Climate Archives - The Fashion Law

Regulating the Industry: A Running Tracker of Fashion-Focused Legislation

September 14, 2023 - By TFL

Fashion operates in a space with relatively minimal regulations, particularly when compared to other industries in the United States. In the absence of stringent rules, and in the face of a growing footprint thanks to increasingly complex supply chains and rising rates of consumption, and consumers that are increasingly demanding information about the environmental, social, and governance (“ESG”) elements of companies’ operations, fashion industry entities have largely turned to self-regulation. This has prompted an onslaught of mechanisms – from third-party certifications, such as B Corp. status, and controversial standardized measures like the Higg Index to the adoption of brand-crafted ESG-centric action plans – that are almost entirely devoid of legal consequences in the event that a company and/or its board fails to follow through.

As for the fashion and apparel-focused regulations that do exist, they are not without drawbacks and/or loopholes. Laws that aim to ensure the safety of consumers, for instance, have been enforced with “an undercurrent of caveat emptor,” according to Melissa Gamble, an assistant professor in the Fashion Studies Department at Columbia College Chicago – or in other words, the laws make it so that “buyers are responsible for checking the quality and suitability of goods before a purchase is made.” At the same time, federal wage and hour laws are “often rendered ineffective [at protecting garment workers] when manufacturers subcontract cut and sew work to other companies,” Gamble says, thereby enabling these brands to avoid liability by arguing that they cannot be responsible for what they – as the retailer and not the manufacturer – cannot control.

While this has been the status quo for the industry for quite some time, change appears to be afoot. Signals are coming by way of new government initiatives and new laws that are being implemented in Europe. As part of a more extensive climate bill, France, for example, passed a law requiring a “carbon label” to be included on garments and textiles to help inform consumers about the impact of their purchases. This law follows closely on the heels of an “anti-waste” law passed in 2020 by the French government that prohibits the destruction of excess inventory and samples, among other things, Gamble notes, saying that, taken together, these developments indicate that “fashion industry regulations and the larger regulatory environment is, indeed, shifting.”

All the while, the U.S. is seeing a rise in fashion-centric legislation that is worth keeping an eye on. With that in mind, here is a running list of key domestic legislation that industry occupants should be aware of – and we will continue to track developments for each and update accordingly …

PENDING LEGISLATION

(1) New York Fashion Workers Act

Introduced: March 23, 2022 by State Sen. Brad Hoylman and Assemblymember Karines Reyes

The New York Fashion Workers Act (S.8638-A / A.9762-A) aims to mandate registration of and impose duties upon model management companies and creative management companies,” and provide complaint procedures and penalties for violations by amending the New York state labor code. If enacted, the bill – which is co-sponsored by New York State Sen. Brad Hoylman and New York State Assembly Member Karines Reyes – will regulate management agencies and provide labor protection for figures designated as independent contractors, from runway models to makeup artists, stylists, and influencers, among others.

Key Provisions: The Fashion Works Act would create new compliance requirements for “retail stores, manufacturers, clothing designers, advertising agencies, photographers, publishing companies, or any other such person or entity that receives modeling services from a creative, directly or through intermediaries.” Such obligations center on things like payment (companies will be required to pay models/creatives within 45 days); contracts (companies will be required to provide models/creatives with copies of contracts and agreements; and contracts between a company and a model/creative will be limited to two years and cannot be renewed without affirmative consent); and disputes.

Civil penalties for failure to comply would include fines of up to $3,000 for the initial violation and up to $5,000 for each additional violation. Intentional failure to comply with registration constitutes a class B misdemeanor.

Potential Implications: “Construed broadly,” Morgan Lewis attorneys Leni Battaglia, Melissa Rodriguez, and Carolyn Corcoran state that the bill “could have massive implications not only for traditional model or creative management companies using fee-based structures, but also for retailers who directly hire models/creatives for studio photoshoots and ad campaigns.”

Current Status: The Fashion Workers Act advanced out the Senate Labor committee, but failed to receive a final floor vote in the final days of the session. It is being considered again in the 2023 legislative session.

