Greenbiz and Getting to Market: What It Takes to Go Green and Limit Liability

Misuse or mischaracterization of “green” terms or descriptors may subject companies to regulatory and civil liability for false advertising or deceptive marketing claims.

A growing number of consumers are prepared to pay a premium for products and services that are good for the environment.¹ This presents a market advantage for companies that adopt environmental marketing to emphasize sustainable and environmentally conscious business practices and/or promote environmentally beneficial aspects of their goods or services.² The greatest benefit accrues to companies that do so conscientiously and honestly.

To the contrary, greenwashing is a fairly common practice through which corporations make false, misleading, unsubstantiated, or deceiving environmental marketing claims to promote a practice, good, or service.³ Greenwashing misleads consumers to buy products based on an erroneous belief that the products provide an environmental benefit or benefit the environment more than is the case.

Misuse or mischaracterization of “green” terms or descriptors may subject companies to regulatory and civil liability for false advertising or deceptive marketing claims. The threat of such liability alone can damage the reputation of the company making a “green” claim. To avoid false advertising claims, business owners should be aware of and comply with relevant statutes and regulations that govern competition and advertising in their jurisdiction and industry.

What follows is an overview of greenwashing in the United States and discussion about steps companies should take to limit liability. The article sets out a review of select legislation and guidance documents that target greenwashing and recent regulatory and civil cases. The article concludes with a few thoughts about how to avoid liability when making “green” marketing claims.

The Seven Sins of Greenwashing

In 2010, TerraChoice, a private environmental marketing firm, found that over 95 percent of “green” products it analyzed were the subject of some form of greenwashing.⁴ The TerraChoice study identified common forms of greenwashing, dubbing them the “seven sins of greenwashing”⁵:

1. Sin of the hidden trade-off: promoting one particular “green” attribute of a product while failing to advertise the other aspect(s) of the product that may not benefit the environment;
2. Sin of no proof: proposing an environmental benefit that cannot be easily substantiated by the consumer;
3. Sin of vagueness: describing the environmental attribute in an overly broad way or neglecting to define it at all;
4. Sin of worshiping false labels: giving the impression of a third-party endorsement when it does not exist;
5. Sin of irrelevance: making an environmental claim that is unimportant for consumers seeking environmentally friendly products;
6. Sin of lesser of two evils: making an environmental claim about a category that, while may be true, also has a negative environmental impact; and
7. Sin of fibbing: making claims that are unconfirmed and false.

The most frequent greenwashing practices include the “sin of no proof” and the “sin of vagueness.”⁶ The “sin of worshiping false labels” is on the rise.⁷ While legitimate seals and certifications may be useful for consumers, it is increasingly difficult for consumers to determine whether environmental claims are credible.

Volkswagen’s “Defeat” Diesel Scandal

In September 2015, Volkswagen’s reputation as a trustworthy, reliable, and socially responsible company was in issue after the automotive company purportedly committed the greenwashing sin of fibbing.⁸ As one newspaper headline read, “Volkswagen Committed the Cardinal Sin of Greenwashing: Lying.”⁹

Volkswagen admitted to installing “defeat devices” in Volkswagens and Audis with 2.0-liter diesel engines in 11 million cars worldwide.¹⁰ The defeat devices comprise software that intentionally lowers emissions to legal standards during emissions testing. Meanwhile, some reports put diesel emissions from these cars at up to 40 times the United States Environmental Protection Agency (U.S. EPA) legal limit.¹¹

In the United States, pollutants, including nitrogen oxides and microfine particulate matter, are regulated pursuant to the Clean Air Act^.12 Both the U.S. EPA and California have announced their own investigations into Volkswagen’s global practices. Many other government agencies will conduct investigations. And, without hesitation, the U.S. government ordered Volkswagen to recall 482,000 Volkswagen and Audi cars produced since 2009.¹³

In addition to countless regulatory investigations, Volkswagen will face costly recalls, class action lawsuits, plummeting stock prices, and possibly criminal charges and billions in fines.¹⁴

Regulation of Environmental Marketing Claims in the U.S.

The Federal Trade Commission Act (FTC Act)¹⁵ and the Lanham Act¹⁶ serve to regulate greenwashing and impose penalties for statutory violations.¹⁷ The Federal Trade Commission’s (FTC’s) nonbinding guidance document “Guides for the Use of Environmental Marketing Claims” (Green Guides) provides direction to companies to avoid making misleading “green” claims.¹⁸ Under the current regulations, companies should avoid making broad environmental claims and should clearly qualify all environmental benefits they assert.

