With a growing trend toward taking more ESG measures, some companies are at risk of lawsuits from consumers involving plastic packaging. Here are some best practices boards should know about to mitigate the risk of litigation.
In a recent trend, citizen advocates and environmental groups have been filing lawsuits asserting novel theories against major companies that use or rely on plastic, even if the companies do not produce plastic products or are not involved in the disposal of plastic products. The disruptive increase in plastic-related environmental, social, and governance (ESG) litigation is poised to affect companies in virtually all industries—including technology, manufacturing, food, retail, and transportation—because environmental organizations are targeting companies that use plastic anywhere in their supply chains. Boards of directors need to be aware of the very real risk that their companies can become targets of lawsuits, even if the companies’ use of plastic is ancillary to their actual business. The steep increase in lawsuits against companies suggests that recyclability and other plastics-related litigation is only going to continue to increase and may even reach the proportions of asbestos, tobacco, or opioid litigation. Below, we summarize recent developments and provide advice on what directors can do to mitigate the litigation risk posed by such claims.
For the last few years, plaintiffs have used consumer protection laws to pursue environmental claims against companies that use plastic packaging for their products, alleging that the companies misrepresent the environmental impact or the recyclability of such packaging. Even companies dealing only at a very attenuated level with plastic have been the subject of such lawsuits, such as pharmacies (for their use of reusable plastic grocery bags) and cargo and freight companies (for packaging and shipping plastic material that supposedly pollutes local environments). Plaintiffs have also claimed that, even if a product technically can be recycled, references to recyclability are false—or at least misleading—because the plastic recycling process is often ineffective, a fact of which the consumer products industry is well aware while average consumers are not. This was the plaintiffs’ argument in Smith v. Keurig Green Mountain, Inc., which arose out of Keurig’s sale of disposable coffee pods, some of which were labelled “recyclable.” Plaintiffs alleged that, although the pods were capable of being recycled, they were not recyclable in a practical way because municipal recycling facilities were unable to separate small materials like the Keurig pods. In February 2022, Keurig and the plaintiffs entered into a $10 million settlement by which Keurig agreed that it would refrain from labelling its pods as or otherwise claiming that its pods are recyclable absent qualifying language.
The upward trend in lawsuits based on recyclability is likely to continue. In 2021, California Governor Gavin Newsom signed Senate Bill 343 (SB 343), which prohibits the use of symbols or other claims suggesting recyclability, including the chasing arrows symbol, on any product or packaging that fails to meet strict recyclability criteria. Penalties may be imposed for violations. The latest reforms under SB 343 could result in investigations by government entities, including the California attorney general, and consumer groups. Other states have started to enact similar legislation, including Illinois, Oregon, Connecticut, Maine, Hawaii, and Maryland, among others.
In light of these trends, corporate boards should take steps to reduce the risk of ESG litigation in connection with their companies’ plastic recyclability labelling and use of plastics within their supply chains, including by doing the following:
1. Prompt management to oversee or assign oversight of the use of recyclability labelling on all products, including product packaging. Increase accountability for any misalignment in representations or other statements regarding recyclability and the recyclability criteria in the jurisdictions in which the product is sold or distributed.
2. Review all corporate ESG statements at the board level. Maintain communication with management to ensure that both formal and informal statements (including investor communications) with aspirational language cannot be misconstrued as false or misleading. Any public statement or disclosure can create the risk of liability and should be carefully vetted.
3. Stay updated on evolving legislation in this area, such as California SB 343. Given current trends, similar legislation may arise in various other jurisdictions, so it is important to be prepared and keep abreast of the impact of the changing legal landscape. Consider evolving definitions of what is “recyclable.”
As the volume of plastic-related lawsuits against businesses continues to increase, it is growing more important for boards to become involved in overseeing and helping mitigate the litigation risks that have arisen or may arise in the future.