(2) Fashioning Accountability and Building Real Institutional Change Act

Introduced: May 12, 2022 to Senate by U.S. Sen. Kirsten Gillibrand (D-NY); Jul. 21, 2022 to House of Rep. by Rep. Carolyn Maloney

Aimed at “accelerat[ing] domestic apparel manufacturing and establishing new workplace protections to cement the U.S. as the global leader in responsible apparel production, the Fashioning Accountability and Building Real Institutional Change (“FABRIC”) Act (S.4213 / H.R. 8473) would “amend the Fair Labor Standards Act of 1938 to prohibit employers from paying employees in the garment industry by piece rate, to require manufacturers and contractors in the garment industry to register with the Department of Labor, and for other purposes.”

Key Provisions: The FABRIC Act would establish a nationwide garment industry registry through the Dept. of Labor to “promote transparency, hold bad actors accountable, and
level the playing field;” create new requirements to hold fashion brands and retailers, as well as
manufacturing partners jointly accountable for workplace wage violations; and set hourly pay in the garment industry and eliminating piece rate pay until the minimum wage is met.

The bill would allow for fines of up to $50 million for violations.

Potential Implications: A key point of contention in this bill comes by way of the “Joint and Several Liability of Brand Guarantors” provision, which would hold brands accountable for violations that occur under the watch of their suppliers. Specifically, the FABRIC Act states, that “a brand guarantor who contracts with an employer of an employee … for the performance of services in the garment industry shall share joint and several liability with such employer for any violations of the employer under this Act involving such employee.” This has prompted pushback from the American Apparel and Footwear Association and the Council of Fashion Designers of America, which called for a more limited approach to joint liability. The bill writers included a clause on joint liability. Thus, brands (including licensors) as well as subcontractors will share joint liability for any violations, including the payback of lost wages and additional damages, where applicable.

Current Status: Sept. 14, 2023 – Sen. Gillibrand (D-NY) reintroduced the FABRIC Act, which she says “proposes major new manufacturing investments and world-leading workplace protections with the aim of ramping up domestic apparel production and creating more dignified jobs in the United States. The federal bill builds on key elements of California’s landmark Garment Worker Protection Act, combined with major incentives to expand domestic production.”

(3) New York Fashion Sustainability and Social Accountability Act

Introduced: October 8, 2021 by State Sen. Alessandra Biaggi

Focused on establishing sustainability reporting requirements for large fashion industry entities, the New York Fashion Sustainability and Social Accountability Act (S.7428 / A.8352), if enacted, would require fashion retail sellers and manufacturers of a certain size – namely, global apparel/footwear manufacturers and retail sellers that “actively engag[e] in any transaction for the purpose of financial or pecuniary gain or profit” in New York and that whose global annual revenue exceeds $100 million – to map portions of their supply chains and disclose environmental and social due diligence policies.

Key Provisions: “The Fashion Act” would mandate that companies that do business in New York and that meet the annual revenue threshold: (1) Map a minimum of 50 percent of their supply chain across all production tiers; (2) Publish a social and environmental sustainability report that addresses the due diligence policies, processes and activities conducted to identify, prevent, mitigate and account for potential environmental and social risks, as well as the results of each; (3) Disclose their actual and potential negative ESG impacts including greenhouse gas reporting, impacts on water and chemical management, volume of production replaced with recycled materials, and the monitoring and improving of labor conditions; and (4) Set and meet annual targets to reduce their environmental footprint, specifically greenhouse gas emissions, including estimated timelines and quantifiable benchmarks for improvement.

Failure to comply could subject companies to fines of up to 2 percent of their annual revenues over $450 million.

Potential Implications: As drafted, The Fashion Act would have “a very far reach that would impact and require compliance from nearly every major fashion brand,” according to Dentons’ Matthew Clark, Babette Marzheuser-Wood, Jessica Argenti, and Larissa Sapone. At the same time, Ropes & Gray stated in a note earlier this year that “given the potentially onerous nature of some of the proposed [reporting] elements” at play, “there is significant opposition in some quarters to the bill in its current form.”

Current Status: The Fashion Act was referred to the Consumer Protection Senate Committee in January 2022. It was amended in December 2022 to include “stronger requirements for chemical use and climate targets, more specific due diligence criteria and expanded enforcement provisions,” per Vogue. It also now provides for joint and several liability between fashion companies and garment workers, and “instead of creating a new set of sustainability standards, the amended Fashion Act uses existing initiatives like Science Based Targets, Zero Discharge of Hazardous Chemicals and the Organization for Economic Co-operation and Development mandatory due diligence framework as minimum requirements for brands to build upon.”

