Note: Judith Bussé will be presenting on this topic at the ICPHSO 2021 North America Virtual Workshop on June 23, 2021 at 9am ET.

The COVID-19 pandemic has made it clearer than ever that there is a pressing global need for a coherent, sustainable, social and climate-friendly business and governance model for both private and public companies. In line with the UN’s Sustainable Development Goals (2015) and the Paris Climate Change Agreement (2015), Europe set itself the ambitious target to reduce its emissions by at least 50% by 2030 and achieve climate neutrality by 2050.

Recent EU initiatives have repeatedly showcased a willingness to allow ESG a central role within the legislative process. Examples include the EU Action Plan of Sustainable Growth (March 2018), the Green Deal (December 2019), the Proposal for a European Climate Law (March 2019), the Circular Economy Action Plan (March 2020), the Farm to Fork Strategy (May 2020), the Climate Pact (December 2020) and the EU Regulation on Sustainability-Related Disclosures (March 2021).

Most recently, on April 21, 2021, the European Commission presented its new Sustainable Finance Package. This ambitious package is intended to help improve the flow of money towards sustainable activities across the European Union, and it includes proposals for an EU Taxonomy Climate Delegated Act, a new Corporate Sustainability Reporting Directive (CSRD) revisiting the rules introduced by the Non-Financial Reporting Directive (NFRD), and six Amending Delegated Acts updating the existing rules on sustainability assessments for investment and insurance products.

ESG from a European perspective

While the concept of “ESG” is now broadly understood, some confusion remains regarding which environmental, social and governance factors should count towards the EU’s sustainability target, and which legislative instruments should regulate the different aspects of ESG. Moreover, a lack of transparency, accountability and comparability makes it difficult for investors to fully understand the financial risks resulting from the various sustainability-related crises we face, and to proactively look for investment opportunities addressing environmental and social problems.

The 2019 Communication on the European Green Deal is the EU’s response to our current climate and environment-related challenges. This Communication proposes a series of measures and legislative instruments that are intended to transform the EU by 2050 into a modern, resource-efficient and competitive economy, with no net emissions of greenhouse gases, and where economic growth is decoupled from resource use. It also aims to protect, conserve and enhance the EU’s natural capital, and to protect the health and well-being of citizens from environment-related risks and impacts. The Green Deal is looking to achieve a socially-just transition to a sustainable economic system by providing a Just Transition Mechanism and Fund, focusing on the regions, sectors and citizens most at risk from this transition.

One of the means to achieve the objectives relating to climate neutrality is the transformation of industry towards a circular economy. With a focus on resource-intensive sectors (like textiles, construction, plastic and electronics), the Circular Economy Action Plan will include a “sustainable products” policy to support the circular design of all products based on a common methodology and common principles, as well as a “right to repair,” and measures to empower consumers to make informed decisions and play an active role in the ecological transition. By prioritizing the reduction and reuse of materials before recycling them, and by fostering new business models with innovative products / services, the Circular Economy Action Plan aims at preventing environmentally harmful products from being placed on the EU market.

As significant investments are required to achieve the climate and energy targets that have already been set for 2030, public and private funding will need to be explored and facilitated. Hence, as one of the first steps in the strategy towards sustainable growth, the European Commission has reviewed the Non-Financial Reporting Directive (2014/95/EU, see below for more details). The disclosure of non-financial information should contribute to the measuring, monitoring and managing of undertakings’ performance and their impact on society. In turn, this should allow investors to direct financial and capital flows to green, social and overall sustainable investments.

To further incentivize ESG commitments, investments and sustainable growth, the European legislator has developed a common language and definition of what is considered “sustainable” in the EU Taxonomy Regulation (2020/852). This Regulation, which established a framework to facilitate sustainable investment, will be amended, updated and completed in the course of the coming months and years. Currently, it sets out a classification system for environmentally sustainable activities in relation only to climate change mitigation and climate change adaptation objectives. In the near future, the Regulation will be amended to cover other objectives as well – relating to pollution prevention, the transition to a circular economy, the sustainable use and protection of water, and the protection and restoration of biodiversity and ecosystems.

