Canada’s Competition Act (CA) recently introduced new environmental and climate change greenwashing rules that many Canadian companies have significant concerns about. While materially false and misleading statements made to the public have always been actionable under the CA, a company can violate the new greenwashing provisions even if the claim they make is actually true. This is because the new provisions require environmental claims to adhere to a standard of evidence that presumes the statement is deceptive if the standard is not met.
The challenge for Canadian companies is that the new rules impose an ill-defined, vague standard of evidence and steep fines for ‘doing it wrong’. Specifically, environmental claims must be based on “adequate and proper substantiation” in accordance with “internationally recognized methodology“. If the company making the environmental claim is unable to meet this standard, its environmental claim will violate the CA, even if it is a true statement.
Challenges with the new provisions
We highlight a number of challenges with the new greenwashing provisions below:
Internationally recognized methodology is not defined.
The standard required to be met is vague and uncertain. The CA does not define “internationally recognized methodology”, nor does it provide Canadian companies with guidance on what is, or is not, an “internationally recognized methodology”.
The Reverse onus
Previously, the Competition Bureau had the obligation of establishing that an environmental claim was materially false or misleading. That no longer applies. If an environmental claim is challenged, the company that made the environmental claim is required to prove that the environmental claim does not violate the CA (i.e., that it is based on adequate and proper substantiation in accordance with an internationally recognized methodology), which places a heavy burden on companies accused of greenwashing.
Misalignment with Securities Law
Canadian public companies are already subject to well-established disclosure and liability regimes under Canadian securities legislation. A public company may be required to make representations or statements about its environmental performance or activities because it is material to its business, but such representations or statements may now subject the company to liability under the new greenwashing provisions of the CA.
Not all claims can be substantiated in accordance with existing methodologies.
An internationally recognized methodology will not address every single type of environmental claim a company may wish to make. Claiming that a product or business is “sustainable,” “clean,”, “eco-friendly”, “carbon neutral” or “low carbon”, for example, are environmental claims that lack globally consistent definitions. As a result, use of such terms risks violating the CA.
Calculating emissions is not always straightforward.
While some emissions can be derived directly, most emissions are measured indirectly. No standard method exists for gathering data to indirectly calculate emissions. In addition, the choice of method used to indirectly measure emissions can lead to different results. Finally, estimations become increasingly theoretical as they become more remote (i.e. Scope 1 versus Scope 2 and Scope 3 emissions).
Penalties for Non-Compliance are significant.
Non-compliance with these new requirements could lead to fines of up to the greater of: (a) $10 million for a first order and $15 million dollars for any subsequent order; and (b) 3% of a corporation’s annual worldwide gross revenues.
Private rights of action will empower activist groups & place a heavy burden on companies.
Starting next June, individuals and companies, other than the Competition Bureau, will be able to pursue actions against companies for making environmental claims they believe violate the new greenwashing provisions. They will not be obligated to prove the environmental claim violates the CA. The company making the environmental claim will need to prove the environmental claim does not violate the CA.
What’s next?
The Competition Bureau has collected feedback from the public as it develops guidance with respect to the applicability of the new rules (see BD&P’s comment letter here). Until such guidance is released, the application of the new rules remains unclear.
For more information, please consult our greenwashing article or our more extensive guide to additional CA changes, or contact any member of our Competition and Foreign Investment Group or our Business Law Group.