By Jonathan Storper and Lance Alarcón

Capitalizing on consumer interest in sustainability just got
more complicated. BP’s Gulf of Mexico oil disaster has reversed
years of goodwill built by its “Beyond Petroleum” rebranding
campaign, perhaps the best-known green marketing effort in
history.

But consumers’ growing environmental-marketing skepticism is not
the only challenge companies will need to overcome when they tout
environmental benefits to their products. The Deepwater Horizon
spill is also a political disaster, and it is occurring in the
context of renewed interest by the Federal Trade Commission, the
courts, and state legislatures in curbing misleading environmental
claims. Marketers take note: Prosecution for “greenwashing” is now
more likely than ever before.  



Resurgence in FTC’s Greenwashing
Prosecutions

 

After filing 37 misleading-environmental-marketing complaints
between 1992 and 2000, the FTC took an 8-year hiatus during the
Bush administration, during which it filed none. The FTC is now
back on greenwashing duty.

Speaking to Congress six months after Pres. Obama took office,
FTC Chairman Kovacic testified that prosecuting misleading green
marketing would be one of the seven priority areas for the agency’s
consumer protection division. The agency reported in a March 2009
press release that it had developed an “ambitious plan to address
the virtual “explosion of green marketing claims.” Since then, the
FTC has prosecuted seven companies for greenwashing and issued
warning letters to a great many more, including some of the
nation’s largest retailers.

 

The first wave of prosecutions focused on products deceptively
labeled as “biodegradable.” These included disposable plates
(Kmart), moist wipes (Tender Corp.), and disposable towels
(Dyna-E). The second wave targeted clothing and other textile
products advertised and labeled as being made of
environmentally-friendly and biodegradable bamboo fiber when they
were actually made of rayon. The FTC charged four manufacturers,
and sent warning letters to 78 retailers, including Wal-Mart,
Target, Kmart, and Amazon.

 

Green Packaging Claims, Carbon Offsets, and Green Building:
The Next Wave of Prosecutions?

 

The FTC’s latest green-marketing policing priorities are expected
to be revealed soon with the update to its Guides for the Use of
Environmental Marketing Claims (“Green Guides”). The Guides were
last updated in 1998. The latest revision process was initiated a
year earlier than planned “in response to the explosion of green
marketing,” according to FTC Consumer Protection Enforcement
Division Associate Director James Kohm. Although the content of the
update has not been made public, the FTC’s updating process
provides clues about likely new content – and likely new areas of
prosecution.

 

In a move that reveals how seriously the FTC is now approaching
greenwashing, the FTC gained approval in 2009 to fund its own
research on consumer understandings of green marketing terms such
as “sustainable” and “carbon neutral,” terms that were less common
when the Green Guides were last updated. (The Green Guides already
provide standards for terms such as “recyclable,” “biodegradable,”
and “environmentally friendly.”)

The FTC also held a series of public workshops bringing together
representatives from industry, government, consumer groups,
environmental organizations, and academia to identify issues
surrounding the marketing of carbon offsets and renewable energy
certificates, green packaging claims, and claims for green building
and textiles.

 

The FTC has not yet published its findings, but workshop
participants have revealed a range of key issues that may form the
basis of emerging policing priorities. With regard to carbon
offsets and renewable energy certificates, the main concern was
that consumers often have unrealistic expectations about these
products, and that there are few ways for consumers to validate
product performance.

In the area of green packaging claims, key concerns included
consumer misunderstanding of the concept of sustainability and the
potential abuse of unregulated environmental certifications. In the
area of green building and textiles, there were concerns over the
misleading use of general terms such as “renewable”, “organic,” and
“non-toxic,” as well as confusion over whether green claims applied
to a product’s contents or to the process of making the product.
Given the FTC’s investment in the Green Guides’ update process,
these issues seem likely to influence future policing
efforts.

 

Avoiding Unwanted FTC Attention

 

FTC greenwashing enforcement actions can be costly and embarrassing
for targeted companies. Past sanctions have included: (i) halting
misleading advertising; (ii) reporting periodically to FTC staff
about substantiation for new claims; (iii) civil penalties ranging
from thousands to millions of dollars, depending on the nature of
the violation; (vi) full or partial refunds to all consumers who
bought the product; (v) requiring new advertisements to correct the
misinformation conveyed in the original advertisements.

