Courts and legal sanctions on corporate environmentalism and greenwashing: Why corporates need to be alert!

March 10, 2023 - Reading Time: 8 minutes - By Brian Otieno

Background 

The corporate advertising spectrum is awash with words such as “eco-friendly”, “natural”, “sustainable,” “net zero,” and “reusable” either on their products, services or other external communication mediums.

These buzzwords have increasingly been used and applied by companies as they make attempts at prioritizing environmental, social and governance initiatives as a response to the increased consumer demand for sustainable and socially conscious products and services.

On the flipside, the possibility of these words being blarney in nature is high, and history has shown that some companies give misleading accounts of their activities. Others have opted to sponsor decoy projects to hide the actual damage they are causing on the environment. While others are outrightly misleading such as companies which profess gender equity but the same is not represented in the firm’s leadership roles.

Last month, ClientEarth, an international non-profit organisation that uses the law to create systemic change that protects the Earth for – and with – its inhabitants, filed a world-first lawsuit against the Board of Directors of Shell plc for failing to manage the material and foreseeable risks posed to the company by climate change. 

The lawsuit at the High Court of England and Wales, alleges that Shell’s 11 directors have breached their legal duties under the Companies Act by failing to adopt and implement an energy transition strategy that aligns with the Paris Agreement.

ClientEarth, represented by London litigation firm Pallas Partners, is asking the High Court for an order which requires the Board to adopt a strategy to manage climate risk in line with its duties under the Companies Act, and in compliance with the Dutch Court judgment. The Board has said it will defend its position robustly. It is now up to the High Court to decide whether to grant ClientEarth permission to bring the claim. 

ClientEarth’s claim has received the unprecedented support of a group of institutional investors collectively holding more than 12 million shares in the company, and more than half a trillion US dollars (£450 billion) in total assets under management (AUM). 

ClientEarth Senior Lawyer Paul Benson said: “Shell may be making record profits now due to the turmoil of the global energy market, but the writing is on the wall for fossil fuels long-term.

“The shift to a low-carbon economy is not just inevitable, it’s already happening. Yet the Board is persisting with a transition strategy that is fundamentally flawed, leaving the company seriously exposed to the risks that climate change poses to Shell’s future success – despite the Board’s legal duty to manage those risks.

“Long term, it is in the best interests of the company, its employees and its shareholders – as well as the planet – for Shell to reduce its emissions harder and faster than the Board is currently planning.”

Shell’s Board on the other hand maintains that its ‘Energy Transition Strategy’ – including its plan to be a net zero emissions business by 2050 – is consistent with the 1.5°C temperature goal of the Paris Agreement. It also claims that its plan to halve emissions from its global operations by 2030 is “industry-leading”, however, this covers less than 10% of its overall emissions.

Leading third-party assessments have found that the strategy is not Paris-aligned. In particular, the strategy excludes short to medium-term targets to cut the emissions from the products it sells – known as Scope 3 emissions – despite these accounting for more than 90% of the company’s overall emissions. 

Such legal and policy risks are actually catching up with such claims and the effects are likely to be resounding sooner rather than later, resulting in legal battles that will potentially shake the world and put to test the responsibility of multinational companies for environmental damage caused overseas, and as such, entities must actually walk the talk.

The potential impact of this development is that corporate entities are now likely to face the risk of being sued for environmental pollution. While different statutory documents in different countries and even internationally binding legal instruments guarantee all persons a right to a clean and healthy environment, enforceability has been quite a herculean task. These inadequacies have not gone unnoticed though, and as a result, regulators and key governance stakeholders have continually raised questions that while the world is currently concentrated on transitioning to environment friendly options, there still underlies the need to bring to book corporate entities for legacy alongside environmental degradation schemes.

Corporate environmentalism

Due to both the inflammation of environmental issues and increased consumer preference for green-based products and services, corporate entities are now working round the clock to not only sell, produce and market green products, but have also taken up both true and misleading measures in a desperate bid to portray themselves as being environmentally conscious.

Corporate entities have, through corporate social responsibility (CSR) activities, attempted to integrate social and environmental concerns in their business operations. This is usually done alongside engagement with stakeholders, on a voluntary basis. They do this with the appreciation of the fact that development is not entirely economic but also revolves around environmental and social performance or in what in some quarters is said to revolve around people, planet and profit.

Amidst these activities, the phenomenon of greenwashing has sprouted and has continually expanded its tentacles. A succinct definition of this phenomenon is that it refers to the phenomenon that is defined as the intersection of two firm behaviours: poor environmental performance and positive communication about environmental performance.

The increment in proliferation of the green market, the unrelenting demand by stakeholders for disclosure about environmental impact of company activities and the advent of Web 2.0. tools like social media, has exacerbated the phenomenon and as a result, new perspectives have sprouted. The compounding aim is to achieve better purchase intentions alongside positive brand attitudes. It is in the backdrop of such that regulators and stakeholders are increasingly opening themselves up to tackling corporate environmentalism and its forms including greenwashing.

The business and human rights nexus

For far too long, there was a feeling that human rights had no space and relevance in the corporate space. This misconception has long been done away with, and now almost all human rights pillars are relevant to businesses. This is so because a business will definitely have impacts, either positive or negative, on people, employees, customers, and communities in which the business operates. With this appreciation in mind, there is an increasing expectation and burden amongst governments, businesses, investors and civil society, that businesses operate responsibly and sustainably in a manner that respects and upholds human rights.

At the international stage, in 2011, the UN Guiding Principles on Business and Human Rights (UNGPs), was endorsed by the UN Human Rights Council and adopted by a number of nations. The UNGPs now forms the authoritative global standard relied on to address, respond to and prevent human rights impacts emanating from business activities. The UNGPs currently operates on a three-pillar framework – the Protect, Respect, Remedy.