The Recent Sustainable Finance Package

Sustainable finance is about re-orientating investment towards sustainable technologies and businesses, by decoupling as far as possible economic growth from the use of resources, so as to minimize ESG-related damage. With the launch on April 21, 2021 of the Sustainable Finance Package, the European Commission announced its aim to adopt the legal fundaments and framework to create a sustainable financial EU ecosystem, focused on increased transparency and providing tools for investors to identify sustainable investment opportunities. Such opportunities have a key role to play in channeling private investment (as a complement to public funding) for the successful transition to a climate-neutral, climate-resilient, fair economy.

The Sustainable Finance Package, with its different proposals for legislative instruments (detailed below), represents another critical step in the European Commission’s ongoing efforts to influence investment preferences towards more sustainable financial strategies.

As a main game-changer, the Sustainable Finance Package introduces the EU Taxonomy Climate Delegated Act (supplementing the EU Taxonomy Regulation, described above), which makes it clearer which economic activities most contribute to meeting the EU’s environmental objectives and which categorizes the activities strongly contributing to preventing and responding climate change. It aims to help investors in their decision-making process and incentivizes sustainable solutions using science-based criteria. The Delegated Act was officially adopted by the EU at the end of May 2021.

Secondly, companies will be required to provide accurate and valid sustainability information following the implementation of the Commission’s proposal for a Corporate Sustainability Reporting Directive. One of the aims of this proposed directive is to expand the existing reporting rules for public-interest entities, introduced by the Non-Financial Reporting Directive (2014/95/EU) and in force since 2018, and extend them to private companies. The Commission will now further discuss the proposal with the European Parliament and the Council.

Furthermore, to minimize the risks to the financial system and markets, six proposed Amending Delegated Acts on investment and insurance advice, fiduciary duties, and product oversight and governance, would require that investment companies (including advisers, asset managers, and insurers) refer to sustainability matters in their protocols and investment advice to clients (for example, by highlighting the impact of potential natural disasters on the value of investments).

These Amending Delegated Acts would include the requirement that financial advisers obtain information about their clients’ sustainability preferences and provide a statement explaining the additional requirements financial firms are subject to in order to assess their own sustainability risks. The amendments would introduce adjustments to important existing legislative instruments on investor protection, namely the second Markets in Financial Instruments Directive (MiFID II) and the Insurance Distribution Directive (IDD). These amendments, among several other financial services rules, would constitute a major step in the battle against greenwashing and are expected to be in force as of October 2022.

Booted and spurred towards a more sustainable future

Although many steps still need to be taken, and time will certainly reveal legal gaps that still need to be tackled, these various EU action plans already show that ESG has become one of the most important new concepts for all those conducting business and investing in the EU’s internal markets.

The EU had already emphasized its commitment to implementing the UN Sustainable Development Goals in a variety of ways. The recent COVID-19 pandemic has further galvanized it in its aims, by providing an urgent need for Europe to re-boost its economy and therefore the ideal opportunity for this to be done in the most sustainable manner possible.

From an international point of view, the long awaited “sustainable finance taxonomy” will most likely become a global standard for green investment. The past has proven that EU standards often generate a global impact – a phenomenon called the “Brussels Effect.” In this way, third countries / international companies demonstrate a strong interest in aligning with EU standards, and adjust their operations to abide by EU regulatory requirements (this happened, for example, in the case of the GDPR). The Brussels Effect shows the EU’s capacity to influence global governments and operations through its policy making. Not only is it to be expected that global financial companies will follow the EU’s taxonomy in order to enter the world’s largest ESG market, it is also likely that the EU will ring its ideas on ESG-friendly investment to the table when negotiating international trade and other multilateral agreements, thereby further expanding its role globally and speeding up a world-wide roll-out of sustainable development.

