SEC’s Action on Recyclability Statements Shows Continued Focus on ESG Related Claims

Overview

Notwithstanding recent reports that the Securities and Exchange Commission (“SEC”) has quietly disbanded its Climate and ESG Task Force,¹ and while the SEC’s new climate-related disclosure rules remain stayed,² the SEC’s focus on ESG-related issues has not wavered. The SEC continues to scrutinize sustainability-related claims as demonstrated by a recent enforcement action targeting incomplete disclosures regarding recyclability. Accordingly, public companies should continue to exercise care when preparing ESG-related disclosures.

Background

On September 10, 2024, the SEC charged Keurig Dr. Pepper Inc. (the “Company” or “Keurig”) with making inaccurate statements regarding the recyclability of its K-Cup single use beverage pods.³ Without admitting or denying the SEC’s findings, the Company agreed to a cease-and-desist order and to pay a $1.5 million civil penalty to settle the charges.⁴ 

The SEC order focused on several statements in Keurig’s annual reports on Form 10-K for fiscal years 2019 and 2020 that its recyclability testing had validated that pods could be effectively recycled.⁵ The SEC found that these statements were “incomplete and therefore inaccurate,”⁶ as they were not appropriately qualified by the negative feedback Keurig had received from the two major recycling facilities.⁷ While the Company’s test results generally reflected that pods could be recycled, two of the nation’s largest recycling companies involved in the testing conveyed significant negative feedback to Keurig.⁸ The negative feedback concerned the commercial feasibility of curbside recycling of the Company’s pods, and the two recycling companies indicated to the Company that they did not intend to accept pods at their facilities.⁹ 

The SEC charged Keurig with violating the reporting provisions of Section 13(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 13a-1 thereunder, which require accurate and complete reports filed with the SEC.¹⁰ The SEC did not allege the presence of any materially misleading statements or omissions in the Form 10-Ks or any violation of the antifraud provisions. The SEC order also pointed out that the Company released statements announcing certain sustainability goals in a 2014 sustainability report, including the goal to make 100% of pods recyclable by 2020,¹¹ but did not note any inaccurate statements in that sustainability report or other sustainability reports. 

The SEC’s view was not unanimous, with SEC Commissioner Hester Peirce dissenting.¹² Commissioner Peirce argued that Keurig’s disclosures that the pods were “effectively recyclable” did not necessarily mean they would be recycled by all parties involved.¹³ Commissioner Peirce also stated that the SEC’s order did not demonstrate that the statements at issue were material to investors; instead it only indicated that recyclability was a factor considered by customers in 2016.¹⁴ 

Closing Thoughts

The SEC’s action against Keurig is notable for several reasons. First, it highlights the importance of ensuring that companies’ public disclosures, including on sustainability-related topics, are complete and not misleading due to the omission of information. Second, the action signals the SEC’s ability to use Section 13(a) of the Exchange Act as a tool for prosecuting alleged misstatements or omissions in periodic reports, even when the SEC may not be able to prove their materiality. Companies should continue to exercise care when making environmental or other sustainability-focused statements and weigh the value and materiality of these statements against the risk that they may be viewed as incomplete or inaccurate, which may be heightened when they appear in periodic reports. In addition, this action emphasizes the SEC’s continued willingness to review non-filed materials, such as sustainability reports, which may provide color and context to SEC-filed documents. Although the SEC did not claim inaccurate or incomplete statements in Keurig’s sustainability reports, it included the Company’s inclusion of a recyclability goal in an older sustainability report as part of the factual record, indicating the SEC’s willingness to look at a company’s entire disclosure history, including disclosures in non-SEC filed documents, when assessing accuracy and completeness. Companies should carefully consider how their sustainability reports could be interpreted by both investors and regulators and ensure that there is consistency among all of a company’s filed and non-filed public disclosures. 

_{1 Andrew Ramonas, SEC Abandons ESG Enforcement Group Amid Broader Backlash (1), BLOOMBERG LAW (Sept. 12, 2024), SEC Abandons ESG Enforcement Group Amid Broader Backlash (1) (bloomberglaw.com).
2 In alerts we published in March 2024 and April 2024, we elaborated on the SEC’s climate-related rules and the SEC’s decision to stay its climate disclosure rules pending judicial review.
3 In the Matter of Keurig Dr Pepper Inc., Securities Act Release No. 100983, at 4 (Sept. 10, 2024) [hereinafter In the Matter of Keurig].
4 Id.
5 Id. at 3 (showing that the Company’s Form 10-Ks stated “[W]e have conducted extensive testing with municipal recycling facilities to validate that [pods] can be effectively recycled” and “We continue to engage with municipalities and recycling facilities to advance the quantity and quality of recycled polypropylene and have committed $10 million toward the advancement of polypropylene recycling in the U.S.”); Keurig Dr. Pepper Inc., Annual Report (Form 10-K), 7 (Feb. 27, 2020); Keurig Dr. Pepper Inc., Annual Report (Form 10-K), 9 (Feb. 25, 2021). 
6 In the Matter of Keurig, supra note 3, at 2.
7 Id. at 2, 4.
8 Id. at 3.
9 Id.
10 Id. at 4.
11 Id. at 2.
12 Commissioner Hester M. Peirce, Not so Fast: Statement on In the Matter of Keurig Dr Pepper Inc. (Sept. 10, 2024), SEC.gov | Not so Fast: Statement on In the Matter of Keurig Dr Pepper Inc.
13 Id.
14 Id.}

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