USA – CALIFORNIA Trends and Developments Contributed by: Bahram Seyedin-Noor, Jared Kopel, Joshua Korr and Monica Eno, Alto Litigation
curate statements regarding the recyclability of its K-Cup single-use beverage pods. In its annual reports issued in fiscal years 2019 and 2020, Keurig represented that its testing vali- dated that with recycling facilities “validated that [K-Cup pods] can be effectively recycled”. This disclosure omitted, however, 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”. Keurig agreed to a cease-and-desist order and to pay a civil penalty of USD1.5 million without admitting or denying the SEC’s findings. In September 2023, the SEC charged DWS Investment Management Americas Inc (“DIMA”) (a subsidiary of Deutsche Bank AG) with making misstatements about its ESG investment pro- cess. Specifically, the SEC found that – despite marketing itself as an ESG leader that adhered to specific policies for integrating ESG consid- erations into its investments – “from August 2018 until late 2021, DIMA failed to adequately implement certain provisions of its global ESG integration policy as it had led clients and inves- tors to believe it would”. Without admitting or denying the SEC’s findings, DIMA agreed to a cease-and-desist order, censure, and a USD19 million penalty in this ESG misstatements action. The SEC has issued a rule requiring invest- ment firms that use ESG terminology, such as “green” or “sustainable”, to invest at least 80% of their assets in accordance with the invest- ment focus suggested by the name – see Rel IC 35000 (20 September 2023). Relatedly, the SEC accused BNY Mellon Investment Advis- ers (“BNY Mellon”) of misrepresenting that all its investments had been subjected to an “ESG
quality review”. Without admitting or denying the allegations, BNY Mellon agreed to pay a USD1.5 million penalty and take remedial actions (in the Matter of BNY Mellon Investment Adviser, Inc, Admin Proc File No 3-20867 (23 May 2022)). Similarly, in In re Oatley Group AB Sec Litig, 1:21 cv-06360-AKH, filed in the US District Court for the Southern District of New York, the plaintiff alleged – among other things – that the com- pany misrepresented its sustainability practices. (The charges subsequently were omitted from an amended complaint.) Should the new California laws take effect, it is anticipated that shareholder plaintiffs will file similar actions in California courts, challenging company ESG disclosures. On 6 March 2024, the SEC adopted final rules requiring public companies to disclose “more consistent, comparable, and reliable information about the financial effects of climate-related risks on a registrant’s operations and how it manages those risks while balancing concerns about miti- gating the associated costs of the rules”. Reg- istrants would be required to disclose, among other things, “climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, or financial condition” and “regis- trant’s activities, if any, to mitigate or adapt to a material climate-related risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices”. Less than a month later, however, the SEC issued an order staying imple- mentation of these rules pending completion of a judicial review of petitions consolidated before the US Court of Appeals for the Eighth Circuit. In addition to the litigation pending in the above- mentioned Chamber of Commerce action, the California rules might be challenged as super-
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