Brands Are Weighing the Stakes of Sustainability, ESG Marketing

Image: Zara


Brands Are Weighing the Stakes of Sustainability, ESG Marketing

Brands are currently operating between a rock and hard place in terms of marketing themselves and their goods/services from an environmental, social, and governance (“ESG”) perspective. On one hand, increasingly climate-cognizant consumers are paying attention, with a ...

December 6, 2022 - By TFL

Brands Are Weighing the Stakes of Sustainability, ESG Marketing

Image : Zara

Case Documentation

Brands Are Weighing the Stakes of Sustainability, ESG Marketing

Brands are currently operating between a rock and hard place in terms of marketing themselves and their goods/services from an environmental, social, and governance (“ESG”) perspective. On one hand, increasingly climate-cognizant consumers are paying attention, with a review of consumer sales between 2013 and 2018 by researchers at New York University’s Stern Center for Sustainable Business, for instance, finding that goods highlighted as “sustainable” drove greater sales growth (and market share growth) than those that were not. On the other hand, legal and regulatory risks are growing when it comes to the veracity of companies’ consumer-facing sustainability marketing and investor-focused ESG disclosures, alike. 

Examples of how brands are changing – or may need to change – the way they approach sustainability marketing and ESG disclosures are proving to be increasingly widespread. Two specific illustrations come to mind: Primarily, companies are being forced to reevaluate their use of vague and/or forward-looking statements, and second, companies are no longer able to rely blindly on even-the-most widely accepted industry certifications, ratings, etc. 

Generic or Aspiration Claims

In terms of broad and/or forward-facing statements, companies have (for the most part) been able to get away with making relatively generic claims – such as characterizing their wares as “conscious” or “green” – without facing ramifications. As recently as last month, Coca-Cola escaped a “false and deceptive” advertising lawsuit over its allegedly misleading ESG claims on the basis that most of the marketing statements were too forward-looking or otherwise incapable of being disproven, thereby, cutting off the plaintiff’s D.C. Consumer Protection Procedures Act claim. In that case, non-profit Earth Island Institute accused Coca-Cola of falsely portraying itself in an array of advertising campaigns as “‘sustainable’ and “committed to reducing plastic pollution,” while simultaneously “polluting more than any other beverage company and actively working to prevent effective recycling measures in the U.S.”

Before that, a Southern District of New York judge found that “false and misleading” ESG statements made by Goldman Sachs, which the bank argued are generic, are “not so generic as to diminish their power to maintain pre-existing price inflation.” Arkansas Teacher Retirement System had argued that Goldman marketing statements – including “integrity and honesty are at the heart of our business” – artificially inflated the company’s stock price. (The district court’s decision followed by a Supreme Court holding in June 2021 that the potentially “generic” nature of a company’s claims may be important evidence of stock price impact, and thus, can be considered at the class action certification stage.)

With these cases – and others – in mind, “Companies should be wary of issuing disclosures and making other public ESG statements that may be less generic or aspirational than they appear,” Bracewell LLP attorneys asserted in a note late last year. Eversheds Sutherland attorneys echoed this sentiment, stating that even broad claims “about a product being ‘clean,’ ‘sustainable,’ or ‘eco-friendly’” may be deemed to be deceiving. Since “almost all products have some environmental impact,” they note that “it is a best practice for companies to qualify claims by saying a product is ‘clean’ or ‘sustainable’ relative to some baseline or widely accepted standard, usually the status quo.” 

Additionally, the Eversheds Sutherland attorneys maintain that “claims that a specific product is ‘clean’ or ‘low- or zero-emissions’ arguably could be interpreted as meaning the product itself meets those conditions without the aid of an offset or other environmental attribute.” Against this background (and in light of rising “net zero” and “carbon neutral” claims from brands), they encourage companies “to consider disclosing when products are bundled with environmental attributes, such as cardon credits, in order to make safe sustainability claims [and] mitigate greenwashing risks.” 

The Trouble with Industry Certifications

ESG advertising has also been complicated by increasing skepticism over – and in some cases, lawsuits centering on – heavily-relied-upon sustainability indexes and certifications, such as the HIGG Index, which fashion industry entities have used to measure and score their sustainability performance and the sustainability profile of their offerings. The HIGG Index was at the heart of a lawsuit filed against Allbirds in 2021, accusing the footwear brand of peddling “false, deceptive and misleading” information, including about the carbon footprint of its products, which it used HIGG data to measure.  

That case was tossed out on summary judgment, with the court determining that the plaintiff’s issue was actually with the HIGG standard and not how Allbirds advertised its products in accordance with such data. Nonetheless, the potential issues born from companies’ reliance on such certifications are worthy of attention. There are risks that come with “blindly relying on industry programs, ratings, and rankings for sustainability attributes,” ESG management expert Lawrence Heim says. “Companies should consider doing their own due diligence into industry ESG programs/solutions, make determinations about potential risks, and find ways to address any concerns/manage the risks.” 

Ultimately, the results of these issues are manifesting themselves in various ways, including the issuance of internal guidelines – often drafted by or with consultation from legal counsel – by brands that are looking to continue to market themselves in the sustainability or broader ESG vein. Luxury goods group Kering, for instance, issued guidelines to enable the brands under its ownership umbrella – which include Gucci, Saint Laurent, and Bottega Veneta, among others – and presumably, the parent company, as well, to avoid greenwashing-related legal issues and public relations backlash. 

The Rise of Green “Hushing”

At the same time, there is an alternative approach that is coming into play, in which brands are opting not to engage in ESG-focused marketing and/or voluntary disclosures in order to avoid legal ramifications and greenwashing-related PR crises. Swiss carbon finance consultancy South Pole recently published a report that suggests that a notable number of companies are choosing not to make their climate targets public in order to avoid allegations of greenwashing allegations and/or non-compliance with legislation. According to the report, “nearly a quarter” of the 1,200 companies surveyed will not publicize “their achievements and milestones beyond the bare minimum or as required by, for example, the Science Based Targets initiative.” 

The rise of so-called green “hushing” is, of course, not a perfect solution, in part, because consumers respond to this marketing (at least in theory) and because regulators are actively requiring – or preparing to require – companies to make heighted and uniformly reported ESG disclosures. Regulators in Europe already have mandated that companies provide greater climate-related disclosures, while the U.S. Securities and Exchange Commission released a proposed rule that would create new “climate-related risks and impacts” disclosure requirements for publicly listed companies.

THE BOTTOM LINE: Brands are weighing the benefits of marketing themselves and their offerings as ESG-friendly with the potential for very real harms. The result in some cases is that companies are opting not to go beyond the required disclosures in the face of rising regulation and “greenwashing”-centric PR disasters.

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