The Federal Trade Commission’s Green Guides – What is “Green” and what is merely gray

Posted on November 9, 2012 by Elliot Laws

We’ve all seen the advertisements. Products that are supposedly “recycled,” “environmentally friendly,” and “green,” with labels and commercials resplendent in shades of light green and yellow, seeking to evoke nature, sunlight, and a family-friendly, non-toxic product. But how “green” must a product be in order to rightfully proclaim itself to be so? The revised “Green Guides,” issued by the Federal Trade Commission (“FTC”) on October 1, 2012, propose to answer that very question.

Originally issued in 1992, and revised in 1996 and 1998, the FTC’s “Green Guides” offer guidance to marketers on how to properly use words of environmental attribution in describing products. The Guides are examples of environmental claims that the FTC might find deceptive under the FTC Act, § 5; they are neither rules nor regulations. The current version of the Guides was released in proposed form in 2010 and received several hundred unique comments. Beyond analyzing the comments, the FTC accumulated additional information based on three public workshops and a study designed to understand how consumers perceived environmental claims. The final version of the Guides, in addition to updating its original content, provided additional information on newer types of environmental claims.

The new sections in the Guides cover carbon offsets, certifications and seals of approval, “free-of” claims, non-toxic claims, and two claims relating to the manner and materials used in production: renewable energy claims and renewable materials claims. As an illustration of the new sections, the FTC addresses deceptive practices used to claim an emissions reduction through carbon offsets. Marketers should “clearly and prominently disclose if the carbon offset” does not provide an emissions reduction for over two years. Similarly, claiming that a carbon offset corresponds to an emissions reduction that is otherwise required by law is a deceptive practice.

Other sections are modified. For example, the Guides clarify that an unqualified degradable claim must be able to show that the entire product or package will break down completely within one year after disposal. Objects that are expected to go to a landfill, incinerator, or be recycled do not degrade within a year, and thus should not be linked to such a claim. In each of its 13 total sections, the FTC provides concrete examples of practices it terms deceptive.

The Guides recommend that some environmental claims not be used at all, such as “environmentally friendly” or “eco-friendly.” The consumer study performed by the FTC found that these terms indicate wide-ranging environmental benefits that few, if any, products may obtain. The Guides do not address “sustainable,” “natural,” and “organic” to avoid conflicting or duplicative advice from other agencies that have the purview of these terms.

In order to provide assistance to the general public in understanding the Guides, the FTC produced several educational and business resources, from summaries to a highlight video to relevant legal documents. These resources, in conjunction with the Green Guides themselves, provide protection to consumers, allowing us more transparency into just how “green” our products really are.

Quick Takes on Rio + 20

Posted on July 25, 2012 by Leslie Carothers

If the Rio Summit concluded last month met expectations, it’s because they were so low.  The 49 page document summarizing the agreement by the government representatives, The Future We Want, was largely stripped of strong language and substantive commitments.  From my perspective, two failures and one success in the agreement stand out.  First, the diplomats could not muster a firm commitment to the UN Secretary General’s goal of ensuring universal access to energy services and doubling the rate of improvement in energy efficiency and use of renewable energy sources by 2030.   Paragraph 127 on energy sources seems to give equal status to high and low carbon fuels, and earlier language endorsing reduction of environmentally and economically harmful subsidies was dropped. This was not an encouraging result for a summit focused on advancing a “green economy.”

Second, the final document also watered down statements of support for the rights of women to family planning services as well as ownership of various forms of property. Although 105 national science organizations joined many women’s groups in urging a strong stance on moderating population growth by providing reproductive health services wanted by women, objections by the Holy See (aka the Vatican) and backward members of the G-77 developing countries’ coalition caused numerous small changes in wording (e.g. promote vs. ensure) that ended up barely preserving existing UN commitments to rights to reproductive health services.  (See the analysis by Rebecca Lifton at the Center for American Progress) The brightest spot in the final agreement is a comparatively aggressive set of commitments to protect and restore oceans and marine resources.  Professor Ann Powers, oceans expert at Pace Law School, attended the summit and notes that 20 of the 238 paragraphs of the agreement dealt with oceans issues like plastic debris and fisheries management and included most of what ocean advocates sought.

