Companies are increasingly taking positive action on the environment. They are communicating their environmental strategies, performance and targets to customers, investors and the broader public. At the same time, external scrutiny of corporate environmental initiatives is growing.
Corporate environmental communications are increasingly at risk of “greenwashing” enforcement and litigation around the world, including by Canada’s Competition Bureau. This puts companies in a potential double-bind: say too little on the environment, and risk being accused of inaction; say too much, and risk being accused of “greenwashing.”
Why is greenwashing enforcement a priority? For some, greenwashing means exaggerating or misrepresenting the relative environmental benefits of a company’s products or services or business operations more generally. Some, such as the Competition Bureau, see taking action against greenwashing as important for protecting competition and leveling the playing field. Consumers misled by false or misleading environmental claims are unable to make informed purchasing decisions. Without adequate enforcement, companies that make truthful environmental claims may see their customers turn to competitors that make false or misleading claims.
Others see greenwashing enforcement as important for preserving the integrity of environmental initiatives and protecting the planet, particularly as it relates to climate change. For them, greenwashing means promoting false solutions to environmental crises, or distracting market participants from concrete and credible action.
Greenwashing enforcement is not new for competition and consumer protection agencies but has evolved rapidly in scope and priority.
In 1992, the US Federal Trade Commission (FTC) issued the first version of its “Green Guides” to help marketers avoid misleading environmental claims. These guides were updated periodically, with the most recent update occurring in 2012. Canada’s Competition Bureau published its inaugural guidance on environmental claims in 2008. In late 2021 the Competition Bureau archived its existing environmental claims guidance (which was arguably very outdated). In its place, the Bureau issued new, albeit much more high-level, guidance to companies making “environmental claims” and made it clear the Competition Bureau would enforce deceptive marketing relating to environmental claims under laws within its jurisdiction, including the Competition Act. Similarly, in September 2021 the UK’s Competition and Markets Authority published the Green Claims Code which provided guidance on making environmental claims that comply with the UK’s competition legislation.
In January 2024, the European Union became the first jurisdiction to adopt a standalone ban on greenwashing. The Directive on Empowering Consumers for the Green Transition prohibits (i) generic environmental claims without proof, (ii) claims that a product has a neutral, reduced or positive impact on the environment because the producer is offsetting emissions, and (iii) sustainability labels that are not based on approved certification schemes.
On June 20, 2024, Canada followed suit with the adoption of Bill C-59, which introduced prohibitions on deceptive environmental claims into the Canadian Competition Act.
Recent amendments to the Competition Act: Big changes with little clarity
As seen above, enforcement of alleged greenwashing in Canada – and elsewhere – is far from new. However, until recently there have been no specialized provisions in Canada’s Competition Act (the “Act”) which apply to it. Canada has relied instead on its generic misleading advertising provisions which are of general application.
Specifically, the Act includes two provisions which may apply to any advertisement, including environmental claims:
- General Deceptive Marketing Provision: This provision prohibits the making of a representation to the public that is false or misleading in a material respect.
- General Performance Claim Provision: This provision prohibits a person from making a representation to the public in the form of a statement, warranty or guarantee of the performance, efficacy or length of life of a product (or service) (a “performance claim”) that is not based on an adequate and proper test, the proof of which lies on the person making the representation.
On June 20, 2024, the Government of Canada introduced two provisions to the Act targeting environmental performance claims:
- Representations Relating to a Product (or Service): This provision prohibits a person from making a representation to the public in the form of a statement, warranty or guarantee of a product or service’s benefits for protecting or restoring the environment or mitigating the environmental, social and ecological causes or effects of climate change that is not based on an adequate and proper test, the proof of which lies on the person making the representation.
- Representations Relating to a Business or Business Activity: This provision prohibits a person from making a representation to the public with respect to the benefits of a business or business activity for protecting or restoring the environment or mitigating the environmental and ecological causes or effects of climate change that is not based on adequate and proper substantiation in accordance with internationally recognized methodology, the proof of which lies on the person making the representation.
