Keurig Dr Pepper has agreed to pay a civil penalty to settle SEC charges over claims made by the beverage company that its single-serve pods, or K-Cups, could be “effectively” recycled. Calling the statements misleading, the SEC imposed a $1.5m penalty in the settlement agreement between itself and the company.

The agency said Keurig failed to disclose that two of the biggest US-based recyclers said they wouldn’t accept the pods for recycling. The SEC’s order found that Keurig violated SEC Rule 13a-1, which requires the filing of annual reports by issuers.

Recyclable or not?

Keurig said in its annual reports for fiscal years 2019 and 2020 that testing with recycling facilities found that K-Cups could be effectively recycled.

But, according to the SEC’s order in this case, Keurig failed to disclose that two of the largest US recyclers told the beverage firm that they didn’t intend to accept the disposable coffee pods for recycling and had expressed “significant concerns” about the financial viability of recycling K-Cups collected curbside.

The company’s claims could have swayed some consumers, boosting sales of both K-Cups and its brewers, the SEC said. And K-Cup sales made up a significant portion of the company’s coffee sales in 2019 and 2020, the agency noted.

Research conducted earlier by a Keurig subsidiary found that environmental concerns were a key factor that some shoppers considered when buying a Keurig coffee machine, according to the SEC.

Furthermore, the SEC noted that although Keurig changed the type of plastic used in those K-Cup pods in 2020, that did not make them easier to recycle, as many recycling facilities don’t accept the new packaging, which is made of polypropylene plastic.

“[The settlement[ will expose companies to endless second-guessing by the Commission unless they pad any statements they do make with a mountain of caveats.”

Hester Peirce, SEC Commissioner

“Our K-Cup pods are made from recyclable polypropylene plastic (also known as #5 plastic), which is widely accepted in curbside recycling systems across North America,” a company spokesperson said.

“We continue to encourage consumers to check with their local recycling program to verify acceptance of pods, as they are not recycled in many communities. We remain committed to a better, more standardized recycling system for all packaging materials through [Keurig Dr Pepper] actions, collaboration and smart policy solutions,” the spokesperson added.

Just this year, Keurig announced plans to launch compostable pods.

Greenwashing

The settlement comes as regulators and courts evaluate enviro-friendly claims made by companies. This month, the DC Appellate Court’s ruled against Coca-Cola, calling even aspirational claims by the company about its recycling efforts “greenwashing,” using a local law in the District of Columbia as the basis for the ruling.

Last September, the SEC settled an action against DWS Investment Management Americas Inc, a subsidiary of Deutsche Bank AG, related to misstatements concerning its ESG investment process.

The Federal Trade Commission offer periodically updated Green Guides that are designed to help corporate marketers avoid making environmental claims that mislead consumers.

Some sizable businesses such as Vodafone Group and Nestlé have set up panels of experts to double-check environmental claims before they appear on products and marketing – all in an effort to avoid allegations of greenwashing.

And in Europe, the European Commission recently sent warning letters to 20 airlines about the prevalence of overstating the use of low-carbon fuels.

Peirce dissents

SEC Commissioner Hester Peirce dissented from the decision, saying the settlement “will expose companies to endless second-guessing by the Commission unless they pad any statements they do make with a mountain of caveats.” She said the pods could be recycled, and the issue here was that two large recycling companies chose not to recycle that type of Keurig pod, which is not akin to saying that Keurig was lying about saying the pods were recyclable.

She said Keurig’s statement that the pods could be recycled was somehow interpreted as an implicit assertion that the pods would be recycled.

She asks rhetorically: “Would the Commission also have determined that the pods could not be “effectively” recycled if all recycling companies accepted them, but most consumers simply threw them in the trash bin because it was easier?”