon capture project funded by the U.S. Department of Energy.
M&A, finance, capital raising and commercial projects for solar PV panel suppliers.
Representing corporate offtakers in virtual power purchase agreements to procure renewable energy in support of wind and solar power projects.
Advising on U.S. public policy matters affecting the energy transition.

Vehicle Electrification and Advanced Mobility

A capital markets transaction for an industry leader in advanced mobility.
Multiple venture capital financing rounds for an electric truck manufacturer.
Joint venture restructuring and M&A transactions for EV battery manufacturers.
Collaboration agreements among vehicle electrification technology providers and OEMs.
M&A of advanced vehicle components suppliers and engineering service providers.

Other industries

Advising on board governance structures to address ESG and Sustainability oversight.
Assisting clients in developing voluntary sustainability reports and improving SEC reports and proxy statements to address these topics.
Responding to shareholder proposals on various ESG issues.

Andy co-chairs the firm’s multidisciplinary global Energy Industry Group and multidisciplinary Sustainability Solutions Initiative. He also serves as pro bono outside general counsel to the American Council on Renewable Energy and as Co-chair of the World Resources Institute Global Leadership Council. With this background and experience, Andy frequently speaks at industry conferences and publishes on these topics. He also serves as an editor of the firm’s Inside Energy & Environment blog

He is Chambers-ranked in Corporate M&A & Private Equity, where clients report that Andy “gives practical advice with commercially reasonable solutions to problems.” He also has been ranked in Legal 500, both for Energy – Renewable/Alternative and Mergers & Acquisitions.

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Photo of Laura Kim Laura Kim

Laura Kim has a proven track record of successfully resolving clients’ most important consumer protection matters before the FTC, State AGs, and the NAD. She is well-known for her insider knowledge of the FTC as well as her practical approach to accomplishing her…

Laura Kim has a proven track record of successfully resolving clients’ most important consumer protection matters before the FTC, State AGs, and the NAD. She is well-known for her insider knowledge of the FTC as well as her practical approach to accomplishing her clients’ objectives.

As chair of Covington’s Advertising & Consumer Protection Investigations practice group, Laura represents corporate and individual clients in investigations before the FTC and State Attorneys General. She also provides pragmatic compliance advice on a wide range of consumer protection issues, including substantiating claims involving generative artificial intelligence, environmental benefits, and “Made in USA.” She counsels brands on emerging issues involving influencers, consumer reviews, AI-generated content, and subscription autorenewals. Laura regularly represents both challengers and advertisers before the NAD, achieving favorable outcomes in matters involving artificial intelligence, influencers, and claim substantiation.

During her twelve-year tenure at the FTC, Laura served as Assistant Director in two divisions of the Bureau of Consumer Protection, Attorney Advisor to Chairman William E. Kovacic, and Chief of Staff to Bureau Director Jessica Rich. She oversaw major rulemakings—including the Green Guides and the Telemarketing Sales Rule—and supervised dozens of investigations and enforcement actions. As Assistant Director in the Division of Enforcement, Laura also supervised compliance monitoring and enforcement proceedings for companies under federal court or Commission order.

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Photo of Lindsay Brewer Lindsay Brewer

Lindsay advises clients on environmental, human rights, product safety, and public policy matters.

She counsels clients seeking to set sustainability goals; track their progress on environmental, social, and governance topics; and communicate their achievements to external stakeholders in a manner that mitigates legal…

Lindsay advises clients on environmental, human rights, product safety, and public policy matters.

She counsels clients seeking to set sustainability goals; track their progress on environmental, social, and governance topics; and communicate their achievements to external stakeholders in a manner that mitigates legal risk. She also advises clients seeking to engage with regulators and policymakers on environmental policy. Lindsay has extensive experience advising clients on making environmental disclosures and public marketing claims related to their products and services, including under the FTC’s Green Guides and state consumer protection laws.

Lindsay’s legal and regulatory advice spans a range of topics, including climate, air, water, human rights, environmental justice, and product safety and stewardship. She has experience with a wide range of environmental and safety regimes, including the Federal Trade Commission Act, the Clean Air Act, the Consumer Product Safety Act, the Federal Motor Vehicle Safety Standards, and the Occupational Safety and Health Act. Lindsay works with companies of various sizes and across multiple sectors, including technology, energy, financial services, and consumer products.

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