On May 21, 2021, the U.S. Consumer Products Safety Commission (“CPSC”) published a report on artificial intelligence (AI) and machine learning (ML) in consumer products. The report highlights recent CPSC staff activity concerning AI and ML, proposes a framework for evaluating the potential safety impact of AI and ML capabilities in consumer products, and makes several recommendations that the CPSC can take in identifying and addressing potential hazards related to AI and ML capabilities in consumer products.

Concerning staff activity, CPSC recently hired a Chief Technologist with a background in AI and ML to address the use of AI in consumer products. The CPSC also recently established an “AI/ML Working Group” and held a virtual forum on AI and ML in March 2021.

Informed by the discussions held with various stakeholders at this forum, the CPSC staff has proposed a framework in the report for evaluating the potential safety impact of AI and ML in consumer products. The framework’s first step involves screening products for AI and ML “components.” The CPSC and stakeholders have identified the following components to be essential to producing an AI capability: data sources, algorithms, computations, and connections. Likewise, the CPSC and stakeholders have found the following components to define ML capabilities: assessing and monitoring outputs, analyzing and modeling changes, and adjusting and adapting behavior over time. The framework’s second step involves assessing the functions and features of consumer products’ AI and ML capabilities. The third step involves understanding how products’ AI and ML capabilities may impact consumers, which can be accomplished by studying the nature of the technology, how it is implemented in the product, and how the consumer might use the product. The final step involves ascertaining if, and to what extent, AI and ML capabilities may transform the product and/or its use over time. Continue Reading CPSC Publishes Report on Artificial Intelligence and Machine Learning

Earlier this year, the Attorney General Alliance (AGA) conducted an important webinar highlighting the risks of organized retail crime (ORC) to retail organizations, employees, and customers. ORC presents substantial dangers in both the online and brick-and-mortar settings, necessitating cooperative efforts between businesses and government actors to combat this illicit activity. Retail clients should be aware of pandemic-driven upticks in ORC, increased safety risks to employees and customers, and proposed solutions like the INFORM Act that may impose new business obligations in the effort to prevent ORC.

An Increase in ORC

ORC refers to acts of theft by professional criminals both in-store and online. ORC is much more serious than casual shoplifting and is closely linked to dangerous crimes like human trafficking and money laundering. Participants in ORC are generally extremely well-organized and intentional. In stark contrast to the casual shoplifter who likely engages in his or her crime of choice no more than a few times per week, organized retail criminals can easily hit several stores in a single day. Moreover, because their aim is resale, rather than personal use, these criminals tend to target in-demand products. These include cosmetics, fragrances, allergy medications, razor blades, designer clothing, batteries, drills, over-the-counter drugs, and baby formula.

While ORC has existed for decades, shifts in purchaser behavior during the coronavirus pandemic appear to have dangerously increased its felt effects; retailers, for one, are taking a substantial financial hit. Scott Draher, an asset protection and safety executive for Lowe’s, noted that while maybe 25% of all Lowe’s losses in 2015 resulted from ORC, that number is now around 60%. Although the exact cause of this spike in ORC activity is unclear, it may be that pandemic-era buyers, in their efforts to avoid in-person shopping, are more willing to purchase products from questionable sources, creating increased resale opportunities for ORC participants.

The increase in demand for certain goods—even from uncertain sources—has also fueled another troubling ORC trend: An increase in violence. It appears that ORC criminals are becoming more brazen and aggressive. Many will do anything to get out the door with their stolen goods, including harming people in their way. Employees, in particular, have been regularly threatened with mace and other weapons. According to Ben Dugan, part of the ORC investigations team for CVS Health, the key driver of this increased aggression is the desire to meet escalating demand; the recent increase in online sales of the products targeted by ORC criminals, about 30%, roughly mirror the increase in theft.