This is a short excerpt from a tracker that is published exclusively for TFL Enterprise subscribers. For access to our up-to-date legislation tracker, inquire today about how to sign up for an Enterprise subscription.

Business

Amid Increasing Scrutiny, How Brands Can Counter the Risk of Greenwashing

August 22, 2023 - By Dean Hickey

The United Kingdom’s Competition and Markets Authority’s (“CMA”) announced in July 2022 that it had launched investigations into a number of fashion retailers, including ASOS, Boohoo and George at Asda, to determine “whether the firms’ green claims are misleading customers.” The CMA’s announcement came hot on the heels of news from the U.S. that Swedish retail giant H&M had found itself on the receiving end of a class action complaint, accusing it engaging in greenwashing (and more specifically, false advertising), by making use of “inaccurate and misleading” information in marketing the offerings of its “Conscious Collection.” The fast fashion brand – and others – have since landed on the receiving end of additional “greenwashing”-centric litigation.

Fashion retailers have woken up to the need to be – or at least appear to be – “green” in order to grow, or even retain, their market share. However, tapping into this new market is not without risk. In going “green,” fashion retailers have exposed themselves to additional scrutiny and accusations of greenwashing. The problem of greenwashing is not exclusive to this sector, and in fact, the CMA’s announcement should be taken as a wake-up call to all businesses marketing “green” or “sustainable” products.

The Business Case for “Sustainable” Products

The provenance of a product is increasingly viewed as a key determining factor in what we buy and from whom (at least in theory). Until recently, “price” was the key factor for consumers making purchasing decisions. Today, consumer behavior has partially shifted. While price is still a factor, the change in behavior has come about as consumers are increasingly interested in and aware of the negative impact of the apparel industry on the climate front and of over-consumption. While the law of demand still exists, changes in generational spending power have seen the demand for sustainable products become increasingly inelastic. Products that purport to be “sustainable” are likely to command a premium over those that do not have the same “green provenance.” Or to put it another way, there is less consumer price sensitivity for sustainable products. As such, the obvious attraction to retailers in bringing sustainable product lines to the market is clear.

Products that are marketed as sustainable without clear evidence to support these claims or where the evidence is somewhat contrary can be said to be indicative of information asymmetry – a form of market failure. In effect, the absence of data prevents customers from making informed decisions due to a lack of information or the supply of inaccurate information. Tackling this potential detriment to consumers is a clear driver for regulators.

Greenwashing and the Supply Chain

The need for verifiable and timely data is a common thread that runs through all six of the key principles in the CMA’s “Green Claims Code.” Robust data is also vital to mitigating against the risk – and avoiding the perception – of greenwashing. Often, in long and complex supply chains, this data will be generated by a number of third-party suppliers. Where there are deficiencies – in data and/or performance – that could adversely impact the claimed sustainable credentials of a product, remedial action must be taken. Given increased awareness among consumers and regulators, alike, it appears that businesses can no longer afford to make claims as to a product’s “sustainability” credentials without an intimate knowledge of each step in that product’s supply chain.

Identifying weaknesses in complex, multi-national supply chains is not always straightforward – and neither is delivering substantive change. Getting suppliers to incite change first requires an analysis of the root cause of an issue. Particular consideration should be given to latent and emerging risks associated with regulatory and geopolitical change.

Purchasers should proceed cautiously before commencing an investigation into the sustainability practices of a supplier and/or prior to triggering relevant provisions in a supply contract. Legal advice should be sought at the earliest possible opportunity and retained throughout the investigation. Where it is appropriate to do so, an investigation could be expedited by coordinating with a supplier and reaching mutual agreement on the scope of matters falling within the purview of the investigation.

