October 10, 2023
On September 27, 2023, KLM Royal Dutch Airlines filed a request with the Amsterdam District Court, asking it to dismiss a greenwashing suit brought by environmental activist groups. According to a statement by ClientEarth, which represents the groups, in 2019 KLM dropped its “Fly Responsibly” advertising campaign after the groups filed a petition but the carrier did not address carbon offset marketing claims or make any commitments about future advertising.
The motion follows the Court’s decision in July, pursuant to which Dutch environmental groups Fossielvrij and Reclame Fossielvrij were granted permission to bring a class action lawsuit based on their complaint against KLM Royal Dutch Airlines for violating the European Unfair Consumer Practices Directive. KLM’s ‘Fly Responsibly’ campaign was comprised of 19 advertisements promoting its use of sustainable aviation fuel, reforestation and onboard changes to reduce its carbon footprint. The Dutch carrier opposed the claims, and in a statement, said: “The court declared Fossilvrij’s claims admissible. That only means that Fossielvrij may continue with the procedure. KLM is ambitious when it comes to its climate approach and would like to involve its customers in the subject...We no longer use the 19 communications that are central to this case. We look forward to the substantive handling of the case with confidence.”
The case is one of several commenced against airlines based on alleged greenwashing. For instance, in 2020, the UK’s Advertising Standards Authority (ASA) censured Ryanair based on a finding that the airline made misleading and unsubstantiated comparative claims in its 2019 advertising touting that it was "Europe's lowest emissions airline." In April 2023, ASA found that two of Etihad Airways' claims concerning "sustainable aviation" lacked context and exaggerated the immediate positive environmental impact of flying the airline and were therefore misleading. And a month earlier, the ASA found that Lufthansa’s advertising claim “Connecting the world. Protecting its future,” in the context in which it was presented, could be understood by consumers as an environmental claim and that it was misleading because it suggested that Lufthansa had already taken action to mitigate its environmental impact, but that the airline’s initiatives found on its website through a link in the advertisement were aspirational.
Greenwashing in the transportation sector, and in particular in the airline industry, has also caught the attention of consumer protection regulators in other jurisdictions. The Netherlands Authority for Consumers and Markets recently warned Ryanair that its sustainability claims related to carbon offsets were misleading. The ACM’s findings were part of an investigation into carbon offset advertising claims across the Dutch aviation industry. The consumer regulator concluded that Ryanair’s claims might give would-be passengers the false impression that they could “fly greener” on the airline – in other words, that it was significantly more sustainable to fly Ryanair than other, supposedly less sustainable airlines.
Taking the Temperature: We have previously discussed other litigation and regulatory action against airlines relating to sustainability statements. In July 2023, the Bureau Européen des Unions de Consommateurs (BEUC), an umbrella entity for European independent consumer organizations, filed a complaint on behalf of itself and 23 of its member organizations from 19 countries with the European Commission and relevant consumer protection agencies, accusing 17 European airlines of greenwashing in connection with their marketing practices, in breach of the EU regulations governing unfair commercial practices.
In the United States, a consumer class action was filed in California federal court, alleging that Delta Air Lines falsely claimed that it is the world’s “first carbon-neutral airline.” The plaintiff, on behalf of a putative class of California consumers who purchased a ticket on Delta Airlines after March 6, 2020, claims that Delta relied on carbon credits to offset its reported emissions, but the benefits from those carbon credits are exaggerated, therefore, rendering Delta’s reported emissions data misleading.
As we have been reporting, greenwashing in general is a key concern for companies across all sectors. The European Union has an ongoing legislative campaign to challenge misleading sustainability claims in advertising. Outside the EU, the UK’s Advertising Standards Authority (ASA) earlier this year released updated guidance for advertisers making environmental sustainability-related claims to consumers, including use of the terms “carbon neutral” and “net zero.” And in the U.S., the Federal Trade Commission announced that it is seeking public comment on potential revisions to its Green Guides for the Use of Environmental Marketing Claims, in particular to address carbon offsets and climate change-related marketing claims. Likewise, in July 2023, the Australian Competition and Consumer Commission released draft guidance for businesses making environmental and sustainability claims (the Draft Greenwashing Guidance). The Draft Greenwashing Guidance establishes best practices under the Australian Consumer Law setting out how businesses operating in Australian jurisdictions can avoid greenwashing.