 

The Green Guides describe how to avoid FTC intervention. Broad
claims must be backed up with specifics. Advertising claims will
evaluate into the lens of a hypothetical reasonable consumer, which
means that vague claims about the environmental impact of a given
product might lead to various interpretations. In essence, the FTC
deems valid any reasonable meaning a consumer might give to
advertising. The way to avoid confusion, then, is to be as specific
as possible and making claims regarding a product’s environmental
impact.

Substantiation is best provided with competent and reliable
scientific evidence in the form of professional analysis or
research into the environmental impact of a product. The duty to
substantiate all reasonable interpretations of environmental claims
is made more onerous by the fact that the burden is on the company
making the claim to prove that the claim is not deceptive.
Proactive use of the Green Guides to avoid FTC involvement is
strongly recommended.

 

California’s Latent Environmental Marketing
Law

 

California is among eight states that have enacted laws regulating
the use of environmental terms. California’s law states that
compliance with the FTC’s Green Guides provides a safe harbor for
marketers in California, with one exception: Any company that
advertises its products using broad claims of environmental
friendliness such as “ecologically sound,” “environmentally safe,”
“eco-friendly” or any similar term must provide written
documentation supporting such claims to any member of the public
upon request.

This documentation must, in addition to specifying compliance
with the Green Guides were applicable, show the following: (1) the
reasons why the company believes the representation to be true; (2)
any significant adverse environmental impacts directly associated
with the production, distribution, use, and disposal of the
product; (3) any measures that are taken to reduce the
environmental impact directly associated with the production,
distribution, and disposal of the product; and (4) violations of
any Federal, State, or local permits directly associated with the
production or distribution of the product. A violation of the
statute is a misdemeanor punishable by jail and/or a fine up to
$2500.

 

The California Department of Justice has yet to file a greenwashing
complaint under this statute, but attorneys in its Consumer
Protection Department indicate that it is an area of concern for
the office. Because investigations are kept confidential until the
California DOJ begins filing complaints, it is hard to predict
whether or when the office may begin initiating its own
prosecutions. The office has been overwhelmed with mortgage-fraud
investigations over the past several years, but these may begin
subsiding as foreclosures run their course. In a state as
environmentally conscious as California, is a safe bet that the
California DOJ will begin tackling greenwashing in the near
future.

 

Consumers Attack Greenwashing under California’s Unfair
Competition Law

 

Individual consumers, on the other hand, have had several recent
successes pursuing greenwashing-type claims under California’s
Unfair Competition Law. This law allows a consumer who has lost
money in reliance on a deceptive-advertising/labeling claim to
bring a complaint against the company directly. This year, a
consumer won a $100,000 settlement against Honda under this law for
misrepresenting the gas mileage of the Honda Civic Hybrid In
addition, there are three pending the class-action lawsuits under
this law that have survived motions to dismiss.

The suits allege that: the maker of Windex put a “Green list”
logo on the label to deceive consumers into believing the product
was certified as environmentally-friendly by a third party; the
maker of Snapple misleads consumers into believing the product is
“all natural” when it includes processed high-fructose corn syrup;
and that the maker of Healthy Choice pasta sauce also misleads
consumers into believing the product is “all natural” when it
includes processed corn syrup. The success of these legal actions
will certainly generate more.

 

Conclusion

 

Four trends are converging to make greenwashing a practice to
avoid. First, the FTC is once again making greenwashing a priority.
Second, consumers have discovered their power under California’s
Unfair Competition Law to sue greenwashing companies for
potentially substantial damages. Third, the California Department
of Justice may also begin using its latent power under California’s
Environmental Marketing Law to prosecute greenwashing, particularly
as its mortgage-fraud workload begins to subside.

Finally, the political and legal fallout from the sudden
transformation of BP from “Beyond Petroleum” to “Beyond Propaganda”
(among other monikers now being devised by creative detractors) –
and its effect on other companies who make grand environmental
pronouncements not entirely tethered to reality – has yet to be
determined. One thing is certain: companies are more likely to pay
a price for greenwashing now than ever before.

Jonathan Storper is a partner at Hanson Bridgett LLP and
chairs the Corporate, Securities, Tax and Sustainable Business
Practice Groups. Reach John at Hanson Bridgett’s San Francisco or
Silicon Valley. This article was published also in href=”http://www.sustainablelifemedia.com/content/column/brands/greenwashing_into_the_red”
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with the kind permission of the authors.