The FTC Act

The FTC Act sets out a regulatory means of policing false or deceptive greenwashing claims. The FTC requires that environmental marketing claims are substantiated with competent and reliable scientific evidence.

Section 5 of the FTC Act gives the FTC authority to bring claims against “unfair methods of competition” and “unfair or deceptive acts or practices.”¹⁹ Only the FTC can bring claims against companies. The FTC Act is not available to consumers to commence citizen suits against greenwashing wrongdoers.

To succeed in its claim, the FTC must prove the likelihood that a reasonable consumer would be misled by information from a deceptive advertiser. The misinformation must be sufficiently material to affect the consumer’s purchasing decision.

The FTC has prosecuted a number of claims involving environmental marketing. We describe a number of these below. Penalties for violating the FTC Act may include cease and desist orders, civil penalties, and fines.

FTC Green Guides. The FTC established its Green Guides as national standards for environmental marketing claims. The Green Guides apply to any claim about the environmental attributes of a product, package, or service associated with its sale.

The Green Guides address unfair or deceptive environmental marketing claims under Section 5 of the FTC Act and help marketers avoid making misleading claims to consumers.²⁰ The Green Guides describe how consumers interpret product claims such as “recyclable” and “biodegradable” and describe how companies can substantiate those claims. While the Guides do not establish enforceable standards for environmental performance claims, they provide instruction about how the FTC evaluates green marketing claims.

The FTC first issued its Green Guides in 1992. They were most recently revised in October 2012 to include new sections about certifications and seals of approval, carbon offsets, “free of” claims, nontoxic claims, “made with renewable energy” claims, and “made with renewable materials” claims. The Green Guides do not address organic, sustainable, and natural claims. Where possible, the FTC has harmonized the Guides with ISO 14021 environmental marketing standards.²¹ However, the FTC notes that the goals and purposes of the ISO and the Green Guides are not always congruent.²²

FTC cases. The FTC has prosecuted numerous greenwashing claims under the FTC Act, using the Green Guides’ principles to support each claim.²³ To succeed under Section 5 of the FTC Act, the FTC must prove a false claim or demonstrate that the claim is likely to mislead consumers. Below is a summary of several recent cases:

“Recycled” plastic lumber claims. In 2014, the FTC brought a number of claims against plastic lumber marketers and manufacturers that resulted in FTC orders.²⁴ In one case, the FTC brought a claim against American Plastic Lumber Inc. (APL) for misleading consumers about the environmental attributes of its products.²⁵ The FTC alleged that APL’s ads and marketing materials implied that its products were made completely out of postconsumer recycled content. The FTC claimed that APL’s products, on average, contained less than 79 percent postconsumer recycled content. The final consent order prohibits APL from making deceptive environmental claims for any product or package.

“Biodegradable” paper product claims. In June 2009, the FTC charged three companies, Kmart Corp.,²⁶ Tender Corp.,²⁷ and Dyna-E International,²⁸ with making deceptive claims that their paper products were “biodegradable.” The FTC alleged that the defendants’ paper plates failed to completely break down and decompose within a reasonably short period of time after disposal. The defendants settled the case by agreeing to an order barring them from making deceptive “degradable” product claims and requiring them to support any environmental claims they make with competent evidence.²⁹

“Zero VOCs” claims. In 2012, the FTC charged paint companies Sherwin-Williams Co.³⁰ and PPG Architectural Finishes Inc.³¹ with making false and unsubstantiated claims that their paints contain zero volatile organic compounds (VOCs) after color tinting. The FTC argued that consumers were likely to interpret the zero VOCs claim as applying to the final product after color tinting the base paint. The FTC found that tinted paint contains VOCs. The companies agreed to orders prohibiting them from making claims about their paint products containing zero VOCs.

“100 percent bamboo fiber” claims. In August 2009, the FTC charged four clothing/textile companies with deceptively advertising and labeling various textile items as biodegradable bamboo fiber, when in fact the items were made of rayon.³² The FTC settled charges against the companies. In January 2010, the FTC sent letters to 78 additional companies warning that they may be breaking the law by advertising and labeling textile products as bamboo.

In January 2013, four additional retailers, Amazon.com Inc., Leon Max Inc., Macy’s Inc., and Sears, Roebuck and Co. and its Kmart subsidiaries, agreed to pay penalties totaling $1.26 million to settle FTC charges that they violated the Textile Products Identification Act and the FTC’s Textile Rules.³³ The companies were charged with labeling and advertising their products made of rayon as bamboo fiber.