ORC also creates troubling consumer safety risks apart from the risk of altercation with a fleeing criminal. Consider an organized retail criminal who steals and resells baby formula. This sensitive product may not be stored the right way prior to resale, or the thief may tamper with the contents or change expiration dates on the packaging. More generally, third-party sellers are simply not held to the same product integrity and safety standards that would otherwise apply. These risks are particularly high in the context of online sales, where consumers have less information about the product and the seller—and thus less opportunity to obtain legal redress. Continue Reading AG Alliance Highlights New Trends in Organized Retail Crime

Recalls in Review: A monthly spotlight on trending regulatory enforcement issues at the CPSC.

As more communities lift pandemic-based restrictions on travel and social gathering sizes, Americans will increasingly begin moving homes and renovating furnished rental and guest rooms—which often includes replacing older mattresses.  Historically, mattresses were highly flammable and contributed significantly to house fires, leading Congress to address the safety concern through its enactment of the Flammable Fabrics Act (FFA) in the 1970s.

Through the FFA, the Consumer Product Safety Commission has authority to regulate mattresses and mattress pads, including setting a federal flammability standard (16 C.F.R. § 1632), which was promulgated in 1973 to require ignition resistance of mattresses and mattress pads to smoldering cigarettes.  The standard applies to mattresses—including traditional mattresses of all sizes, crib mattresses, futons, mattresses in sleeper sofas and campers, and water bed and air mattresses containing upholstery materials—and mattress pads and covers.  The federal Standard for the Flammability (Open-Flame) of Mattress Sets (16 C.F.R. § 1633), which became effective in 2007, was designed to increase the time that consumers have to discover and escape bed fires by limiting the size of the fire generated by a mattress set.  Mattresses must meet the performance, labeling, and record keeping requirements of both standards as applicable before the products can be entered into commerce in the United States.

Continue Reading Recalls in Review: Mattress Recalls

Shortly after taking office, President Biden announced an “all of government” approach to achieving environmental justice. In Executive Order (E.O.) 14008, “Tackling the Climate Crisis at Home and Abroad,” President Biden stated that his administration would secure environmental justice for all Americans by addressing the disproportionately high and adverse health and environmental impacts in minority communities. In the several months that have passed since E.O. 14008 was issued, federal agencies, including the U.S. Consumer Products Safety Commission (“CPSC”), have begun implementing the administration’s policy by prioritizing equity and evaluating cumulative impacts in their policymaking.

In March 2021, CPSC Acting Chairman Robert Adler released an unprecedented statement emphasizing the CPSC’s “strong and ongoing commitment to diversity and equity.” The first of CPSC’s two-part 2021 Mid-Year Plan seeks to address the disproportionate safety risks that minority communities face with respect to consumer products. Under the plan, the CPSC will conduct safety equity studies to “determine whether there are specific areas of risk within ethnic, racial, socioeconomic, and other diverse populations” that face more danger from high-risk products. Specifically, the study will evaluate safety risks amongst different demographic groups, particularly in falls, drownings, and poisonings. The agency will use this data to inform future outreach and develop equitable safety standards. In addition, the CPSC has allocated funding to safety campaigns that highlight the unique risks and needs of diverse and vulnerable communities. Campaign messaging will include topics such as poison prevention, consumer product chemical safety, and other safety education information targeted to vulnerable communities. Continue Reading Biden’s Environmental Justice Push and its Impact on Retailers’ ESG Considerations

The Consumer Product Safety Commission has issued new guidance and labeling instructions for the nationwide standard for upholstered furniture flammability.  On May 19, 2021, the CPSC published an online Q&A that provides important information to industry and previews the agency’s enforcement outlook.

The Q&A guidance confirms that the standard is effective as of June 25, 2021 but does not apply to items manufactured, imported, or reupholstered before June 25, 2021.  Industry has more time to implement the new labeling requirements:  the Q&A restates that the labeling requirement begins on June 25, 2022 and only applies to upholstered furniture manufactured, imported, or reupholstered on or after that date.

