Environmental, social, and corporate governance (ESG) initiatives have become increasingly important in today’s business setting.  Increased awareness and heightened scrutiny of ESG-related issues, combined with third-party litigation funding, has led to a surge in ESG-related litigation and enforcement actions as consumers, regulators, and investors seek to hold companies accountable for claims about their environmental and social impact.  

This post explores the emerging trends shaping the landscape of ESG litigation, which are increasingly centralized in courts in the District of Columbia.  Such claims are often brought by nonprofit organizations seeking to take advantage of local consumer protection laws which they claim allow them standing to sue.

Environmental and Social Marketing Litigation: An increasing number of companies are being accused of making false or misleading statements about the environmental or social benefits of their products or practices (also known as “greenwashing”).  These cases tend to make up the majority of ESG-related litigation, span a broad range of topics, and have been initiated by consumers, investors, and regulatory bodies alike.  

Some examples include:

• Environmental Impact Claims
  • Companies have been targeted for falsely representing their commitment to reducing environmental pollution.  For example, a lawsuit filed by a public interest organization alleged that bottled-water company BlueTriton Brands violated the D.C. Consumer Protection Procedures Act for falsely portraying itself as being sustainable and committed to reducing plastic pollution, when in reality BlueTriton’s “immense plastic contributions are intrinsically damaging to the environment” and its water depletion practices rob “communities of valuable natural water resources and contribut[e] to the current widespread environmental crises of drought and water scarcity…”  Earth Island Inst. v. BlueTriton Brands, No. 2021 CA 003027 B (D.C. Super. Ct. filed Aug. 27, 2021) (resulting in settlement in March of 2024).  In another example, a Court allowed claims challenging a bottled-water company’s “carbon neutral” representations to survive a motion to dismiss when the plaintiff alleged that the company’s manufacturing practices cause carbon dioxide to be released into the atmosphere.  See Dorris v. Danone Waters of Am., No. 22 Civ. 8717 (NSR), 2024 WL 112843 (S.D.N.Y. Jan. 10, 2024). More recently, the New York Attorney General filed suit against beef producer JBS USA Food Company for making misleading statements to the public about its environmental impact.  The complaint alleges that JBS USA markets itself as being committed to reducing greenhouse gas emissions and that it will be “Net Zero by 2040” but “could not feasibly” do so as it continues to emit “massive amounts of greenhouse gases” and continues “supply chain practices with outsized climate impacts.”  People v. JBS USA Food Co., No. 450682/2024 (N.Y. Sup. Ct. filed Feb. 28, 2024).
  • Consumers have also challenged companies’ product recyclability claims. Colgate, for example, was unable to dismiss a class action lawsuit accusing the company of allegedly misleading consumers by falsely claiming that its plastic toothpaste tubes are recyclable.  Della v. Colgate-Palmolive Co., No. 23-cv-04086-JCS, 2024 WL 457798 (N.D. Cal. Feb. 6, 2024); see also Smith v. Keurig Green Mountain, Inc., No. 18-cv-06690-HSG, 2023 WL 2250264 (N.D. Cal. Feb. 27, 2023) (alleging that Keurig’s “recyclable” labeling on its plastic single-serve coffee pods was false and misleading; resulting in a $10 million settlement).
  • Retailers have also been targeted for falsely representing that their products are environmentally friendly.  In 2022, the Federal Trade Commission brought an action against Kohl’s claiming that the retailer falsely marketed textile fiber products, including sheets and pillows, as containing “bamboo” or providing an environmental benefit.  According to the FTC, the products actually contained rayon, which is created using hazardous chemicals and air pollutants, and were therefore not “renewable” and “environmentally friendly” as marketed.  Kohl’s settled with the FTC, agreeing to pay $2.5 million.  More recently, Nike defeated a proposed class action with similar claims.  There, plaintiff alleged that Nike represents its products as being sustainable and made with “recycled and organic materials” when they are actually “made with virgin synthetic and non-organic materials that are harmful to the environment.”  The Court dismissed plaintiff’s claims for failing “to plausibly allege more than conclusory facts” that Nike’s statements were false or misleading.  Ellis v. Nike USA, Inc., No. 4:23-CV-00632-MTS, 2024 WL 1344805 (E.D. Mo. Mar. 28, 2024) (“[plaintiff] alleges no further information whatsoever to establish how she has concluded that [Nike’s products] contain no recycled or organic fibers and are, in reality, made with virgin synthetic and non-organic materials.”).

• Supply Chain Related Claims
  • As global supply chains become increasingly complex, companies are facing scrutiny over their responsibility for human rights violations, environmental damage, and labor abuses occurring within their supply chains. 
  • Starbucks Corporation is currently facing a lawsuit in the District of Columbia, based on the allegation that the company falsely advertises its products as “ethical” when it sources its coffee from farms that are reportedly committing labor abuses.  Nat’l Consumers League v. Starbucks Corp., No. 1:24-cv-00421-RBW (D.D.C. filed Feb. 12, 2024).  The Hershey Company and The Rainforest Alliance, Inc. face similar claims. See Corp. Accountability Lab v. Hershey Co., No. 21-3225 (TFH), 2023 WL 1776591 (D.D.C. Feb. 5, 2023) (alleging that defendants violated the D.C. Consumer Protection Procedures Act by deceptively marketing products as “sustainable” and “responsible” when the cocoa industry suffers from endemic issues of child labor and farmer poverty); see also Waggener van Meter v. Modelez Int’l, Inc., No. 3:24-cv-00565-AMO (N.D. Cal. filed Jan. 30, 2024) (class action suit against Modelez, whose brands include Clif Bar and Oreos, for similarly misleading consumers into believing that its production practices are “100% sustainable,” among other things). 
  • Companies also face claims challenging other aspects of their supply chains.  For example, supermarket chain Aldi was forced to defend against claims that it mislabeled its salmon products as “sustainable” when they allegedly were sourced from large industrial fish farms that use environmentally destructive and unsustainable practices. Rawson v. ALDI, Inc., No. 21-cv-2811, 2022 WL 1556395 (N.D. Ill. May 17, 2022) (claiming violations of consumer protection statutes, breach of express warranty, and unjust enrichment).  