  •  Pillar I: It’s the State’s duty to protect human rights;
  •  Pillar II: The business responsibility to respect human rights; 
  • Pillar III: Access to remedy for victims of business-related human rights harm.

With the increasing uptake of human rights in the business space, buttressed further by the express recognition of the right to a clean, healthy and sustainable environment by local and international legal instruments, legal and policy practice is increasingly becoming concerned with the environment aside from the general environment law. As such, corporate entities must ensure that they guard themselves from the allure of corporate environmentalism and greenwashing.

In Kenya, listed superfoods producer Kakuzi PLC has been on a progressive journey to embed Human Rights across its operations in alignment with the UN Guiding Principles on Business and Human Rights (UNGPs). The firm’s Human Rights strategy encompasses a Human Rights Policy, a Human Rights due diligence process, and an Operational Grievance mechanism (OGM). To support Human rights integration in operations, in 2021, Kakuzi PLC became the first corporate organisation in Sub-Saharan Africa to constitute and establish an Independent Human Rights Advisory Committee (IHRAC) chaired by former Attorney-General Githu Muigai. The independent advisory panel is benchmarked against the United Nations Guiding Principles on Business and Human Rights.

 

In appointing the IHRAC, Kakuzi joined a growing list of globally focused institutions progressively adopting the UN Guiding Principles on Business and Human Rights, such as football governing body FIFA, Global Chemicals manufacturer BASF SE, and Adidas, among others. Further to it, by adopting IHRAC as part of its operating arms, Kakuzi is pioneering a public accountability programme demonstrating its commitment to respecting human rights within its operating and supply chain environment as required of UNGP compliant firms.

Kenya’s right to clean and healthy environment vis-à-vis greenwashing

Kenya’s grundnorm guarantees every Kenyan citizen the right to a clean and healthy environment in Article 42 of the Constitution. This right includes the right to have the environment protected and used sustainably for the benefit of both present and future generations. The constitutional provision as is, remains broad and has greatly curtailed the enforcement of this right. This is largely due to the fact that as currently presented, the provision tends to lean so much towards ‘access to a clean environment’ rather than ‘status of the environment’.

Fundamentally, the right to a clean and healthy environment is greatly interwoven with the enjoyment of other human rights. The right to a clean and healthy environment vouches for a healthy habitat for humanity, including clean air and water among others. With this guarantee, the integrity of human life is inherently interlinked with the sanctity of the environment.  Additionally, the environment is a reservoir for the resources to be realized by humanity, towards the achievement and realization of socio-economic rights. Consequently, efforts at addressing threats to a clean and healthy environment need to adopt a holistic and integrated approach that encompasses the cross-cutting nature of the right.

The closest the right to a clean and healthy environment has been litigated on was in the case of Friends of Lake Turkana Trust v Attorney General & 2 others where the Court stated, inter alia, that the right to life, dignity and economic and social rights are all connected and indivisible, and it cannot be said that ―one set of rights is more important than another. All these rights of necessity need to be observed for a person to attain a reasonable livelihood.

Despite an express protection of the right to a clean and healthy environment in the supreme law, in legislation, and an express recognition by courts, the legal and policy noose is still yet to be tightened in Kenya. That gap should not be used as an escape mechanism because with the legal and policy conversation now taking global center stage, regulators and stakeholders are bound to make things tighter at the local level.

Legal and policy implications

With the upshot of cases of misrepresentation on corporate products and services as eco-friendly or sustainable, often referred to as greenwashing, plaintiff consumer and activist organizations are increasingly attentive to such and are lodging and filing suits against such companies. Quite a number of global brands are facing class action suits for such misleading positions. Entities like Dasani and other bottled water brands for marketing products as “100% recyclable,” and KLM for its “Be a hero, fly CO2 zero” tag line, are on the ropes for such misleading tag-lines.

It needs to be appreciated that despite the fact that the law is playing a bit of catch-up, courts have gone ahead to provide juridical direction on such matters creating an avenue for the influx of such claims while also posing proper challenges to corporate entities as to how they can act proactively to minimize legal risks that are likely to arise.

Some of the issues to consider include: –

(a)  Not all adverts or tag-lines amount to puffery

Puffery is a legal way of making an entity’s product or service known. It involves the use of hyperbolic statements to make a product or service appealing to the masses. For a long time, there was a standing that adverts constituted hyperbolic representations to sell the products or services. This position has since changed and courts have held that not all adverts amount to puffery.

Kruger & Co., a company dealing in sunscreen products fronted the argument of puffery in its defense for statements such as “pet friendly” but the same was dismissed by the court on grounds that the statement did not capture the actual complaint, as the complaint was about a reef-friendly product.  

(b)  Context and visual proximity matters

Courts have reiterated that corporates need to avoid absurdity in their adverts so that they are not misleading consumers. A court stated that the phrase “Simple. Sustainable. Seafood.” advertising is not misleading when read in connection with the third-party best aquaculture practices certification symbol but the position would change if it were not proximate to the aquaculture certification symbol.

(c)  Specificity remains key

Courts have also reiterated that the advert or tag line needs to be certain and succinct when subjected to the test of a reasonable consumer.

(d)  On the horizon: anticipation and preparedness

Corporate entities can now anticipate the influx of such cases to guide their approaches and design towards advertising, in the wake of customer preference for green-based and sustainable products and services.

Conclusion

While law and policy are still playing catch-up with regards to tackling greenwashing and other vices around corporate environmentalism, corporate entities must not bury their heads in the sand and take proper steps to ensure compliance. It is safe to remind corporate entities that regulatory compliance is a non-ending journey. It takes less time to do things right than to explain why you did them wrong!

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