For those businesses wishing to avoid the perception of greenwashing, the introduction of “ESG” clauses into supply chain contracts, while useful, is not a solution in and of itself. Boilerplate penalty clauses and/or right to suspend or terminate a contract will have little positive effect in practice. Given the considerable investment in supply chains, positive reinforcement is likely to be the preferred (and more effective) option over punitive action. In order to unlock change, both parties to a contract can benefit from bespoke “ESG” clauses. The clear advantage of bespoke drafting is the ability to accurately reflect the singular features and inherent challenges in a specific supplier/purchaser relationship. This valuable context can then pave the way for detailed consideration of the appropriate contractual mechanisms and frameworks to foster open dialogue between with a clear focus on addressing material issues through pragmatic and sustainable solutions. This approach much more likely to deliver change and maintain or enhance dealings between a purchaser and supplier.

The Evolving Landscape

The announcement of new CMA powers and the hardening of its enforcement posture, paired with a customer base that is increasingly educated and climate-focused has inflated the risk of greenwashing to the point where businesses ignore it at their peril. The situation is further compounded by moves that are afoot within the EU that have the potential to fundamentally redraw the boundaries of corporate responsibility in supply chains.

For example, the European Commission set out its proposal for a Corporate Sustainability Due Diligence Directive (“CSDD”) in February 2022. In brief, the CSDD looks to modify corporate behavior by increasing responsibility on certain EU and non-EU businesses for the upstream and downstream activities in their supply chains. In-scope businesses will be required to identify actual – and potential – adverse human rights and environmental impacts and where necessary, take steps to prevent, mitigate and/or bring an end to the activities giving rise to the harm. The requirements set out in the CSDD will apply not only to a business’s own operations (and those of its subsidiaries) but also to organizations within a value chain where there is an “established business relationship.”

The CSDD represents a seismic shift from a relatively passive approach involving transparency through disclosures to something which will require proactive intervention. Businesses will soon be expected to exercise vigilance and move swiftly in addressing any material social and environmental impacts that may arise from their own operations or those within their value chain. The drafting of the CSDD reflects the EU Commission’s policy preference for targeting big business. The rationale behind this choice is that large organizations are well suited to bring about change by leveraging their existing influence.

The explanatory memorandum to the CSDD suggests that approximately 4,000 third-country entities will be in-scope. Of this 4,000, it is reasonable to assume that a significant proportion will be based in the UK. The impacts are likely to be felt beyond this immediate pool, as businesses that may not be directly involved, might face commercial or contractual pressure to provide data to customers who are themselves subject to the provisions in the CSDD. Alternatively, some businesses that might not yet be directly or indirectly impacted might heed the change in the EU as a warning and consider that it is “better to jump than be pushed” and see voluntary adoption of CSDD or “CSDD-lite” requirements as a prudent course of action to both provide assurance on the performance of their supply chains and guard against possible accusations of greenwashing.

A panel of European Union lawmakers has since backed an amendment to extend the reach of the legislation. Parliament’s environment committee voted in February 2023 to back a more ambitious scope of the draft law, to cover companies with more than 250 staff and an annual worldwide turnover of more than 40 million euros.

This article was initially published in August 2022, and has been updated to reflect the status of the CSDD.

Dean Hickey is an associate at Slaughter and May in London, where his practice focuses on Sustainability and Climate Change.

Business

A Running Timeline of ESG Investments and M&A in Retail

April 19, 2023 - By TFL

A growing number of investment rounds are bringing sustainability-centric endeavors and more often than not, sustainability-focused tech, to the fore, as consumers and shareholders, alike, continue to focus on the sizable role that retail – including fashion industry – plays in the larger climate crisis. With rising consumer awareness and resulting demands for action and transparency on this front, investors increasingly taking environmental, social, and governance (“ESG”) factors into account when making decisions, and lawmakers across the globe pushing for climate-centric legislation in light of rampant greenwashing, we have compiled a (running) timeline of funding and M&A to provide a broad overview of sustainable investments in fashion and the broader retail space, and shed light on what the trajectory of this segment of the market looks like more generally …

Apr. 19, 2023 – SVP Raises £8.5M in Series B to Expand Social Impact Platform

Social Value Portal (“SVP”) has raised £8.5 million in a Series B round led by Mercia with support from existing investor Beringea. With the title of the UK’s “leading platform for measuring and monitoring social impact,” SVP will use the new cash to tap into “growing demand from the public and private sectors, and launch a new Social Value Academy to help educate business leaders and embed social value into business decision making and delivery.” Founded in 2014 by former Deloitte lead sustainability partner Guy Battle, SVP enables companies to attribute a financial measure to their ESG efforts, and also assists them in identifying opportunities to increase their positive impact.