Climate Change Litigation: With the escalating urgency of climate change, there has been an increase in litigation targeting companies for their contributions to global warming and other climate-related changes.  Between 2017 and 2020 the total number of climate change cases nearly doubled from 884 across 24 countries (with 654 of these cases being in the United States) to 1,550 across 38 countries. In September 2023, for example, the California Attorney General sued Exxon Mobile Corporation for its alleged role in causing and accelerating climate change. The complaint alleges seven causes of action, including public nuisance and equitable relief for pollution, impairment, and destruction of natural resources.  See also Commonwealth v. Exxon Mobil Corp., No. 19-03333, 2019 WL 11666641 (Mass. Super. filed Nov. 29, 2019) (related case brought by Massachusetts Attorney General claiming that ExxonMobil systematically and intentionally misled investors and consumers about climate change; survived a motion to dismiss).

Social Justice and Diversity Litigation: Heightened awareness of social justice issues, like racial and gender inequality, has spurred litigation against companies accused of discriminatory practices.  Investors are also pressuring companies to diversify their boards and leadership teams with some lawsuits alleging that lack of diversity constitutes a breach of fiduciary duty.  Some examples include:

• SEC Actions: In 2023, Activision Blizzard paid a $35 million settlement  following allegations that the company lacked adequate disclosure controls for assessing reports of workplace misconduct and violated whistleblower protection rules.  The SEC similarly settled with BYN Mellon Investment Advisor, Inc. (BYN) for $1.5 million dollars.  The SEC claims BYN made representations in various statements that its investments had undergone an ESG quality review, when that was not always true.

• Shareholder Suits: Several shareholder derivative lawsuits have alleged that company boards and senior management lack racial diversity despite companies’ statements about commitment to diversity and inclusion.  But some defendants have been successful at dismissing these cases early on in litigation.  See e.g., Esa ex. rel. NortonLifeLock, Inc. v. NortonLifeLock, Inc., No. 21-16909, 2022 WL 14002189 (9th Cir. Oct. 24, 2022) (affirming dismissal of a shareholder derivative action against certain directors of NortonLifeLock Incorporated);  Ocegueda ex. rel. Facebook v. Zuckerberg, 526 F. Supp. 3d 637, 641 (N.D. Cal. 2021) (dismissing a similar suit brought against Facebook); In re Danaher Corp. S’holder Derivative Litig., 549 F. Supp. 3d 59, 62 (D.D.C. 2021) (dismissing a similar suit brought against Danaher Corporation).

• Reverse Discrimination Suits: A growing number of suits by employees claim that DEI policies discriminate against white male employees.  In one such case, a jury found in favor of a senior executive who claimed he was fired to further the stated goals of the company’s DEI program, awarding plaintiff over $10 million, which was reduced to approximately $4 million on post-trial motions. Duvall v. Novant Health Inc., No. 3:19-CV-00624-DSC, 2022 WL 3331263 (W.D.N.C. Aug. 11, 2022).

ERISA Related Litigation: ERISA imposes fiduciary duties that require managers of assets in ERISA-covered retirement plans to make investments prudently and in the financial interest of participants and beneficiaries.  ESG litigation under ERISA can arise when plan fiduciaries make investment decisions that allegedly prioritize non-financial ESG factors over maximizing risk-adjusted financial returns, leading to claims of breaching fiduciary duties.  As an example, American Airlines is facing litigation claiming that Defendants breached their fiduciary duties by prioritizing ESG investments over retirement plan participants’ financial interests.  Plaintiff claims that Defendants included ESG funds in the retirement plan even though those funds underperformed compared to similar funds in the market.  Plaintiff also claims that Defendants violated ERISA fiduciary duties by selecting investment options managed by investment management firms that allegedly cast proxy votes that prioritized socio-political outcomes instead of financial returns.  Plaintiff survived a motion to dismiss in February 2024. See Spence v. Am. Airlines, Inc., No. 4:23-CV-00552-O (N.D. Tex. Feb. 21, 2024).  Although their claims were based on state law fiduciary duties, not ERISA, New York City employees filed a similar lawsuit last year against trustees of the New York City Employees’ Retirement System, Teachers’ Retirement System of the City of New York, and the Board of Education Retirement System of the City of New York for divesting pension plans of all holdings in securities related to fossil fuel companies in order to advance environmental goals.  See Wong. v. New York City Emps’ Ret. Sys., No. 652297/2023 (N.Y. Sup. Ct. filed May 11, 2023).

As the demand for companies to advance and disclose ESG policies continues, companies should work to develop an ESG framework that mitigates ESG litigation risks and avoids the potential for reputational damage or financial penalties.