Think a “little greenwashing” won’t hurt, think again
“Green” claims are under increased scrutiny - here’s why and how you can authentically describe your company’s efforts, while managing the associated risks.
Greenwashing is not new, but what is new is increased regulation of “green” claims: specifically those focused on corporate carbon-reduction efforts. These carbon claims are increasingly regulated both directly through legislation designed to provide transparency and assurance of green claims, and more indirectly through evolving market expectations and increasing consumer awareness.
In this post, we will focus on one example of direct legislation, California’s AB 1305, and its broader impacts.
Photo by Noah Buscher on Unsplash
Climate or carbon-related claims (such as “net zero” or “carbon neutral”) can present significant risk if these claims are unsupported or misleading (or both); the risks can range from regulatory penalties to litigation to reputational risks and damage in the “court of public opinion.”
Generally speaking, companies should not simply avoid making these types of claims or “greenhushing.” Defensible, reasonably verified, data-driven claims, supported by the best available science, can and should be shared, and this is increasingly the market expectation. And once you know the rules, you can steer clear of many issues.
One such rule that all companies should to be aware of: California’s AB 1305, also known as the Voluntary Carbon Market Disclosures Act (VCMDA). The VCMDA was implemented in October, 2023.
Applicability and scope of AB 1305
Unlike SB 253, California’s Climate Corporate Data Accountability Act (learn more here), AB 1305 does not have dollar thresholds; it applies to any company that operates in or makes claims in California. And unlike the SEC’s proposed (soon to be final) Environmental, Social and Governance (ESG) rules, AB 1305 applies to both public and private companies.
AB 1305 focuses on claims such as “net zero” and “carbon neutral” and claims “implying the entity, related entity, or a product does not add net carbon dioxide or greenhouse gases to the climate or has made significant reductions to its carbon dioxide or greenhouse gas emissions.” These types of claims are pretty common, and to keep up with market demands, companies are making them with increasing frequency.
AB 1305 applies to essentially three types of claims:
Marketing/selling carbon offsets
The use of offsets to make or support certain types of claims, and
General carbon-related claims.
The statute outlines distinct reporting categories and metrics for each type of claim. The information that must be disclosed is pretty straightforward and outlined in the AB 1305. The reporting requirements generally track the type of claim, and relate to disclosure of information that would help consumers and investors make informed choices, understand whether the claims are verified or assured, and any timelines or other project-specific information.
Examples, timing and penalties
From a risk management standpoint, companies need to be aware of the fact that AB 1305 provides for civil penalties for non-compliance of up to $2,500 per day, for each day information is unavailable or inaccurate, not to exceed $500,000. One key question here is what constitutes “inaccurate” information (i.e. whether an error can result in a penalty or if there must be intentional conduct). This should be at least one reason for companies to require some level of third-party assurance, among other things.
While AB 1305 went into effect on January 1, 2024, it was initially unclear when the disclosure requirements would begin. This ambiguity was somewhat resolved when a letter drafted by the bill’s author was published in the Assembly Daily Journal (see page 3766). That letter states, “it was my intent that the first annual disclosure be posted by January 1, 2025. This deadline provides reporting entities with sufficient time to align their business practices with the stated objectives of AB 1305 prior to being subject to potential civil fines.” It would be helpful if this intent could were made clearer in the statute, but this is the information we currently have.
That said, some companies have already posted disclosures on their websites, including this example from Kaiser Permanente and this example from BASF.
Disclosures must be updated no less than annually, and this is a key timeline for risk management professionals to calendar.
What’s the bigger picture?
In addition to civil penalties, an increasing number of lawsuits - alleging various forms of “greenwashing” - are being filed; by way of example, the New York Attorney General recently filed this complaint. Relevant to the topics in this post, a key allegation in that complaint is:
Both regulation and litigation present significant risks to companies that make unsupported or misleading claims.
And AB 1305 is just one of many disclosure requirements that will be regulatory driven or demanded by the private market as consumers become more educated and competitors elevate industry standards. Required or not, companies need to review all public-facing claims to ensure they are not misleading, and that they are transparent, supported by (defensible and validated) data, and grounded in industry best practices. The companies that are currently leading on aspects ranging from Scope 3 to embodied carbon to carbon offsets, will continue to do so; those that are not will continue to fall behind and face an increasing number of regulatory, litigation, reputational, and other risks.
Best Practices
In our experience, demand for data transparency and verification of climate and carbon-driven claims will only continue. Similarly, regulation (and litigation) of these claims will also continue to increase. AB 1305 is just one example; based on our experience, we expect to see additional examples of disclosure requirements for “green” claims at all levels of government.
A few high level best practices for practitioners to keep in mind:
Monitor changing regulatory requirements in any jurisdiction where your company conducts business (we realize this is a big task, ask us if you need help).
Consult industry best practice guides (these are increasingly common for carbon and carbon offsets, and often produced by industry groups and non-profits with specialized expertise).
Closely examine any claims on public facing websites, marketing materials, social media, packaging, etc. to ensure they are data-driven, verifiable, and compliant with all current regulations and industry best practices.
Update disclosures as appropriate, and set recurring reminders to ensure you do not miss an annual update.
And if you need support, contact us. Climate work is complicated, that’s why it’s all we do!
This is common sense, but bears repeating: this blog is intended for informational purposes and does not contain or convey legal advice. The law is inherently fact specific. General information, including this blog, should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you. Climate Aligned Law is licensed in Washington state.