The non-governmental attendees were far more successful in making commitments and connections.   Many members of the business community, for example, continued the tradition, begun in 1992, of active participation in the Rio meeting as an environmental trade fair in ideas, products, and contacts.   In one notable project, a consortium of 24 companies, collaborating with the Corporate EcoForum and the Nature Conservancy, has been working toward the goal of valuing natural resources used and saved by companies.  According to Neil Hawkins, Vice President for Environment, Health, and Sustainability at Dow Chemical, the goal of pricing ecosystem services to mobilize markets in advancing sustainable development was a major focus of events at the Rio summit. The meeting was a catalyst for making specific company commitments to develop and test valuation methodologies as well as an opportunity to educate a broader audience on progress being made.    

Finally, the legal profession sponsored a varied menu of law and governance programs. The World Congress on Justice, Governance and Law for Environmental Sustainability convened judges, prosecutors, practitioners, and auditors to debate how to make environmental law more effective and how to increase public access to legal remedies.  (See the Rio + 20 Declaration of the Congress). At a time when multilateral diplomacy cannot produce a binding agenda, lawyers are challenged to find new ways to secure commitments from parties willing to act to advance environmental progress.

WHY INSTITUTIONAL INVESTORS CARE ABOUT CORPORATE SUSTAINABILTY

Posted on July 13, 2011 by Christopher Davis

Institutional investors, including pension funds, insurance companies, foundations and university endowments, own about 70 percent of the stock of the world’s largest companies. As part of their fiduciary duty to maximize the long-term, risk-adjusted value of their investments, more institutional investors are becoming “active shareowners,” pressing companies whose shares they own to adopt sustainable business practices on a variety of environmental, social and governance (ESG) issues. This trend has important implications for corporate management and their advisors.

 

Recent events including the BP Deepwater Horizon oil spill, the Massey Big Branch mine explosion and the TEPCO Fukushima Daiichi nuclear power plant meltdown highlight the potential for poorly managed environmental and safety risks to result in destruction of shareholder value. By contrast, there is evidence from Sustainable Asset Management, and from investment consultant Mercer, that companies with superior ESG performance also have superior financial performance. Thus, how companies address these so-called “nonfinancial” business risks and opportunities is of increasing interest to investors.

 

Indications that institutional investors are paying greater attention to ESG factors include:

In recent years there has been a proliferation of research, data and ratings of companies’ ESG performance. One example is the scores that the Carbon Disclosure Project gives to companies based on their reporting and management of greenhouse gas (GHG) emissions. Financial data provider Bloomberg now offers ESG data on a wide range of companies on its terminals. Analysts at both socially responsible investment (SRI) funds and increasingly at mainstream investment firms analyze and report on companies’ ESG performance, and companies are ranked and selected for their ESG performance for indexes such as the Dow Jones Sustainability Index. The net result is that ESG factors are starting to be incorporated in corporate valuations, and this trend is likely to accelerate.

 

Given increasing investor interest in these factors, it behooves corporate management and boards to focus on, improve and report their ESG performance.

 

A company should communicate the “business case” for its sustainability strategy to shareholders, customers and other stakeholders with whom the company engages, as a key driver of the company’s competitive positioning, risk management, reputation and brand. Managing ESG risks and opportunities, on issues ranging from climate change to workforce diversity, should be integrated into companies’ business strategy, and not merely assigned to the environmental, human resources or corporate social responsibility (CSR) departments.

Institutional investors’ attention to these issues is likely to increase, as “sustainable” or “responsible” investment becomes more widely accepted as fundamental to the fiduciary duty of asset owners and investment managers. Counsel can add value by helping their corporate clients recognize this trend, better assess and manage their ESG risks and opportunities, and review and revisit their mandatory and voluntary disclosures of these issues.