Going after greenwashing

When making environmental claims about products and practices in Canada, companies can no longer just talk the talk. They must also walk the walk to back up what they’re saying.

New greenwashing provisions that were among the amendments to the Competition Act that became law last month with the passage of Bill C-59 prohibit deceptive environmental claims, requiring them to be based on "adequate and proper tests" or "internationally recognized methodologies."

The legislation also introduces private rights of action, allowing private parties to bring greenwashing claims before the Competition Tribunal, and broadens the criteria for granting leave. Currently, only the Competition Bureau can bring a deceptive marketing application.

“This is a win for Canadians and the economy,” says Catherine McKenna, former minister of environment and climate change with the Trudeau government and chair of the UN's High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities.

“Greenwashing is a massive issue, and when you think of a competition law, it's supposed to protect consumers, and it's supposed to ensure that the market works properly. Greenwashing, where people say things that are not true, has a very negative impact on consumers who are trying to figure out what products and services are actually good for the environment.”

According to McKenna, a former competition lawyer, it also impedes investors’ need for proper information.

A Deloitte survey last year found that 57 per cent of Canadian consumers don’t believe most green claims brands make, and are confused and frustrated by how widespread they are. As a result, 46 per cent weren’t willing to pay more for sustainable products because they had a hard time determining which were genuinely sustainable.

Julien Beaulieu, a competition lawyer who authored the report “Climate-washing: How to Turn the Tide,” says because people haven’t had any way to verify companies’ claims, they’re vulnerable, which makes them skeptical, given the potential for deception. As a result, environmental claims have become cheap talk.

Ultimately, that lack of trust hurts the brands investing in greener, more sustainable products and practices because they can’t differentiate themselves from the greenwashers.

“This legislation will increase the value of environmental information and help shift from a world where it’s cheap talk to a world where it’s something people can examine and take into consideration when they make decisions,” Beaulieu says, whether it’s about where to bank or whether to work for a particular company.

Greenwashing penalties are severe, with administrative monetary penalties on a corporation of up to the greater of $10 million ($15 million for subsequent orders) or three times the benefit gained from the misrepresentation. If that can’t be determined, corporations are looking at three percent of annual worldwide gross revenues.

In the days before the legislation received royal assent, Pathways Alliance, a group of fossil fuel companies in Alberta’s oil patch, pulled down all content on its website and social media feeds and replaced it with this notice.

Other extractive companies followed suit.

In a joint news release, Alliance members Canadian Natural Resources, Imperial Oil Ltd., MEG Energy, Cenovus Energy, ConocoPhillips Canada, and Suncor Energy said, “Our ability to remain transparent has been significantly compromised as a result of Bill C-59.”

“Creating a public disclosure standard that is so vague as to lack meaning and that relies on undefined "internationally recognized methodology" opens the door for frivolous litigation, particularly by private entities who will now be empowered to directly enforce this new provision of the Competition Act,” they said.

“This represents a serious threat to freedom of communication.”

Lisa Baiton, president and CEO of the Canadian Association of Petroleum Producers, said that the threat of very significant penalties will curtail the ability of many Canadians to participate in debates around climate and environmental policy and prevent businesses from communicating their environmental efforts.

“The effect of this legislation is to silence the energy industry and those that support it in an effort to clear the field of debate and to promote the voices of those most opposed to Canada’s energy industry,” she wrote in a statement.

“As a result, CAPP has chosen to reduce the amount of information it makes available on its website and other digital platforms until the Competition Bureau has released further guidance on how these amendments will be implemented.”

Baiton says the amendments were put forward without consultation, clarity on guidelines, or the standards that must be met to achieve compliance, putting businesses across Canada “at significant risk.”

"There’s certainly uncertainty that’s been introduced,” says Conor Chell, an ESG lawyer with KPMG in Calgary.

The legislation requires that representations of a product’s benefits for protecting or restoring the environment are supported by adequate and proper tests, while representations of a business or business activity for protecting or restoring the environment or mitigating the causes or effects of climate change — such as net zero and carbon neutral claims — must be based on an internationally recognized methodology.

Chell says while adequate and proper tests are defined relative to other pieces of legislation in case law, the Act doesn’t provide a definition or guidance around internationally recognized methodologies.

However, he thinks the government wanted a flexible approach rather than an exhaustive or prescriptive one to avoid industry and geographic-specific standards and methodologies.

Beaulieu says plenty of terms are undefined in the Act, but “it's a law of general application, so it makes sense that it's drafted in general terms.”

It’s up to the courts to interpret terms, but the government can adopt regulations if it wants to be specific.

In light of the “large number of requests for guidance” on interpreting the greenwashing provisions, the Competition Bureau has launched public consultations and plans to develop guidance on an accelerated basis.

As for industry concerns about the provisions feeding “frivolous litigation,” Beaulieu points out that only the Competition Bureau can file a lawsuit for the next year. Once the private right of action is live, a party must obtain leave from the Competition Tribunal before a claim can proceed.

“The Bureau is a careful agency. It’s quite prudent and knows the effect that its enforcement actions can have. It won't be interested in chilling green claims further.”

That said, Chell finds it interesting that the enforcement and greenwashing provisions were finalized before the mandatory legal reporting requirements for ESG and sustainability.

“It does create a substantial amount of legal risk for any organization with public ESG or sustainability disclosures,” he says.

“What this means for most companies is an actual reset of not only their sustainability or ESG disclosure, but also their strategies, programs, policies, processes and controls. Everything that they do and the way in which they approach sustainability now needs to be looked at through a legal lens.”

In a joint statement, Alberta Premier Danielle Smith, Energy and Minerals Minister Brian Jean and Environment and Protected Areas Minister Rebecca Schulz called the legislation “draconian” and “absurd authoritarian censorship” aimed at preventing “private entities from sharing truthful and evidence-based information that happens to oppose the extreme and untruthful oil and gas narrative of the federal NDP and Liberals,” and “eco-extremists like Minister Stephen Guilbeault.”

McKenna points out that every party supported the legislation and says it’s not a freedom of speech issue, it’s about truth in advertising.

“This isn’t an attack on Alberta. It's not an attack on oil and gas. This applies to everyone. It's just saying that we need people to be truthful, so if you're going to say something, back it up with evidence. Canada is not inventing the wheel here,” she says, noting all G7 countries require truth in advertising.

In that vein, McKenna says it’s “very telling” that so much industry content was pulled offline ahead of Bill C-59’s passage.

“Clearly, their lawyers, I assume, have advised them that they’re very at risk because they are not being truthful in their advertising, and they cannot back up their claims.”

The industry has said it wants to be part of the solution, and many companies have committed to net zero, says McKenna, whose UN work with the High-Level Expert Group set out standards for net-zero emissions pledges. Among them is a requirement for actual emission reductions aligned with scientific targets, refraining from investing in new fossil fuel infrastructure and ending lobbying efforts against climate action.

She says Canada’s oil and gas industry is doing none of this. Oilsands emissions are rising and companies aren’t investing in clean solutions at scale. Recent reports have found that carbon capture won’t deliver the reductions the industry claims it will.

“Yet, everywhere one looks, they’re advertising, saying they’re part of the solution… when we’re in a fossil fuel climate crisis.”