Usually, when we talk about product greenwashing, that relates to consumer protection under the Federal Trade Commission (FTC) here in the United states. But this week, the SEC charged Keurig with misstatements related to the recyclability of the company’s K-Cups. The charges stem from statements made in Keurig’s 2019 and 2020 annual financial reports (10-K), which SEC alleges were incomplete and inaccurate without addressing materiality of the issue. The SEC discussed the particulars of the case in a recent press release:
“Keurig stated that its testing with recycling facilities ‘validate[d] that [K-Cup pods] can be effectively recycled.’ But Keurig did not disclose that two of the largest recycling companies in the United States had expressed significant concerns to Keurig regarding the commercial feasibility of curbside recycling of K-Cup pods at that time and indicated that they did not presently intend to accept them for recycling.”
One fascinating element of this action is pointed out by Matt Levine in his column:
“There is no suggestion that this was material to any investor’s financial decisions, or even that the stock dropped… Keurig is charged, not with fraud, but with violating the rule requiring it to file annual reports.”
In this case, the SEC reinforced the idea that anything worth putting into a 10-K is by definition material to investors. Keurig has agreed to pay $1.5 million in civil penalties to settle the case. We saw a lot of ESG enforcement out of the SEC in 2023, but far less in 2024. The Keurig case indicates that the SEC is still considering (and perhaps stretching the bounds of) financial impacts and materiality of ESG/sustainability statements made in financial reports. If you haven’t already studied the 2022 FASB Staff Education Paper on the Intersection of Environmental, Social, and Governance Matters with Financial Accounting Standards, you should.
This case should also be a warning to ESG professionals about the potential danger of using double materiality standard (and language) in an SEC financial report.
Don’t forget that regulatory enforcement can be just the tip of the iceberg – the same conduct that draws scrutiny from regulators frequently results in private litigation based on false and misleading advertising and investor litigation.
Our members can learn more about SEC enforcement actions here.
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