Bogus certification claim. The company Tested Green advertised and sold environmental certifications on its website and represented itself as the nation’s leading certification program. The FTC alleged that Tested Green did not test the products it certified but rather provided environmental certifications to anyone willing to pay a fee.³⁴ Tested Green charged $189.95 for a “rapid certification” or $549.95 for a “pro certification.” The 2011 FTC settlement bars Tested Green from making future misrepresentations.

The Lanham Act

The Lanham Act provides a civil means of holding companies liable for greenwashing claims of products and services.³⁵ Civil penalties may include injunctions, disgorgement of profits, and payment of plaintiffs’ damages and costs. Consumers cannot bring claims under the Lanham Act. Generally, only parties with commercial or competitive interests have standing under the Act.³⁶

Section 43(a) of the Lanham Act imposes civil liability for advertising that “misrepresents the nature, characteristics, qualities, or geographic origin of . . . goods, services, or commercial activities.”³⁷ A successful claim generally proves the following five elements³⁸:

1. The defendant made false or misleading statements of fact concerning a product;
2. The statement deceives a substantial portion of the intended audience;
3. The statement will likely influence the deceived consumers’ purchasing decisions;
4. The advertisements were introduced into interstate commerce; and
5. There is some causal link between the challenged statements and harm to the plaintiff.

In 2006, water bottling company Vermont Pure sued its competitor, Nestlé, under Section 43(a) of the Lanham Act.³⁹ Vermont Pure alleged that Nestlé made false or misleading statements in its advertising about the source, nature, and purity of Nestlé’s Poland Spring Brand.⁴⁰ Vermont Pure also accused Nestlé of contaminating ground and well water with its production procedures. Nestlé agreed to pay Vermont Pure $780,000 to settle the matter.

Private Consumer Civil Actions

Individuals, consumer classes, and private organizations have also sought to reduce false and misleading claims to maintain an efficient marketplace for green products.⁴¹

Car manufacturers Hyundai and Kia faced several class actions accusing the companies of making false or misleading claims of low gas mileage for certain models.⁴² Complainants pointed to a U.S. EPA investigation that found that gas mileage was overstated by approximately 6 mpg in 13 models.⁴³

In Koh v. S.C. Johnson & Son, Inc.,⁴⁴ the plaintiffs brought a civil class action lawsuit against the company for falsely implying a third-party endorsement of several cleaning products. The company used a “Greenlist” label and certified statement on its products. The Greenlist designation was owned and administered by the company itself. The U.S. District Court for the Northern District of California held that it is plausible that a reasonable consumer would interpret the label as originating from a neutral third party. However, the court did not determine on a preliminary motion to dismiss if the label was misleading or deceptive, thereby leaving this question for trial.

Not all private claims against companies are successful. In Hill v. Roll International Corp.,⁴⁵ a consumer brought an action against the manufacturer of Fiji bottled water under the California consumer protection law that incorporates the Green Guides. The plaintiff alleged that a green water drop design on the Fiji label led the plaintiff to believe that Fiji water was endorsed by an independent environmental organization. The California Court of Appeal found that the green drop design bore no name or logo of any environmental groups or third-party organization. In dismissing the plaintiff’s claim, the court held that the plaintiff did not satisfy the reasonable consumer standards expressed in the Green Guides nor prove common law fraud or unjust enrichment.

Conclusions

In theory, competition based on “green” claims benefits consumers by compelling businesses to be innovative and increasing the availability of environmentally beneficial practices, goods, and services. However, in practice, “green” products or services in the marketplace more frequently than one might expect do not fulfil the claims made by a company.⁴⁶

Consumers are increasingly wary of misleading environmental claims and are willing to bring actions against perpetrating companies. To avoid greenwashing, companies should:

• Provide clear and accurate information about green initiatives;
• Empirically demonstrate whether a practice, good, or service is environmentally beneficial;
• Only use meaningful terms and visuals;
• Remain cautious of green packaging claims;
• Make clear and specific environmental claims;
• Avoid claims about sustainability;⁴⁷
• Update environmental claims and modify them as further testing is done or new information becomes available;
• Use explanatory statements to accompany environmental claims;⁴⁸
• Comply with all federal and state statutory obligations pertaining to unfair competition and false advertising;
• Take guidance from the FTC Green Guides; and
• Not deceive or lie. n

Notes

1. Eric L. Lane, Greenwashing 2.0, 38 Colum. J. Envtl. L. 279, 285 (2013); seeU.S. Envtl. Prot. Agency, Assessing the Environmental Consumer Market (1991). The increased consumer demand corresponds with more “green” products. SeeTerraChoice (Underwriters Labs.), The Sins of Greenwashing: Home and Family Edition 2010, at 6 (2010) [hereinafter TerraChoice Report], available at http://sinsofgreenwashing.org/findings/greenwashing-report-2010.