Apr. 10, 2023 – Kintra Fibers Raises $8M in Series A

Kintra Fibers has raised $8 million in funding in a Series A round, which included H&M Group Ventures, Bestseller’s Invest Fwd, Fashion for Good, New York Ventures, Tech Council Ventures, and Fab Ventures. The Brooklyn, New York-based materials science company, which says that it has developed “the only bio-based and biodegradable polyester,” says it will use the cash to scale its resin and yarn production capacities, among other things.

Apr. 4, 2023 – AMSilk Raises €25M in Extended Series C

AMSilk has raised an additional €25 million in an extended Series C funding round led by ATHOS (AT Newtec) with participation from Novo Holdings, Cargill, and MIG Capital. The round comes on the heels of a 2021 Series C, in which AMSilk raised €29 million. The German industrial supplier of bio-fabricated silk protein materials says that it will use the new cash to accelerate industrial scale-up and expand commercial operations of bio-fabricated plant based raw materials that are biodegradable at industrial quantities. According to AMSilk, its proprietary bio-fabricated silk is made from plant-based renewable raw materials that are 100% protein and that does not involve any natural farming processes.

Mar. 30, 2023 – Gen Phoenix Raises $18M for Recycled Leather Biz

Gen Phoenix, which boasts the title of “the leading producer of sustainable recycled leather at scale, raised $18 million in a new round led by venture capital firm Material Impact, with participation from Dr. Martens, InMotion Ventures, the investment arm of Jaguar Land Rover, and Coach and Kate Spade owner Tapestry. The funding round also includes existing investors ETF Partners and the Hermes GPE Environmental Innovation Fund. The company says it will use the new cash to “bolster growth for the business and further efforts to meaningfully tackle the world’s waste problem.” In particular, it will be focused on “reaching new partners, deepening current relationships, and scaling product innovations.”

Mar. 21, 2023 – Inditex to Invest €15M in Regenerative Nature Fund

Zara-owner Inditex will invest €15 million in non-profit Conservation International to expand and scale the work of the Regenerative Fund for Nature. Launched in 2021 by Conservation International and Kering, the initiative aims to “transform 1 million hectares of crop and rangelands into regenerative agricultural systems by 2026.” Inditex says that the investment “will work to enhance sustainability in the fashion industry, which is fundamentally dependent on agriculture for its raw materials.”

Mar. 7, 2023 – tex.tracer Raises €1.7M in Growth Capital

Tex.tracer has raised €1.5 million ($1.59 million) in growth capital from ROM InWest, HearstLab, Joanna Invests, and angel investors. The Amsterdam-headquartered SaaS platform “unlocks insightful supply chain information” for fashion/apparel brands and retailers, enabling them to access “verified data so they can work with suppliers to reach their sustainability goals” and ensure compliance with “upcoming rules and legislation.”

This is a short (and incomplete) excerpt from a data set that is published exclusively for TFL Enterprise subscribers. For access to our up-to-date sustainable investments and M&A tracker, inquire today about how to sign up for an Enterprise subscription.

Fashion ESG

Net Zero: What Makes for a Good Climate Change Plan?

March 7, 2023 - By Sam Fankhauser

Two-thirds of countries have now committed to reaching net zero greenhouse gas emissions at some point this century, and during 2021, the share of large companies with net zero commitments (including in the fashion industry) jumped from one in five to one in three. Yet, few of these net zero targets were accompanied by measures necessary to achieve them. This discrepancy is increasingly becoming the subject of legal challenges. The governments of the Netherlands and Germany, as well as oil major Shell, for instance, are among defendants that have been ordered by courts to cut emissions faster.

Globally, the number of climate-related court cases has doubled since 2015. The UK is the latest country whose government have sued by environmental groups for failing to take sufficient action on climate change. While the country’s net zero strategy deserves praise for some aspects – like setting a deadline to phase out new petrol and diesel cars by 2030 – even the government’s climate change advisor thinks it will not be enough to meet statutory carbon targets.

So, what does a good net zero strategy look like? Net zero strategies can be measured against three principles: the urgent pursuit of emission cuts, the cautious use of carbon offsets and carbon removal, and alignment with broader objectives for sustainable development.