In addition, as we have noted, research shows an accelerating trend in climate-related litigation of all kinds, greenwashing suits among them. One significant driver of litigation overall is the publicity generated, and greenwashing litigation in particular threatens adverse reputational impact.
An investor coalition with more than $1 trillion in assets under management, led by UK-based NGO ShareAction, published a letter to the International Sustainability Standards Board (ISSB) urging it to create new and interrelated standards on human and worker rights. The coalition is demanding more thorough human capital and rights disclosures to facilitate better informed investment decisions. Other signatories included asset managers focused on sustainable investing, including Impax Asset Management, Sycomore Asset Management, EQ Investors, La Française Group, the Church of England Pensions Board and Tribe Impact Investment.
The ISSB issues an updated work plan every two years outlining its priorities. In May, after conducting research into the needs of investors, the ISSB issued a call for feedback on four potential areas of focus, three potential research projects on sustainability-related risks and opportunities, and a fourth project related to integration in financial reporting, as we discussed earlier this year. The proposed research projects would explore biodiversity, ecosystems and ecosystem services; human capital; and human rights.
The ShareAction-led investor coalition submitted feedback during the 90-day comment period, ending September 1, stressing that the second and third proposed areas of focus, human capital and human rights, should be the ISSB’s greatest priority in the upcoming two-year work plan, and should be considered together. The letter asserts that ISSB’s consideration of human capital and human rights separately does not realistically capture market norms, since businesses and investors alike already consider these areas jointly. According to the letter, conducting research separately into the issues of human and worker rights would further confuse a crowded and overlapping social disclosure framework for investors and businesses and would compromise the caliber of any resulting standards.
The ISSB now enters its deliberation period, reviewing all feedback submitted by stakeholders, and will issue a two-year work plan focusing on the research areas that reflect stakeholder preferences, with the ISSB’s responses due to be published in December 2023.
Taking the Temperature: It is not surprising that ISSB is proposing research topics that focus on broader sustainability issues. In our reporting, we have regularly observed that issues beyond those directly tied to climate change are increasingly becoming a focus of sustainability initiatives. Nature and biodiversity continue to remain in the spotlight, particularly following the adoption of the Kunming-Montreal Global Biodiversity Framework at COP15. So, too, are human rights issues, in terms of environmental equity and justice and issues related to human capital and labor.
By way of example, as we reported, earlier this year the UK’s Financial Conduct Authority (FCA) published a discussion paper titled “Finance for positive sustainable change: governance, incentives and competence in regulated firms.” The FCA made clear that the concept of sustainability goes beyond climate change to “other – often inter-related – sustainability topics, such as human rights, diversity and inclusion, nature and biodiversity.” The inclusion of due diligence related to human rights, labor exploitation, slavery and child labor in recent amendments to the corporate sustainability due diligence regulation and amending directive adopted by the European Parliament is another example.
In August 2023, the UK government announced that it would publish guidance on emissions monitoring and reporting for public sector organizations in order to help achieve its aim to reduce direct greenhouse gas emissions from public sector buildings by 75% by 2037 (compared to 2017 levels).
Developed through three key stages, the guidance is intended to help the public sector transition to a green economy effectively by, among other things, ensuring it is able to identify decarbonization opportunities. The three key stages identified by the government are:
- Conduct research and develop the policy: research to determine the different reporting approaches available and what decarbonization outcomes they can achieve.
- Consultation: to maximize impact and deliverability, public sector stakeholders and external experts will be asked to provide their views.
- Develop and publish guidance: following research, policy development and consultation, the finalized policy will be published into formal guidance.
The Department for Energy Security & Net Zero (DESNZ), which is leading this initiative, expects to publish the guidance in 2025.
Importantly, the DESNZ will take existing emissions reporting policies into account when developing the guidance. Currently, such existing policies for the UK include: (i) Defra’s Greening Government Commitments, in place until 2025 and under which the UK government has reportedly already reduced it emissions by 57% as of 2020-21 (compared to 2009-10) and (ii) a phased implementation of the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations. In July 2023, HM Treasury published guidance for the Phase 1 implementation of the TCFD for central government. Although HM Treasury does not have responsibility for setting reporting requirements for local government and devolved authorities, it nonetheless can utilize the guidance.
Taking the Temperature: This latest initiative by the UK government follows a number of developments related to public sector decarbonization. Through the Public Sector Decarbonisation Scheme, the government provides funding for heat decarbonization and energy efficiency measures and has allocated £2.5 billion for the financial years 2020-21 to 2024-25. Capacity and capability in the sector is supported through the Public Sector Low Carbon Skills Fund, making £78 million available to public sector organizations since 2020, enabling them to secure the support required to design and deliver heat decarbonization projects.