2. Magali A. Delmas & Vanessa Cuerel Burbano, The Drivers of Greenwashing, 54 Cal. Mgmt. Rev. 64, 66 (2011).

3. Id.

4. TerraChoice Report, supra note 1, at 16. TerraChoice’s analysis accounted for the FTC Green Guides, the Canadian Competition Bureau Guidelines for Environmental Claims, ISO 14021 standards for environmental labeling (see infra note 21), and TerraChoice’s understanding of global best practices.

5. Id. at 10.

6. Id. at 16. Examples of vagueness include unelaborated uses of: eco-friendly, environmentally friendly, earth-friendly, environment safe, harnessing nature, and eco-chemistry. Id. at 24.

7. Id. at 16.

8. Jennifer Lynes, Volkswagen Committed the Cardinal Sin of Greenwashing: Lying, Globe & Mail (Ont., Can.), Sept. 24, 2015, www.theglobeandmail.com/report-on-business/rob-commentary/volkswagen-committed-the-cardinal-sin-of-greenwashing-lying/article26500698/.

9. Id.

10. What Was Volkswagen Thinking?, N.Y. Times, Sept. 23, 2015, www.nytimes.com/2015/09/23/opinion/what-was-volkswagen-thinking.html?_r=1; see also Dan Neil, VW Lost Its Moral Compass in Quest for Growth, Wall St. J., Sept. 24, 2015, www.wsj.com/articles/vw-lost-its-moral-compass-in-quest-for-growth-1443115862.

11. Joanna Walters, Graham Ruddick & Sean Farrell, VW Emissions Scandal Could Snare Other Firms, Whistleblower Claims, Guardian, Sept. 22, 2015, www.theguardian.com/business/2015/sep/21/volkswagen-emissions-scandal-sends-shares-in-global-carmakers-reeling.

12. 42 U.S.C. §§ 7401 et seq.

13. Press Release, U.S. Envtl. Prot. Agency, EPA, California Notify Volkswagen of Clean Air Act Violations (Sept. 18, 2015), http://yosemite.epa.gov/opa/admpress.nsf/bd4379a92ceceeac8525735900400c27/dfc8e33b5ab162b985257ec40057813b!OpenDocument.

14. Fiona Harvey, Volkswagen Scandal Q&A: What You Need to Know about Diesel, Guardian, Sept. 25, 2015, www.theguardian.com/environment/2015/sep/25/volkswagen-scandal-qa-what-you-need-to-know-about-diesel.

15. 15 U.S.C. §§ 41–58.

16. Id. §§ 1051 et seq.

17. Individual states have similar consumer protection laws prohibiting false advertising, unfair trade practices, and unfair competition. See Robert B. White, Note, Preemption in Green Marketing: The Case for Uniform Federal Marketing Definitions, 85 Ind. L.J. 325, 327–28 (2010).

18. 16 C.F.R. pt. 260 [hereinafter Green Guides].

19. 15 U.S.C. § 45.

20. The Green Guides were first issued in 1992 and were revised in 1996, 1998, and 2012. The Guides do not establish standards for environmental performance or prescribe testing protocols.

21. The International Organization for Standardization (ISO) 14000 series of environmental standards has a subgroup of standards specifically governing environmental labeling. The ISO 14000 standards series (ISO 14020–14024) covers different aspects of environmental labeling and declarations. The ISO 14021 standards are applicable to environmental claims made for goods and services by the producer.

22. SeeFTC, The Green Guides: Statement of Basis and Purpose 17 (2012), www.ftc.gov/sites/default/files/attachments/press-releases/ftc-issues-revised-green-guides/greenguidesstatement.pdf.

