Ed. note: Today’s blog was written by Zachary Barlow who continues to support our editorial team.
Greenwashing is increasingly pushing buttons for investors, the SEC, advocacy groups, and consumers – putting companies in hot water. Or in this case – hot cocoa… The class-action case Walker v. Nestle, pending in California since 2019, recently saw – well, some action.
On March 28, 2022, the Federal Court in the Southern District of California denied Nestle’s Motion to Dismiss in a case involving allegedly false ESG claims in advertising. The case centers around Nestle’s packaging. On multiple Nestle products, like hot cocoa mix and chocolate chips, labels include the words “sustainably sourced through Nestle Cocoa Plan.” Plaintiff Renee Walker says she took these words to heart when choosing Nestle products. Walker claims because of the packaging, she thought Nestle’s Cocoa was sustainably sourced and that the company did not buy from suppliers who used child slave labor or harmed the environment. She also claims she would not have bought Nestle products if she had known the use of child slave labor in Nestle’s supply chain had increased since Nestle implemented its “Nestle Cocoa Plan.”
As a class-action suit, if Walker wins, Nestle may be ordered to pay a substantial amount of money.
The case raises several interesting questions – and potential litigation risks – about how companies advertise ESG efforts.
Nestle’s claims the words on the packaging are true. After all, the cocoa was sourced through the “Nestle Cocoa Plan.” The packaging never said the “Nestle Cocoa Plan” was effective or that Nestle had completely removed child slavery or environmentally harmful practices from their supply chain. But, even if the labeling is true in a technical sense, the Court held that does not protect Nestle. The Court notes that California laws protect against advertising that would mislead a “reasonable consumer.” If consumers are likely to find an advertisement confusing or misleading, the company can face fines and penalties even though the company believes the advertisement to be true.
What This Means
Companies should review their advertisements from the standpoint of a consumer who may look at the ad as a layperson.
Additionally, this case shows the danger of conflicting public statements and unique aspects of different state laws. Walker pointed to Nestle’s public website that contained progress reports on the “Nestle Cocoa Plan.” These reports showed that between 2017 and 2019 the use of child slavery in Nestle’s supply chain nearly doubled. Walker argued that Nestle knew its packaging contained false information. False advertising laws can vary from state to state, and this case shows the importance of knowing the law in every jurisdiction where a company does business.
Transparency around ESG progress is important, but companies would be wise to avoid creating overly optimistic messaging on matters on which they have made limited progress. The last place a company wants to see its advertisement is as an exhibit to a court filing.