The aim to reduce GHG emissions in public sector buildings by 75% by 2037 is an important part of the UK’s Net Zero by 2050 goal given that public sector buildings are reportedly responsible for approximately 9% of GHG emissions. It will be increasingly important now given that, as we discussed recently, the UK is reportedly scaling back parts of its green agenda.
Ahead of September 2023’s G20 summit in Delhi, the Farm Animal Investment Risk & Return (FAIRR) Initiative called on G20 Finance Ministers to reform agricultural subsidies to enable countries to meet their net zero greenhouse gas emissions commitments by 2050 along with their commitments to global biodiversity and nature goals. At the COP15 biodiversity conference in December 2022, governments agreed pursuant to the Kunming-Montreal Global Biodiversity Framework to “identify by 2025, and eliminate, phase out or reform subsidies harmful to biodiversity...starting with the most harmful incentives.” According to FAIRR, “’[h]armful’ subsidies are incentivizing the over-production and over-consumption of certain high-carbon agricultural products,” such as red meat and dairy, and as the UN reported in September 2021, damage caused to nature by subsidy regimes is estimated at $4-$6 trillion each year. The alliance made four recommendations to the G20:
- Link financial support to environmental performance-related conditions (e.g., GHG reduction or biodiversity protection);
- Incentivize sustainable agricultural practices over those that harm the environment, e.g., financing a transition towards regenerative practices;
- Stop supporting carbon-intensive commodities such as red meat and dairy; and
- Increase available just transition funding to support affected stakeholders who are impacted by reforms.
Taking the Temperature: The spotlight on nature and biodiversity continues to shine. As we reported in discussing a recent CDP report on financial institutions attempting to address nature-related risks, a significant proportion of the world’s total GDP is moderately or highly dependent on nature. In September 2023, the UK government announced a sweeping inquiry into the role of private finance in nature recovery, and how it might redirect capital towards that end. In the EU, the European Parliament adopted amendments to the Corporate Sustainability Due Diligence Directive so that large EU companies would be required to, among other things, conduct due diligence to identify and mitigate negative impacts on the environment, including related to biodiversity loss and environmental degradation. Under the amendments, large companies operating in the EU would be required to conduct due diligence to identify, prevent, mitigate or end negative impacts on human rights and the environment, including in particular pollution, biodiversity loss and environmental degradation, as well as labor exploitation, slavery and child labor.
In September 2023, pan-European stock exchange and market infrastructure provider Euronext announced the imminent launch of a range of ESG tools and initiatives focused on sustainable finance, including its intention to publish the non-financial data of issuers on its website. It is intended that the tools and initiatives will support and implement Euronext’s “Fit for 1.5°” commitment, under which it will develop products and services to assist companies and organizations to mitigate temperature increases. The new initiatives will also support the “Growth for Impact 2024” strategy, i.e., the ambition to build the leading market infrastructure in Europe.
One of the tools launched by Euronext is the “My ESG Profile,” a digital tool that will enable issuers to display their sustainability efforts and also provide investors a way to access and evaluate ESG data. Euronext will reportedly be the first stock exchange to make the non-financial data of issuers available to investors. It is envisaged that the tool will classify nearly 1,900 companies’ profiles on its website, including information regarding, among other things, GHG emissions and the percentage of women employed.
Another tool announced by Euronext, and developed in partnership with Iceberg Data Law, is the Euronext Biodiversity Enablers Index, which takes into account the effect that companies and organizations can have on biodiversity. The index will rely on two new metrics: (i) a Dependency Exposure Score, which will identify companies that have a significant revenue dependency linked to biodiversity ecosystems; and (ii) a Biodiversity Avoided Impact, which will serve to identify companies that carry out innovative and efficient practices in biodiversity ecosystems.
Euronext also revealed the launch of “Euronext Foundation,” which will promote and support local sustainable communities and projects across Europe in a number of areas, including financial literacy and diversity and inclusion.
Taking the Temperature: Euronext’s “My ESG Profile” is a significant step towards closing the information gap between companies and investors. One caveat, however, is that the source of information is the issuer itself and as such is subject to the issuer’s data assessment and reporting choices. The data is not subject to external verification and is unaudited. There also does not appear to be any indication as to whether the information will be analyzed in any way in order to make the data comparable from company to company.