Last week, a shareholder of Danimer Scientific, Inc., filed a derivative suit against the company’s executives and board members, alleging that overstated sustainability claims led to millions of dollars in market capitalization losses.

Danimer manufactures polymers, resins, and plastic alternatives that are used in a number of plastic products. The complaint alleges that the company repeatedly touted the biodegradability of these products, as well as their ability to reduce plastic use and pollution. For one product in particular, Nodax, Danimer claimed that it was fully degradable within 12 to 18 weeks after being discarded. According to a Danimer press release, Nodax is a “100% biodegradable, renewable, and sustainable plastic . . . certified as marine degradable, the highest standard of biodegradability, which verifies the material will fully degrade in ocean water without leaving behind harmful microplastics.” The company made similar representations in an SEC Form S-1 registration statement.

Shortly after these statements went public, The Wall Street Journal published a detailed article refuting Danimer’s biodegradation claims. The article cited experts that were skeptical of whether Danimer’s products could really degrade as quickly as advertised under real-world conditions. The article noted that things like ocean temperature, microorganism variation, and plastic shape and size, will all impact biodegradability and may result in significantly longer timelines for degradation.

The next trading day, Danimer’s stock price dropped by almost 13 percent.

After The Wall Street Journal article was published, Spruce Point published additional reports further supporting the notion that Danimer’s biodegradability claims were too good to be true. The company’s stock price further dropped in the wake of these reports.

Plaintiff, a Danimer stockholder, filed the derivative suit against the company’s CEO and Chairman of the Board, CFO, and a number of the company’s directors. Plaintiff claims that these officers and directors breached their fiduciary duties to the company by intentionally or recklessly allowing these misstatements to occur, which resulted in significant losses. Plaintiff also sued the officers and directors for unjust enrichment, waste of corporate assets, and breaches of the Exchange Act.

While we have yet to see where this litigation will go, the suit itself is another example of how ESG principles are having real consequences on market capitalization—and are finding their way into America’s courtrooms.

The case is Perri v. Croskrey, et al., D. Del., Case No. 1:21-cv-01423.