FTC enforcement actions could result in significant investigation and litigation costs, significant financial penalties, and negative publicity.
Last year, your company jumped on the net zero bandwagon, proudly proclaiming “net zero by 2030” as part of your sustainability agenda. Perhaps you have announced a plan to achieve net zero status by purchasing and withdrawing a sufficient number of carbon credits, thereby effectively offsetting all emissions produced in your business operations.
This puts you in the same position as many other companies looking to reduce their greenhouse gas (GHG) emissions and limit their effect on climate change. The number of companies’ net zero commitments has increased significantly, now covering a fifth of the world’s largest companies and 68% of global GDP, up from 16% in 2019. In striving to achieve net zero, organizations aim to strike a balance between the amount of GHGs they produce and the amount they remove from the atmosphere.
Companies frequently trumpet their net zero initiatives in their advertisements, including claims made via online advertising, a company’s website, or even in its press releases.
You are proud of your company’s net zero claims and happy to deploy them in your marketing efforts. But this morning you received a new internal report that shows your company’s projections may have been too optimistic. In fact, you now realize that your business may not reach net zero by 2030…or at all.
What should you do? Could your advertising claims create problems with regulators? More worryingly, could your company be sued by the FTC for false advertising?
About the FTC app
Section 5 of the FTC Act gives the agency authority to regulate unfair and deceptive marketing practices, including advertising claims when (1) there is a representation that (2) misleads or is likely to mislead a reasonable consumer; and (3) the misrepresentation is material to the consumer’s purchase decision.
In addition, the FTC requires that advertisers have a “reasonable basis” for their positive product claims before the claims are made in advertising, which, in the context of environmental claims, should generally consist of “competent and reliable” scientific evidence. “.
It is highly likely that the FTC will take this approach when reviewing net zero claims, especially as such claims become more common. A net zero claim made without solid evidence to support it could be seen as likely to mislead reasonable consumers who assume that companies would not make such claims without a solid scientific basis. A company that proclaimed “Net-Zero by 2030,” but now realizes it won’t meet that goal, risks facing enforcement action from the FTC, which could result in significant investigation and litigation costs, significant financial penalties, and negative publicity.
When you realize the claim may be flimsy: Mitigation and defense
Given the possibility of an FTC investigation, legal counsel should be engaged and privileged communications protected as soon as the company becomes aware of potential challenges in achieving its net zero claims. If the request can be edited to make it accurate – for example, changing the year in which the company expects to reach net zero – this should be done quickly.
If the claim cannot be corrected, because, for example, you no longer have a basis for making zero net predictions, stop making the claim immediately. In this case, it is also prudent to make good faith efforts to promptly recall any material in sales channels or outlets that refers to net zero claims, as well as to remove such claims from your website. business, social channels and traditional advertising media. .
While prompt correction of your ad will not absolve your business of liability, it will limit your exposure only to the time period in which an inaccurate claim was made. Additionally, correcting the claim will allow you to make a credible case that your company acted reasonably and in good faith, which may help persuade the FTC that it should exercise its prosecutorial discretion to waive legal action.
In some cases, you may want to go beyond simply deleting or correcting the claim. For example, there may be compelling business reasons for your company to issue a public statement explaining the change in circumstances that necessitates a change in your advertising. You will want to work closely with your attorneys and public relations team to weigh the pros and cons of this action and to draft any public statements.
If the FTC investigates, a possible response might be to argue that an advertiser cannot be held liable for predicting a future event simply because that event does not materialize. It is well established that an advertiser is only liable for claims that can be proven or disproved. Otherwise, these claims are probably considered “authorized bloat”. No reasonable consumer would believe that predictions of future events always come true, because the nature of predictions is that there is inherent uncertainty.
The strength of such an argument depends largely on three preconditions. First, as noted, it will be essential to show that your company corrected or stopped making the claim as soon as it learned that the claim was unlikely to materialize. If your business continued to make the claim knowing that it would not occur, the “mere prediction” defense would no longer apply.
Second, you’ll need to prove that your company had a reasonable basis to make the claim in the first place. Before FTC staff can accept arguments about good faith predictions, they would first have to be satisfied that you acted reasonably in making the prediction, which would include having a reasonable basis to believe the prediction happened. would realize.
To finishfor these defenses to prevail, it will be critical that the failure to achieve net zero is due to developments beyond your company’s control. To the extent that the FTC understands that your company’s failure to meet its net zero claims was due to your company’s actions – for example, a business decision to cut costs or divert resources to other initiatives – all bets will be off.
The bottom line
If your business should unfortunately realize that its net zero forecast may not materialize, immediate action is needed to minimize exposure to the FTC. Any advertising containing these claims should be corrected or discontinued and, if necessary, the material should be recalled. You must ensure that your business maintains and maintains records of its home base for prediction, and that the failure to achieve your goal is not due to conduct or decisions within your business’s control. Additionally, you should hire your public relations team to help you deal with the fallout, whether the FTC acts or not.
For more information and for assistance with GHG reduction reporting, please contact Andrew Sacks or contact us via [email protected]
*Brandon DeLano is a 2022 DLA Piper Summer Associate.