23. SeeCases and Proceedings, FTC, www.ftc.gov/enforcement/cases-proceedings (last visited Nov. 18, 2015).

24. See, e.g., Engineered Plastics Sys., LLC, FTC Docket No. C-4485, File No. 132 3204 (Aug. 20, 2014); Am. Plastic Mfg., Inc., FTC Docket No. C-4453, File No. 122 3291 (Apr. 24, 2014); N.E.W. Plastics Corp., FTC Docket No. C-4449, File No. 132 3126 (Apr. 3, 2014).

25. Complaint, Am. Plastic Lumber, Inc., FTC Docket No. C-4478, File No. 132 3200 (July 24, 2014).

26. Complaint, Kmart Corp., FTC Docket No. C-4263, File No. 082 3186 (July 15, 2009).

27. Complaint, Tender Corp., FTC Docket No. C-4261, File No. 082 3188 (July 15, 2009). The FTC alleged that Tender was not clear whether the “placement of the term ‘bio-degradable’” on the product packaging referred to “the product, its packaging, or a portion or component of the product or packaging.”

28. Dyna-E Int’l, Inc., FTC Docket No. 9336, File No. 082 3187 (May 20, 2009).

29. Before making a biodegradable claim, the company must have evidence that the entire plastic product will completely decompose into elements found in nature within one year after customary disposal.

30. Complaint, Sherwin-Williams Co., FTC Docket No. C-4386 (Mar. 5, 2013).

31. Complaint, PPG Architectural Finishes, Inc., FTC Docket No. C-4385 (Mar. 5, 2013).

32. Complaint, Pure Bamboo, LLC, FTC Docket No. C-4278, File No. 082 3193 (Aug. 11, 2009); Complaint, CSE, Inc., FTC Docket No. C-4280, File No. 082 3181 (Aug. 11, 2009); Complaint, M Grp., FTC Docket No. 9340, File No. 082 3184 (Aug. 7, 2009); Complaint, Sami Designs, LLC, FTC Docket No. C-4279, File No. 082 3194 (May 20, 2009).

33. Press Release, FTC, Four National Retailers Agree to Pay Penalties Totaling $1.26 Million for Allegedly Falsely Labeling Textiles as Made of Bamboo, While They Actually Were Rayon (Jan. 3, 2013), www.ftc.gov/news-events/press-releases/2013/01/four-national-retailers-agree-pay-penalties-totaling-126-million.

34. Complaint, Nonprofit Mgmt. LLC, FTC Docket No. C-4315, File No. 102 3064 (Feb. 23, 2011).

35. 15 U.S.C. § 1125(a).

36. White, supra note 17, at 330.

37. 15 U.S.C. § 1125(a).

38. Am. Council of Certified Podiatric Physicians & Surgeons v. Am. Bd. of Podiatric Surgery, Inc., 185 F.3d 606, 613 (6th Cir. 1999).

39. Vt. Pure Holdings, Ltd. v. Nestlé Waters N. Am., Inc., No. Civ.A.03-11465 DPW, 2006 WL 839486 (D. Mass. Mar. 28, 2006).

40. Id. at *2 (“Vermont Pure claims that Poland Spring water is pumped from the ground from a series of gravel-packed wells, some of which are located several miles from the original Poland Spring.”).

41. Thomas C. Downs, Comment, “Environmentally Friendly” Product Advertising: Its Future Requires a New Regulatory Authority, 42 Am. U. L. Rev. 155, 172–80 (1992).

42. See Complaint, Quiroz v. Kia Motors Am., Inc., No. 12-cv-02091 (C.D. Cal. Dec. 3, 2012); Complaint, Olson v. Hyundai Motor Co., No. 12-cv-02025 (C.D. Cal. Nov. 20, 2012); Complaint, Graewingholt v. Hyundai Motor Am., Inc., No. 12-cv-01963 (C.D. Cal. Nov. 9, 2012); Complaint, Krauth v. Hyundai Motor Am., No. 12-cv-1935 (C.D. Cal. Nov. 6, 2012).

43. See Michelle Diffenderfer & Keri-Ann C. Baker, Greenwashing: What Your Client Should Know to Avoid Costly Litigation and Consumer Backlash, 25 Nat. Resources & Env’t, no. 3, Winter 2011.

44. No. 09-cv-00927 RMW, 2010 WL 94265 (N.D. Cal. Jan. 6, 2010).

45. 128 Cal. Rptr. 3d 109 (Ct. App. 2011).

46. Lane, supra note 1, at 330–31.

47. The concept of sustainability is extremely broad and complex; there are no universally acceptable ways to measure sustainability.

48. Explanatory statements may help ensure that consumers will not be misled by or misinterpret environmental terms.