Urgency

Because global temperature change is determined by cumulative emissions, the pace at which we reduce emissions is important. The longer we wait, the sooner the remaining carbon space in the atmosphere is used up. As such, net zero strategies must contain measures to start cutting emissions immediately. These are often lacking or vague. The UK strategy, for example, proposes replacing gas boilers with heat pumps, but the support program it offers is available to only a small proportion of buildings and households.

Emissions cuts must also be comprehensive and include the most difficult sectors to decarbonize, such as heavy industry, aviation, agriculture, and fashion/apparel, which maintains a complex web of supply chains. Tackling them will require consumers to make difficult choices, for example, about how much they travel, what they buy, and what they eat. Most net zero strategies shy away from spelling these out.

Integrity

The net zero strategies of many companies and governments rely heavily on carbon offsets. That is, rather than reducing their own emissions, they pay third parties to reduce theirs, for example, by funding renewable energy projects or planting trees. This raises a number of problems. For instance, it is difficult to prove whether offsets actually reduce emissions. Many projects funded via offsets would have happened anyway. The offset market needs much more rigorous regulation.

More importantly, net zero requires all emissions to come down. Offsets should not be used to allow pollution to continue unabated. They are a last resort. If a strategy does include using offsets, those offsets should remove carbon from the atmosphere, rather than reduce emissions elsewhere. This is the meaning of net zero – a balance between emissions and removal.

Most options for removing carbon are biological, such as tree planting. Technological solutions, such as capturing carbon directly from the air and storing it underground, are still at the pilot stage, and there are concerns about their cost and ability to safely store CO₂. Most modelled pathways for meeting the Paris Agreement’s goal of averting dangerous climate change involve scaling up carbon removal. The world needs more investment in these techniques, but also stronger legal frameworks to ensure their risks are managed properly, and an honest public debate to make sure people are on board with it.

“Sustainability”

Net zero strategies do not work in isolation. They must be aligned with broader environmental, social, and economic objectives. They will fail unless they proactively manage the impact of decarbonization policies on workers, communities, and households. Thankfully, labor market interventions like re-skilling programs can help workers transition into low-carbon employment, and social welfare payments can shield households in poverty from energy price rises. Both must form an integral part of net zero strategies.

Climate action can have multiple additional benefits, for biodiversity, public health, and food security, but this is not guaranteed, and interventions can have unintended consequences. For example, commercial plantations of exotic tree species in naturally treeless habitats may claim to store carbon, but they could crowd out native species, rob local people of traditional livelihoods or succumb to pests and diseases.

There are economic opportunities that net zero strategies should aim to capture. Low-carbon technologies like electric vehicles may unleash a virtuous cycle of innovation, investment and growth as information technology did two decades ago. More immediately, investment in, for example, home energy efficiency and renewable energy could help the economy recover from the pandemic in a sustainable way.

Unfortunately, only a fraction of economic recovery packages offered by governments have been genuinely green. The necessity of reaching net zero emissions is a scientific reality. The growth in net zero targets suggests that political and business leaders know this to be true. They are still struggling to make social, economic, and political sense of net zero, as the emergence of court challenges shows. But we are starting to understand how to get net zero right. If interpreted and governed well, net zero could be the best hope we have for climate action.

Sam Fankhauser is a Professor of Climate Economics and Policy at the University of Oxford.

Kaya Axelsson is a Net Zero Policy Engagement Fellow at the University of Oxford. (This article was initially published by The Conversation.)

Fashion Brands and Marketing

“Significant Preliminary Investment” Not Enough to Support “Net Zero” Claims, Per NAD

February 28, 2023 - By TFL

A new decision from the National Advertising Division (“NAD”) of the BBB National Programs raises some interesting questions for brands in the business of making “net zero” claims. In a decision this month, the NAD dove into claims that American food processing company JBS USA Holdings made about its commitment to being “net zero by 2040.” The matter got its start when the Institute for Agriculture & Trade Policy (“IATP”) initiated an NAD proceeding, challenging an array of statements that JBS made on its website and social media accounts, as well as in publicly accessible corporate reports and in media articles, which, according to IATP, convey the objective – and unsubstantiated – message that it has “an operational plan in place to achieve its net zero goals and is implementing such a plan.”

