ESG 'Greenwashing' Litigation On the Rise

The term greenwashing was first used by environmentalist Jay Westerveld in a 1986 essay in which he suggested that the "save-a-towel" campaigns promoted by hotel chains were primarily motived by cost-savings, rather than environmental considerations, despite hotel marketing materials suggesting otherwise. In response to growing public concern regarding greenwashing, in 1992, the Federal Trade Commission (FTC) published an administrative guidance document titled the Guides for the Use of Environmental Marketing Claims (the Green Guides or Guides) to help companies avoid making environmental marketing claims that are unfair or deceptive under Section 5 of the FTC Act, 15 U.S.C. Section 45. In developing the Guides, the FTC relied upon consumer surveys to explain how reasonable consumers are likely to interpret various environmental claims, and offered nonbinding guidance on how to substantiate environmental claims so as to avoid deceiving consumers. Following revisions in 1996, 1998, and 2012, the FTC published notice in the Federal Register on Dec. 20, 2022, that it is now undertaking a decennial review of the Green Guides and is seeking public comment on potential updates to the Guides. There is a public comment period until April 24, 2023. The FTC is seeking feedback on the efficiency, costs, benefits, and regulatory impact of the Guides to determine whether to retain, modify, or rescind them. It is also inviting comment on specific types of environmental benefit claims that have received increased attention in the past several years.

Separately, but relatedly, the Securities and Exchange Commission (SEC) announced the creation of a Climate and Environmental Social and Governance (ESG) Task Force on March 4, 2021. The current understanding of the acronym ESG (referencing environmental, social, and corporate governance) seems to have originated from a 2005 United Nations study, which urged companies to develop and report on their policies addressing climate change and human rights issues, among others, to inform their financial analyses and investors' strategies. Early last year, the SEC published notice of two proposed rulemakings which would impose specific ESG disclosure requirements on SEC registrants, investment advisers, and business developers. The public comment periods for both rulemakings are closed, and additional regulatory developments related to ESG are expected in 2023.