There is a growing concern over “greenhushing” as more companies scrub their disclosure documents or references to sustainability goals from their websites in response to amendments made to the Competition Act in June 2024 by the omnibus Bill C-59 Fall Economic Statement Implementation Act. This rush to reduce or remove references to what companies are doing to mitigate the environmental impacts of their business and to transition to a green economy is in response to new and vague deceptive marketing provisions in the Competition Act requiring companies to substantiate their climate-related claims "in accordance with internationally recognized methodology," failing which they can be subject to enforcement action by the Commissioner of Competition for “greenwashing.”
In addition, as of June 2025, private parties will be able to seek leave from the Competition Tribunal to bring private actions to challenge environmental disclosures made by companies — with the burden of proof falling squarely on the defendant company to verify its claims as outlined in the act in accordance with “internationally recognized methodology," a term that is not defined in the law. Potential penalties for contraventions of the new law include monetary penalties of up to 3% of the worldwide gross revenues of a company.
Given the vagueness of the new law, its associated litigation risk and significant penalties, the result has been a further muddying of the already murky waters surrounding climate and sustainability disclosure. More and more companies find themselves caught between a rock and a hard place as their stakeholders want climate-related information, and businesses are willing to communicate that information, but the new and untested greenwashing provisions create a risk in continuing to do so.
What is at issue?
The amendment to the Competition Act that is causing many companies and businesses to pause is the new paragraph 74.01(1)(b.2), which provides that “a person engages in reviewable conduct who…for the purpose of promoting, directly or indirectly, any business interest, by any means whatever…makes 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.”
This broad provision aimed at business-level disclosure rather than product-level marketing will capture things like net-zero commitments and climate disclosure.
Who is at risk?
Although the greenwashing amendments do not expressly target any particular industry sector, they will likely have a disproportionate impact on and pose the greatest challenge for companies in the oil and gas sector, but notably, the amendments are industry agnostic and could have impacts on a multitude of industries. Public disclosure in the oil and gas sector is more expansive and has a longer history than in other sectors because oil and gas companies have been under greater sustained pressure from stakeholders to report on their emissions and transition plans.
That being said, any enterprise in any sector, whether public or private and whether for-profit or not-for-profit, that has made or makes environmental or climate-related disclosure is at risk of being the subject of a bureau investigation or, subject to a leave requirement, a complaint by a private party before the tribunal. The most likely candidates to bring private actions are climate activist groups.
What is the concern?
Climate disclosure is difficult to get right. In fact, it is impossible to prepare climate disclosure that all stakeholders will find satisfactory. There is very little law to rely on, and there is no one objective reporting standard in existence. Each of the various voluntary disclosure and reporting schemes is different, and even those that appear simple on the surface quickly reveal themselves as nesting dolls of disclosure complexity that require subjective assessments. There is no agreed upon and scalable “internationally recognized methodology,” and those methodologies and standards that do exist and have been adopted by public and private companies, among others, are largely concerned with the financial impacts of climate issues. This inevitably leads to a certain style of disclosure that focuses on financially material issues to the exclusion of matters that are not financially material, even if those matters may be considered fundamentally important by certain stakeholders, leading to a risk of their exclusion being construed as a misrepresentation.
Frequently demanded data from some investors – for example, information on scope 3 emissions (upstream and downstream value chain emissions) and scenario analyses – are speculative and often subjective in nature, and disclosing this sort of information given its inherent unreliability is a risk to corporations. Yet many institutional investors continue to insist that this information is crucial to their investment decisions. However, as soon as this information, with all its imperfections, is disclosed, corporations are vulnerable to attack by climate activists.
Accordingly, the concern for many companies with the new greenwashing amendments is not about being accused of lying to the public; instead, the concern is with being punished for making a good faith effort to provide a broad range of stakeholders with the information they require or request in circumstances where providing that information often relies on subjective assessments. Prior to the greenwashing amendments, many businesses were learning to balance that risk. With the uncertainty and increased risk of litigation coupled with significant penalties that have been introduced by the greenwashing amendments, it remains to be seen whether that is still the case, and early indications in some sectors suggest that it may not be the case. Perhaps simply saying nothing unless it is expressly mandated as a matter of law will be the path going forward for some businesses.
Unsettled regulatory disclosure landscape
One of the issues that has bedeviled climate disclosure since the outset is the lack of any comprehensive regulatory guidance, together with the lack of a specific safe harbour that might make disclosure of climate reporting less risky. This situation does not seem likely to change in the near future.
Capital markets participants have been asking securities regulators for years to step into the fray by promulgating climate disclosure rules. It is unknown whether Canadian securities regulators will publish rules in the foreseeable future as they may feel that they cannot take any comprehensive steps towards publishing climate disclosure rules until they know what the situation in the U.S. will be — perhaps to ensure that Canadian public companies are not prejudiced vis a vis their counterparts in the U.S., which is our most important trading market. Indeed, the U.S. Securities and Exchange Commission (SEC) has stayed its climate disclosure rules pending numerous challenges from both ends of the spectrum, with some alleging that the SEC has gone beyond its mandate in making any rules and others alleging that the exclusion of scope 3 emissions disclosure from the final rules is an abrogation of the SEC’s duties to the public. It also remains to be seen what impact the proposed amendments to the Canada Business Corporations Act that will mandate climate disclosure for large, federally incorporated companies will have on the decisions made by the Canadian securities regulators.
