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.

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. Mr. Guzy co-chairs the firm’s Energy Industry Group.

Mr. Guzy 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. Mr. Guzy 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.

Mr. Guzy 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.

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

Photo of W. Andrew Jack W. Andrew Jack

Andrew Jack has a diverse corporate and securities practice with clients principally in the energy, industrial manufacturing, technology and sports and entertainment industries. He regularly represents corporations, board committees, and other forms of enterprises in mergers and acquisitions, strategic alliances, financing activities, securities…

Andrew Jack has a diverse corporate and securities practice with clients principally in the energy, industrial manufacturing, technology and sports and entertainment industries. He regularly represents corporations, board committees, and other forms of enterprises in mergers and acquisitions, strategic alliances, financing activities, securities law compliance, corporate governance counseling, and executive compensation arrangements. Mr. Jack also co-chairs the firm’s Energy Industry Group.

Photo of Laura Kim Laura Kim

Laura Kim draws upon her experience in senior positions at the Federal Trade Commission to advise clients across industries on complex advertising, privacy, and data security matters. She provides practical compliance advice and represents clients in FTC and State AG investigations. Ms. Kim…

Laura Kim draws upon her experience in senior positions at the Federal Trade Commission to advise clients across industries on complex advertising, privacy, and data security matters. She provides practical compliance advice and represents clients in FTC and State AG investigations. Ms. Kim advises on a wide range of consumer protection issues, including green claims, influencers, native advertising, claim substantiation, Made in USA claims, children’s privacy, subscription auto-renewal marketing, and other digital advertising matters. In addition, Ms. Kim actively practices before the NAD, including recent successful resolution of matters for both challengers and advertisers. She co-chairs Covington’s Advertising and Consumer Protection Practice Group and participates in the firm’s Internet of Things Initiative.

Ms. Kim re-joined Covington after a twelve-year tenure at the FTC, where she served as Assistant Director in two divisions of the Bureau of Consumer Protection, as well as Chief of Staff in the Bureau of Consumer Protection and Attorney Advisor to former Chairman William E. Kovacic. She worked on key FTC Rules and Guides such as the Green Guides, Jewelry Guides, and the Telemarketing Sales Rule. She supervised these and other rule making proceedings and oversaw dozens of the Commission’s investigations and enforcement actions involving compliance with these rules. Ms. Kim also supervised compliance monitoring for companies under federal court or Commission order.

Ms. Kim also served as Deputy Chief Enforcement Officer at the U.S. Department of Education, where she helped establish a new Enforcement Office within Federal Student Aid. In this role, she managed investigations of higher education institutions and oversaw issuance of fines and adverse actions for institutions in violation of federal student aid regulations. Ms. Kim also supervised the borrower defense to repayment division and the Clery campus safety and security division.

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.