In its NAD complaint, IATP challenged the following claims made by Greeley, CO-headquartered JBS: (1) “JBS is committing to be net zero by 2040”; (2) “Global Commitment to Achieve Net-Zero Greenhouse Gas Emissions by 2040”; (3) “Bacon, chicken wings and steak with net zero emissions. It’s possible;” and (4) “Leading change across the food industry and achieving our goal of net zero by 2040 will be a challenge. Anything less is not an option.” These statements make it seem like JBS has “an operational plan in place to achieve its net zero goals” and is “actively reducing its emissions and building more sustainable operations,” when it does not, IATP argued.

In response to IATP’s complaint, JBS argued that its “net zero” claims are aspirational and intended to communicate that it has set a carbon emissions goal. In furtherance of its goal, JBS cited evidence of how it is working to achieve it, including by issuing a $1 billion Sustainability-Linked Bond, linked to its net zero climate goals; signing an agreement to purchase verified emission reductions (i.e., carbon offsets); and partnering with experts to research and study supply chain considerations to address Scope 3 reductions and help it reach its “net-zero by 2040” goal, among other things.

With the foregoing in mind, the NAD determined that not only do JBS’ claims “reasonably create consumer expectations that [its] efforts are providing environmental benefits,” its claim about achieving “‘net zero’ emissions by 2040 [is] a measurable outcome.” Specifically, the NAD asserted that “net-zero” is “a recognized standard that guides companies in defining and establishing short and long-term science-based greenhouse gas emission reduction goals aligned with the legally binding 2015 Paris Agreement.”

While the company has made a “significant preliminary investment” toward reducing emissions and has “undertaken steps to begin learning how to address the operational and scientific challenges it will face” (which are steps that “may be helpful towards achieving net-zero by 2040”), the NAD found that this is not enough to “support the message conveyed by the [company’s] claims.” In particular, the NAD maintained that the evidence provided by JBS “did not support the broad message conveyed that [it] has a plan that it is implementing today to achieve net zero operational impact by 2040.”

As a result, the NAD has recommended that JBS discontinue its use of each of the challenged “net zero” claims. At the same time, it noted that “nothing in its decision precludes JBS from making narrower truthful and not misleading claims regarding its efforts at researching potential methods for reducing emissions and any efforts it is undertaking to reduce emissions.”

The advertising body’s decision falls in line with its enduring crack-down on aspirational environmental benefit claims, with Davis+Gilbert’s Ronald Urbach and Alexa Meera Singh stating last year that the NAD has been “seemingly going further” than others “in requiring that advertisers demonstrate that their goals and aspirations are not merely illusory and provide evidence of the steps being taken to reach their stated goals.” They point to NAD decisions in challenges involving Chipotle, Butterball, and Everlane as examples.

JBS has since announced that it will appeal the NAD decision based on its disagreement that “the challenged aspirational claims communicate a message that it has a detailed plan in place today to achieve net-zero by 2040 – 17 years from now” and in light of its belief that “its claims are substantiated by the foundational work it has done to date.”

Reflecting on NAD’s decision, Kelley Drye’s Gonzalo Mon and and Katie Rogers state that it “raises a lot of questions,” including whether “consumers really expect that companies have all the details worked out when they make an aspirational claim? What separates a good foundation from a good plan? And what more narrow and less definitive statements can a company make while it formulates its plan?”

THE BIGGER PICTURE: The matter is worthy of attention in light of the enduring practice by companies across industries to tout their plans for achieving “net zero” status. It is also the latest indicator of rising attention to companies’ claims on the ESG front, including ones that are aspirational in nature. Not limited to NAD actions, a number of companies have been the target of lawsuits claiming that they failed to live up to aspirational marketing statements. It is worth noting that the outcome in at least one of those cases – the one that Earth Island Institute waged against Coca-Cola – “suggests that advertisers may have some breathing room to make aspirational statements” depending on where the challenges take place (i.e., before the NAD or certain courts), per Mon.

(In a Nov. 2022 decision, the Superior Court of the District of Columbia granted Coca-Cola’s motion to dismiss this case, finding that Earth Island Institute failed to allege that Coca-Cola’s ESG-centric advertisingstatements were provably false or plausibly misleading.)