If environmental representations were already reviewable under the general deceptive marketing provision and general performance claim provision – why should businesses care about these new laws? For a few reasons.
First, this is a signal that the government is seriously concerned about environmental claims – and that the Competition Bureau will likely be increasing its enforcement in this area.
Second, the new performance claim provisions may capture more than what was captured by the existing performance claim provision. The pre-existing performance claim provision refers to only the “performance, efficacy or length of life” of a product. In contrast, the new provisions refer to the “benefit” of a product or business. The Competition Bureau or the Competition Tribunal may interpret “benefit” to be broader than “performance, efficacy or length of life.”
Moreover, and perhaps most importantly, the pre-existing performance claim provision arguably only applied to environmental statements regarding a product (or service). It did not appear, on a plain reading, to apply to more general environmental representations (i.e. such as those describing a company as “carbon neutral” or a company’s representations regarding their net zero targets.) While such statements may have been reviewable under the general deceptive market provision of the Act, this provision does not impose the same testing requirement that is found under the performance claim provisions. The new provision extends the need for substantiation to general environmental representations regarding the benefits of a business or business activity.
By creating new – potentially broader – performance claim provisions, Canada has expanded the types of representations which require substantiation or testing – placing a significant burden on companies.
So what do these provisions actually mean?
Unfortunately, the introduction of the two new provisions has opened more questions than it has answered.
Due to the fact that the “adequate and proper testing” requirement is included in the pre-existing general performance claim provision, the Competition Bureau and Competition Tribunal’s previous guidance on this requirement may be illustrative. That said, just how that “adequate and proper testing” requirement will be applied in the context of environmental claims is yet to be made clear.
Furthermore, the “adequate and proper substantiation in accordance with internationally recognized methodology” is a new test. This has not previously been considered by the Competition Bureau or the Competition Tribunal and there is no existing guidance to provide any direction on what this will mean in practice. While it is possible that “adequate and proper substantiation” may be similar in its application to the existing concept of “adequate and proper testing” this provides no assistance with respect to the interpretation of “internationally recognized methodology”.
The Competition Bureau has launched a public consultation to address these concerns and to work towards providing the much needed guidance. The consultation will inform the Competition Bureau’s development of enforcement guidance about not only these new provisions, but environmental claims in general (i.e. under the other, more general provisions, of the Act). While the guidelines which will be the product of this consultation will not be legally binding, they will be indicative of the Competition Bureau’s enforcement approach.
In the interim, the Competition Bureau has released general guidance about environmental claims under the existing general deceptive marketing provision. Among other things, this guidance states that companies should:
- Be truthful, and not false or misleading;
- Ensure performance claims are properly and adequately tested;
- When making comparisons, be specific about what is being compared;
- Avoid exaggeration; and
- Avoid vague environmental claims in favour of clear and specific ones.
The Competition Bureau guidance also notes that companies should avoid making “aspirational” claims about the future that are not factual. When making claims about the future, the Competition Bureau advises that businesses should:
- Have a clear understanding of what needs to be done to achieve what is being claimed;
- Make sure to have a concrete, realistic and verifiable plan in place to accomplish the objective, with interim targets; and
- Be sure there are meaningful steps underway to accomplish the plan.
It is notable that this guidance on aspirational claims is consistent with developing expectations in relation to net-zero targets. Net-zero targets are set by corporations to demonstrate a commitment to achieving net-zero greenhouse gas emissions by a certain date (typically 2050). By their very nature, net-zero targets are aspirational. In response to concerns that corporations are not making meaningful progress towards achieving their net-zero targets, reporting standards are increasingly requiring corporations to demonstrate progress towards interim targets and credible plans to achieve the targets.
When making environmental claims about a product or service that could be characterized as performance claims, companies should be cognizant of the Competition Bureau’s existing stance on “adequate and proper testing”. As set out by the Competition Bureau, “adequate and proper” testing is an objective, but flexible and contextual standard. Among other things the Competition Bureau has advised that testing should:
- Be current and updated as needed;
- Be “fit, apt, suitable or as required by the circumstances”;
- Support the general impression created by the advertisement and establish that the results are not mere chance or a one-time effect (i.e. support that the product causes the desired effect in a material manner); and
- Be supported by retained documentation.
