BlackRock, United Join Growing Club Citing Greenwashing Risks (1) (2024)

BlackRock, United Airlines, Phillips 66 and other big companies increasingly are warning investors about risks they face from more scrutiny of their claims to fight climate change.

At least 14 S&P 500 members—including the asset manager, airline and oil refiner—have cited “greenwashing” in their 10-K annual reports so far this year, usually as a business risk factor, according to a Bloomberg Law review of company filings with the Securities and Exchange Commission. Only five companies in the index referenced it in 10-Ks filed in 2022.

Most conversations focused on potential reputational damage, litigation and US and international regulation over greenwashing, or misleading corporate statements to present an environmentally responsible image. Some of those discussions referenced the fallout from misleading ESG marketing, concerns that other companies also raised without invoking greenwashing by name.

“There’s been more focus on not even whether what they’re saying is true, but can they back it up?” said Alma Angotti, a Guidehouse partner, who has warned clients about greenwashing risks. “They are realizing that maybe they can’t or maybe someone will allege they can’t.”

Embracing ESG

BlackRock Inc. has faced flak from Florida Gov. Ron DeSantis and other Republicans over its embrace of environmental, social and governance practices. That same support of sustainability also has led to concerns that the firm is overselling its green credentials.

Bluebell Capital Partners, a small activist shareholder, last year called for BlackRock CEO Larry Fink’s ouster over greenwashing risks from the firm’s continued investment in coal and fossil fuels as the asset manager also promotes sustainability. BlackRock has fought back, saying Bluebell’s effort and its other climate and governance campaigns aren’t in the best financial interests of the firm’s clients.

BlackRock didn’t bring up Bluebell in its 10-K from February. But the asset manager did mention greenwashing in connection with information the Australian Securities and Investments Commission released on the topic last June. BlackRock raised concerns that the firm may face conflicting obligations and regulatory uncertainty as various countries work to stem greenwashing.

The Australian Securities and Investments Commission warned investment firms about greenwashing and included several examples of the practice, like a fund that invests in a way that’s different than what its name appears to indicate. The regulator then brought its first action against a company over greenwashing allegations last October.

The SEC also is working on rules intended to better ensure ESG funds are clear about their investments. The SEC last year reached settlements with Goldman Sachs Group Inc. and Bank of New York Mellon Corp. over allegations they mishandled ESG funds.

“If you’re in the funds business, you’re going to have to have very clear due diligence procedures,” Angotti said.

A BlackRock representative declined to comment.

‘Chief Trash Officer’

United Airlines Holdings Inc., like BlackRock, has made amibtious pledges to mitigate climate change. The airline aims to be “100% green by 2050 by reducing our greenhouse gas emissions 100%,” United CEO Scott Kirby says on his company’s website.

The company’s efforts to decrease its carbon footprint have included investments in sustainable aviation fuel, which is made from used cooking oil and farm waste. United in March tapped Sesame Street’s Oscar the Grouch as its “chief trash officer” to promote the initiative.

United’s reputation or brand image could suffer if its customers raise greenwashing concerns over its advertising and marketing of its sustainability initiatives, according to the company’s 10-K from February. Customers, regulators, investors and other stakeholders have increased their scrutiny of how ESG affects companies’ operations and are looking at related disclosures, the report said.

“We pride ourselves on both our work to reduce emissions in the future and with our transparency recognizing the challenges that come with doing so,” company spokesperson Sam Coleman told Bloomberg Law in a statement. “To further our goal to reduce emissions, United remains the global investment leader in the future production of sustainable aviation fuel, while also acknowledging that it makes up a fraction of our current fuel use.”

United’s 10-K comes as the Federal Trade Commission is working to update its Green Guides, which the agency uses to fight companies’ deceptive claims about environmentally friendly products. The FTC last revised the guidance in 2012.

The updated Green Guides could open companies to new greenwashing accusations over advertising, said Amanda Shanor, a University of Pennsylvania assistant professor of legal studies and business ethics. The FTC is looking at providing guidance on “net zero” and other climate change-related claims.

“After the FTC Green Guides explain what something like clean means or what something like net zero means, that may create more liability,” Shanor said.

Litigation Fears

Phillips 66 Co. raised another concern that greenwashing scrutiny is causing: the possiblity of expensive litigation.

Companies are facing more lawsuits and regulatory actions based on claims that companies’ public statements constitute greenwashing, Phillips 66’s 10-K from February said. Chipotle Mexican Grill Inc. and The Coca-Cola Company were among companies that said in their recent 10-Ks that they risk unwarranted litigation over their sustainability claims, though they didn’t explicitly mention greenwashing. Coca-Cola last year won two cases over allegations that corporate statements such as a “world without waste” or “doing business the right way” are misleading consumers.

Phillips 66’s 10-K mention of greenwashing risk emerges as environmental groups are suing a California county over allegations it violated environmental law when it approved Phillips 66’s conversion of an oil refinery into a biofuel facility. The company is a real party in interest in the case.

Biofuel made at the Rodeo refinery in Contra Costa County would “cause environmental harm at every step,” according to a petition filed in state court by the Communities for a Better Environment and the Center for Biological Diversity last year. Growing, harvesting and transporting crops for processing and refining and then shipping and burning is “extremely energy-intensive,” the court filing said. Locals also would continue to face industrial pollution, the environmental groups said.

A Phillips 66 representative declined to comment. But the company has said the Bay Area refinery would help California achieve its climate goals and reduce emissions at the facility by 55% and decrease water consumption by 160 million gallons per year.

Phillips 66 and other oil companies can’t bank on the public accepting their environmental claims without scrutiny, said Victoria Bogdan Tejeda, a Center for Biological Diversity staff attorney.

“The public is wising up,” she said. “When fossil fuel companies bill something as a climate solution, they should be skeptical.”