Continue Reading CPSC Issues Guidance on New Upholstered Furniture Flammability Standard

In a recent Law360 article titled, “Navigating NFT Brand Management Risks And Rewards,” David Ervin, Kayvan Ghaffari and Carissa Wilson explain what brand and business owners should know about NFT opportunities and corresponding risks, particularly with respect to trademark, licensing, anti-counterfeiting and advertising law.

Click here to read the full article.

Recalls in Review: A monthly spotlight on trending regulatory enforcement issues at the CPSC.

As people increasingly turn to online shopping over traditional brick-and-mortar stores, consumers, safety advocacy groups, and regulators alike have begun to pay more attention to the authenticity and safety of products.  One particular concern is the presence of lead in consumer products, which is toxic if ingested and can cause adverse health issues.

The Consumer Product Safety Commission has regulated lead in consumer products since the 1970s.  However, the Commission’s ability to regulate lead in children’s products was strengthened in 2008 with the enactment of the Consumer Product Safety Improvement Act (“CPSIA”).  CPSIA Section 101 limits lead content in accessible component parts  children’s products (15 U.S.C. § 1278a).  Section 101 and CPSC regulations (16 CFR Part 1303) also govern the use of lead in paints and other surface coatings on all children’s products and certain furniture products.  Movable pieces of furniture that contain surface coatings—such as beds, bookcases, and chairs—are covered by the regulation.

The CPSC very actively regulates and monitors products for violations of the federal safety standards regarding lead.  Nearly four hundred lead-related recalls have been conducted, with 317 of those recalls occurring since 2001.  As you can see from the below chart, the Commission paid great attention to excessive levels of lead in consumer products from 2006 to 2010.  The steep increase in lead-related recalls resulted in the enactment of the CPSIA in 2008.

Shockingly, the issue of lead in children’s products persists despite aggressive Commission action and strong congressional mandates.  In just the first two months of 2021, the CPSC issued 16 notices of violation for excess lead in children’s products.  Most of those actions involved publication of the product at issue as well as an immediate stop sale and agreement to correct future production but did not involve a consumer level recall.

Although not nearly as drastic as the last “enforcement spike,” the Commission may be turning its focus towards lead in consumer products once again.  Nine lead-related recalls were conducted in 2020, which is up from only one such recall in 2019, six in 2018, and four in 2017.  This increase occurred despite a sharp reduction in the overall number of toys recalled in fiscal year 2020—discussed in a November 2020 CPSC News Release.

Lead-related recalls have targeted a wide variety of products over the years.  Unsurprisingly, the most commonly recalls product types include toys (37%) and children’s jewelry (25%).  Other more frequently recalled product types include furniture, clothing, sports equipment, and art supplies.

According to information provided by the CPSC recall announcements, seventy percent of the recalls address violations of standard for lead in paint and surface coatings and thirty percent address violations of the standard for total lead content.  In addition to addressing lead paint violations, one 2006 recall also addresses a laceration hazard and a 2014 recall addresses choking and injury hazards.

The public can monitor children’s product recalls on or for violations of the federal lead standards.  According to the CPSC recall announcements, the vast majority of products (97%) are recalled despite having no reported incidents involving consumers.  Of the ten recalls that had reported incidents involving consumers, six involved reports of elevated blood-lead levels in children, two involved reports of lead poisoning, and two involved reports of the product breaking.

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About Recalls in Review:  As with all things, but particularly in retail, it is important to keep your finger on the pulse of what’s trending with consumers.  Regulatory enforcement is not different—it can also be subject to pop culture trends and social media fervor.  And this makes sense, as sales increase for a “trending” product, the likelihood of discovering a product defect or common consumer misuse also increases.  Regulators focus on popular products when monitoring the marketplace for safety issues.

As product safety lawyers, we follow the products that are likely targets for regulatory attention.  We share our observations with you through Recalls in Review.

