Increased scrutiny on greenwashing in Canada ushers in changing regulations
Greenwashing, a deceptive marketing tactic where companies overstate or misrepresent their environmental commitments, is a growing area of concern in Canada. As consumer interest in sustainability rises, businesses are incentivized to market themselves as environmentally conscious. However, in the hopes of appearing more “green”, companies run the risk of making misleading claims about their environmental practices, opening themselves up to potential litigation.
Over the past few years, there has been an increase in greenwashing allegations. Most recently, a US clothing manufacturer came close to facing a class-action lawsuit for allegedly making false claims about the sustainability of their products. The case was ultimately dismissed, however, due to the plaintiff’s failure to provide evidence. Similarly, a US manufacturer of consumer goods is currently facing a class-action lawsuit for allegedly misrepresenting the recyclability of their trash bags. Despite stemming from different industries, both lawsuits highlight the increased scrutiny consumers are placing on companies' environmental claims in the US.
It is only a matter of time before such greenwashing claims become more prominent in Canada, as well. In fact, Canadian businesses have already faced criticism and undergone investigations for publicly supporting climate action while privately engaging in environmentally harmful practices; marketing themselves as "clean" or "carbon-neutral" without substantiation; and over-emphasizing their environmental initiatives without disclosing that these efforts only represent a fraction of overall operations.
To prevent potential litigation, Canadian companies should ensure compliance with relevant regulations and statutes.
Securities regulations
Securities regulators have taken steps to prevent greenwashing, particularly in the investment fund industry. In 2022, the Canadian Securities Administrators issued guidance on disclosures for environmental, social, and governance (“ESG”) funds, emphasizing the importance of factual and balanced reporting to avoid creating a false impression of sustainability. ESG and other investment funds that fail to provide accurate disclosure can be subject to shareholder lawsuits, investigation by securities regulators, or potential securities class actions based on alleged misrepresentation.
Competition Act
The Competition Act contains both criminal and civil provisions that address deceptive marketing. Subsection 52(1) criminalizes false or misleading claims with penalties including fines and/or imprisonment, whereas subsection 74.01(1)(a) addresses civil, reviewable offenses.
The Competition Bureau also receives and actively investigates greenwashing complaints. Most notably, in 2022, the Competition Bureau investigated a manufacturer’s recyclability claims for single-use coffee pods. The Bureau found the claims to be misleading, resulting in a settlement requiring the manufacturer to pay a $3 million fine, donate to environmental charities, and cover the cost of the Bureau’s investigation. Additionally, the manufacturer faced class actions in both the US and Canada based on alleged misrepresentations regarding these claims.
Thus, companies that are investigated and penalized by the Bureau often face further consequences through litigation.
Bill C-59 - Amendments to the Competition Act
Bill C-59, currently under consideration, proposes amendments to the Competition Act aimed at addressing greenwashing. These amendments would require businesses to substantiate any environmental claims about their products with “an adequate and proper test.” As it stands now, the amendments focus on products only, however, members of the Competition Bureau have pushed to expand the scope of the amendments to also include general environmental claims about businesses.
Consumer protection acts
Most provinces have consumer protection acts in place, aimed at protecting consumers from unfair or deceptive business practices. Like the Competition Act, these statutes prohibit businesses from making false or deceptive representations about the products or services they offer and provide various statutory rights of action. Over the last decade, there have been numerous attempts to expand the scope of consumer protection legislation and it is expected that these statutes will be used as a vehicle for future greenwashing claims. Indeed, recent class actions targeting greenwashing have already done so.
Litigation risks
Greenwashing presents significant litigation risks, including individual lawsuits and class actions, as already seen in the US. Due to growing consumer concerns regarding climate action and anticipated changes to Canadian laws regarding greenwashing, Canadian companies will find themselves increasingly susceptible to consumer claims as well as regulatory investigations and enforcement proceedings.
Conclusion
Greenwashing can result in significant legal, financial, and reputational consequences – it is therefore imperative for companies to exercise caution and proper due diligence when making environmental claims about their products or business practices. Recent experience in the US, which highlights the growing scrutiny on such practices, indicates that Canadian businesses will likely face similar challenges, especially as statutes are amended and consumer awareness increases. Canadian companies must continue to prioritize transparency and accuracy in their environmental claims to avoid legal repercussions. The Competition Bureau recommends adhering to best practices, ensuring that environmental claims are truthful, specific, substantiated, and not misleading.