When making environmental claims about a business or business activity that could be characterized as performance claims, companies should similarly keep in mind the current guidance regarding “adequate and proper testing”. Although the phrases “adequate and proper testing” and “adequate and proper substantiation” differ somewhat, we can reasonably expect the aforesaid performance claim principles will be applied in some capacity to the new provision. As such, it is likely the best guidance available for the time being.
There is currently no guidance from the Competition Bureau as to what will be considered an “internationally recognized methodology” for the purposes of the Competition Act. Given the broad scope of environmental claims that will be captured by the new provisions, it is possible that a company will need to apply multiple methodologies to substantiate their environmental claims. For example, claims related to greenhouse gas emissions will almost certainly need to be substantiated under a different methodology than claims related to water usage.
Particularly in the absence of guidance from the Competition Bureau, companies would be wise to do their due diligence when selecting a methodology to substantiate environmental claims. The following factors may be useful in assessing which methodologies are likely to meet the “internationally recognized” standard:
- Recognized by whom? An internationally recognized methodology is likely to be one that is endorsed by credible regulatory bodies or other authorities. Similarly, if a methodology is criticized by credible regulatory bodies or other authorities, that could be an indicator the methodology will not meet the criteria. If a methodology is only endorsed by select participants in particular industries, that may be an indication the methodology is not sufficiently robust.
- Which body established and maintains the methodology? The credibility and reputation of the body responsible for the methodology is an indicator of how well regarded the methodology is like to be.
- How often is the methodology updated? For most environmental disciplines, the science and knowledge base is quickly evolving. An internationally recognized methodology is likely to be one that is updated in accordance with developments in the relevant disciplines.
- Is the methodology well established? To be considered as internationally recognized, a methodology should have been established long enough to gain that reputation and should have been subject to some degree of peer review.
Key takeaways: Navigating Bill C-59 and ensuring credible environmental claims
Companies make environmental claims in the marketplace because consumers care about the environmental attributes of the products and services that they purchase, and the environmental performance of the businesses that they buy them from. Companies that compete honestly on the field of environmental performance, that invest time, energy and resources in their internal environmental efforts and corporate responses to climate change, are harmed when less scrupulous competitors make exaggerated environmental claims without putting in the work.
Change is hard. Companies will face new burdens as a result of Bill C-59. There remain many uncertainties as expectations around Canada’s new anti-greenwashing regime take shape.
Going forward, companies will need to dedicate additional efforts (and potentially resources) to ensuring that they can substantiate the environmental claims that they make about their products and services, and their business activities. But companies can also take some comfort in knowing that these additional efforts will be rewarded by enhanced consumer confidence and a fairer competitive landscape.
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Kai Alderson is an energy and natural resources lawyer in Vancouver. Utilities, energy companies and other natural resource clients seek out his practical advice on complex asset acquisitions and dispositions, project development and other challenging commercial matters. Kai is a trusted advisor, providing strategic advice to project proponents on environmental, regulatory and Indigenous law matters.
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Antonio Di Domenico is a Partner and Co-Leader of the firm’s Competition, Marketing and Foreign Investment Group. As former counsel to Canada’s Commissioner of Competition (Department of Justice Canada) and having served as counsel in many of Canada’s most significant competition matters, Tony is widely recognized as one of Canada’s leading practitioners in competition law and litigation.
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Robin Spillette is an associate in the Firm’s Antitrust/Competition & Marketing Group. Robin has assisted companies with a variety of competition and foreign investment law matters, including abuse of dominance investigations and merger review and clearance under the Competition Act, and notifications and other matters under the Investment Canada Act. Robin also assists companies with respect to pro-active corporate compliance programs under the Competition Act.
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Sabrina Spencer practices in the areas of Environmental, Climate and Indigenous law with a focus on advancing reconciliation and addressing climate change. She has experience helping clients in a broad range of sectors to navigate the constantly evolving regulatory landscape in BC and across Canada.