However, even if securities laws are adopted, and public companies in Canada are provided with a safe harbour under securities laws for speculative or forward-looking information under mandated disclosure rules, such a safe harbour would not automatically provide corresponding protections under the Competition Act’s greenwashing amendments. Nor would it provide any protection to private companies or others that are not subject to securities laws but who are subject to the greenwashing amendments.
Fundamentally, an important question remains as to what will constitute adequate and proper substantiation in accordance with internationally recognized methodologies. It is unclear whether mandatory or voluntary disclosure standards issued by Canadian securities regulators or bodies such as the Canadian Sustainability Standards Board (CSSB, which seems set to adopt voluntary general sustainability and climate disclosure standards that are substantially similar to those issued in 2022 by the International Financial Reporting Standards or the IFRS Foundation, which it will be encouraging a range of Canadian entities, including public and private corporations, to adopt) will count as “internationally recognized methodology” recognized by the Competition Bureau that companies can rely upon when making claims about the environmental benefits of their business or business activities. It is also unclear whether partial compliance with a set of standards in this context provides any protection. This is an important consideration as there are not likely to be many Canadian companies in a position to reasonably report on the totality of the issues covered by those standards.
Another challenge for businesses that may be seeking or developing solutions to reduce their carbon footprint is that the term “internationally recognized methodologies” does not reflect that methodologies may evolve over time (including as technologies and solutions evolve). In other cases, a methodology may not yet be “recognized” internationally, leaving companies who make environmental claims about their activities vulnerable to claims that they are greenwashing even if they can otherwise be properly substantiated with accurate scientific data.
The Competition Bureau has indicated that it will be issuing guidance regarding its enforcement approach to the new greenwashing amendments and recently concluded a public consultation process to inform its enforcement approach and will likely have heard many concerns similar to the above. However, even if its guidance addresses some of the above concerns, it will not bind private parties who may be motivated to seek private actions for any number of reasons, regardless of what any bureau guidance says.
Rational approach to climate policy required
It is safe to say that the unintended impacts of the new greenwashing amendments have sewn seeds of confusion and upset in the marketplace. They come at a time when businesses are struggling to meet the increasing informational demands of their stakeholders while managing their disclosure risk. The greenwashing amendments put boards and executives in an uncomfortable position — should they use their best efforts to provide the information their stakeholders insist is necessary and run the risk of potentially expensive regulatory investigations or private litigation? Or not disclose and run the risk of angering investors and other stakeholders? Undoubtedly, many of them will choose the latter as the less risky approach, which will lead to more greenhushing. An absence of disclosure is unlikely to work to anyone’s benefit.
Businesses will still have to respond to information demands from institutional investors, but now there will be information asymmetry in the market because the information will not be widely available, and companies will have to be much more careful about what they disclose for fear of being accused of selective disclosure. If disclosure does suffer from greenhushing, then a shift in operational priorities in terms of funding for “green” projects and technology is likely to follow. Entrepreneurs with transformational technology may have a harder time attracting attention and investment if they are forced to limit their disclosure and marketing due to litigation risk. This will not be for the benefit of the planet or the economy.
What is required is a rational approach to climate policy that recognizes Canada’s unique role in the world as a country that can continue to provide the energy needed to support our growing population while leading the charge on transformational technology. The greenwashing amendments do not facilitate this process.
***
Rujuta Patel practises business and competition law. She advises on private mergers and acquisitions, corporate reorganizations and restructurings of multinational and Canadian organizations, and a variety of commercial matters. She advises on all types of commercial contracts, including purchase and sale agreements, project documentation, supply agreements, service agreements, procurement documentation, shareholder agreements, and partnership agreements. She is also an English solicitor and advises on international commercial transactions. She also advises on competition matters and foreign investment review matters. She has extensive experience in representing clients from a wide range of industries on competition matters and obtaining merger approvals, including those involved in the energy, infrastructure, resources, cannabis, food and agriculture, construction, transport, and real estate industries. She also advises clients on structuring their business arrangements to ensure compliance with Canadian competition legislation. She has represented foreign investors from various countries in obtaining approvals for their investments under the Investment Canada Act. She has been recognized in The Best Lawyers in Canada 2022 in the field of competition/antitrust law.
***
Andrew Pollock maintains and manages knowledge for the business law group. With two decades as a business lawyer, law firm partner and knowledge lawyer, Andrew brings deep substantive knowledge and the skills to turn knowledge into tools we can use to offer the most efficient and effective legal services. Andrew closely follows legal, business and practice developments to ensure our clients have access to the most thoughtful, current and practical legal precedents.