Could the end of Section 6(b) of the Consumer Product Safety Act (CPSA) actually be near?  Time will tell.  But last week’s development on Capitol Hill in the saga of “Section 6(b)” is noteworthy, and, one day in the not-so-distant future, may be recognized as the beginning of the end for this controversial provision of the law.

On April 22, Senator Richard Blumenthal (D-CT) and Representatives Jan Schakowsky (D-IL) and Bobby Rush (D-IL) introduced legislation—the Sunshine in Product Safety Act—to fully repeal Section 6(b) of the CPSA.  This is the first time in recent memory that Members of Congress have introduced legislation to do away with Section 6(b) altogether.  For example, in the last Congress, Representative Rush introduced the “SHARE Act,” which sought primarily to scale back one of Section 6(b)’s most important protections for firms—allowing a company to judicially challenge the U.S. Consumer Product Safety Commission’s (“CPSC” or “the Commission”) decision to release information about a firm, or one of its products, prior to its disclosure.  But that legislation left the rest of Section 6(b)’s procedures and protections intact.  This current bill, therefore, is much more ambitious, and stakeholders should take note.

By way of background, Section 6(b) requires the CPSC to engage in certain procedural steps before publicly disclosing information from which the identity of a manufacturer of a product can be readily ascertained.  Those include taking reasonable steps to ensure that the information to be disclosed publicly is fair, accurate, and reasonable related to effectuating the purpose of the product safety laws.  Practically speaking, this means notifying the manufacturer of the potential disclosure, providing either a summary of what the agency intends to disclose, or the actual disclosure itself, and providing the company with the opportunity to comment, typically 15 days, though that time period can be shortened by the CPSC with a “public health and safety finding.”  Other regulators, like FDA and NHTSA, do not have similar statutory constraints on the release of product information nor do they have due process protections around data release, whether those be adverse events or vehicle accidents. Continue Reading New Bills Seek to Repeal Controversial Provision of Product Safety Act

Last week the Supreme Court unanimously held that §13(b) of the Federal Trade Commission Act does not give the Federal Trade Commission the power to seek equitable monetary relief such as disgorgement or restitution. The Court’s opinion in AMG Capital Management LLC v. Federal Trade Commission removes a powerful tool that the FTC has long relied on to pursue monetary relief for consumers in both consumer protection and competition matters.

By way of background, the FTC has authority to protect consumers from unfair or deceptive acts or practice (“UDAP”) and unfair methods of competition (“UMC”) with an overlapping but distinct set of tools it can use to pursue its dual consumer protection and competition missions:

  • Administrative Proceeding: The FTC can initiate an administrative proceeding to seek a cease and desist order for either a UDAP or UMC violation from an administrative law judge. If necessary, the FTC can later bring a contempt proceeding in federal court seeking to enforce the terms of an administrative order. A defendant may respond by arguing that it has “substantially complied” with the terms of the order. If the FTC prevails in such a case, it can seek civil penalties and other equitable relief necessary to enforce the order (however monetary relief only applies to UDAP violations).
  • Rulemaking: The FTC has authority to promulgate rules that define UDAP with specificity. Generally, this requires a lengthy, formal rulemaking process that allows for public comment, and a final rule can be challenged in federal court. If a defendant later violates a duly enacted UDAP rule, the FTC can seek civil penalties for a knowing violation. The FTC can also file suit in federal court and obtain monetary relief “to redress consumer injury,” including an order compelling “refund of money or return of property,” but only if “a reasonable man would have known under the circumstances [that the challenged conduct] was dishonest or fraudulent.”
  • Federal Court: The FTC can sue in federal court under §13(b) of the FTC Act to enjoin a defendant when the defendant “is violating, or is about to violate” a law that the FTC enforces and such an injunction is in the public’s interest. While courts have historically read §13(b) as giving the FTC an implied right to recover equitable monetary relief in addition to injunctive relief, the Supreme Court’s ruling now limits the FTC to seeking injunctive relief only.

Continue Reading The Supreme Court Limits FTC’s §13(b) Powers