Keurig Dr Pepper Settles with SEC for Misleading Claims Regarding Recycling

On September 10, 2024, the U.S. Securities and Exchange Commission (the “SEC”) announced a settlement with Keurig Dr Pepper Inc (“Keurig”).  The SEC alleged that Keurig made incomplete and inaccurate statements in the Company’s annual reports for fiscal years 2019 and 2020 touting the recyclability of its K-Cup products. Keurig agreed to pay a $1.5 million civil penalty. 

Keurig is a large American beverage company that sells a nationally recognized brand of coffee machines and associated accessories through its coffee systems business. Keurig’s machines brew coffee, among other beverages, from single-use plastic pods, known as K-cups. In fiscal year 2019, K-cups comprised a significant percentage of net sales for the coffee systems business unit. Further, the coffee systems business represents a significant portion of Keurig’s net sales across all business units.

The SEC’s Factual Allegations

In 2014 Keurig Green Mountain, currently a subsidiary of Keurig, announced a set of sustainability goals which included an effort to make 100% of its K-cup pods recyclable by 2020. Keurig Green Mountain had conducted consumer research in 2016 that indicated that the environmental impact of K-cup pods was a significant factor for some consumers when deciding whether to purchase a Keurig brewing machine. In response to its sustainability goals, and to consumer sentiment, Keurig Green Mountain conducted research on various materials for its K-cups that could allow the pods to be commercially recycled. Ultimately, Keurig determined that pods made of polypropylene number 5 plastic (“PP5”), accompanied by consumer recycling instructions, were its best option to achieve its goals of selling fully recyclable K-Cups. By 2020, all K-cups manufactured for sale in the U.S. were made of this material.

Beginning in 2016, Keurig performed a series of tests at recycling facilities across the United States. Keurig found that pods made out of PP5 could typically be successfully sorted from other materials into the correct material group—an important step in the recycling process. However, after Keurig completed its tests, it received significant negative feedback from two of the recycling companies involved in the tests. The two companies conveyed that, although K-cups could be sorted, it remained commercially unviable to include small K-cup pods in curbside recycling programs. Both companies informed Keurig that they did not intend to accept K-cups at their respective recycling facilities. According to the SEC, these two recycling companies operated more than one-third of the recycling facilities in the United States, and were among the largest recycling companies in the country.

Keurig filed a Form 10-K Annual Report with the SEC for its 2019 fiscal year stating that “we have conducted extensive testing with municipal recycling facilities to validate that [pods] can be effectively recycled.” In its Form 10-K for fiscal year 2020, Keurig again touted its testing efforts, and claimed that it validated that K-cups could be recycled, stating that “[w]e 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. through the Polypropylene Recycling Coalition ….”

The Settled Claims

The SEC charged Keurig with filing inaccurate annual reports with the SEC, and claimed that Keurig’s statements regarding its tests validating that K-Cups could be “effectively recycled,” without any qualification, were incomplete and inaccurate because they did not disclose any of the negative feedback conveyed by the two recycling companies about the recyclability of K-Cups. The SEC contended that Keurig’s statements misled investors by omitting the fact that two of the largest recycling companies in the country had already informed Keurig that they would not accept K-cups for recycling at their facilities.

Implications

This SEC enforcement action demonstrates that the SEC remains interested in claims that companies make regarding their sustainability and ESG achievements and goals.  As discussed in our prior client alerts, the SEC’s regulatory oversight is consistent with actions by governments in multiple other jurisdictions. Thus, publicly-traded companies need to carefully scrutinize and substantiate such claims, especially in their securities filings. 

The Keurig statements at the core of this enforcement action were made in the company’s 2019 and 2020 annual reports, which serves as a reminder that public companies face enforcement risk for SEC filings that are several years old.

Additionally, despite dissolving its Climate and ESG task force, the SEC remains attuned to issuers’ environmental claims. We would expect the same to hold true for claims regarding social and governance initiatives. Claims regarding potentially false or misleading statements may arise in a wide range of subject areas, as investors are increasingly aware of and interested in companies’ performance in various areas.  We expect the SEC and other authorities, including state attorneys general and others, to be equally focused on such statements.

Crowell & Moring continues to monitor SEC and other enforcement actions regarding green claims. As always, when highlighting to customers their sustainability successes, companies need to ensure that their claims are carefully crafted and substantiated. For a webinar exploring how to mitigate risk when making such claims, see Crowell’s recent webinar on Green Claims and Greenwashing Risk.