Canada combats greenwashing with new competition law amendment

Canada is increasing accountability for environmental claims by explicitly requiring companies to substantiate claims promoting the environmental benefits of their products and business activities. Bill C-59 (which received Royal Assent on June 20, 2024) amends the Competition Act to establish standards for assessing environmental claims and expand the ability of private parties to bring lawsuits challenging those claims as “greenwashing.”

These new green marketing rules introduce uncertainty and could expose corporations that commit to environmental initiatives to significant risk. Some companies have already responded cautiously to the law, removing and changing documents on their websites, citing uncertainty about how the law will be interpreted and enforced. This has raised concerns that the law could increase “greenhushing”—silencing communication about environmental goals and practices in order to avoid any possible violations.

Key conclusions:

The most significant changes to the Canadian Competition Act regarding unfair marketing practices include:

• It sets out criteria for assessing environmental claims, but does not define these criteria, which creates uncertainty about how they should be met.
• It includes a new and expanded enforcement process enabling private parties to bring lawsuits challenging environmental claims that the Competition Tribunal determines are in the “public interest”
• The law clearly imposes severe penalties on companies if environmental claims are found to be misleading.

Companies can expect even greater scrutiny of green claims and an increase in private lawsuits challenging those claims. As a result, companies should review green claims comprehensively, including those made on their websites, ESG reports, and marketing materials.

Green Claims

Green product claims must be “based on appropriate and proper test,“whereas green claims about a company or business must be “based on appropriate and proper justification in accordance with internationally recognized methodology” (emphasis added). Because neither of these criteria is defined in the Act, it is unclear how they will be interpreted and enforced. The “adequate and relevant test” criterion has been applied and will continue to be applied to claims about the “efficacy or longevity” of a product, but it is uncertain how it will be interpreted when considering ecological claims about a product. Furthermore, the burden of proof rests with the entity that has allegedly made the misrepresentation.

The criteria for evaluating green claims developed by the U.S. Federal Trade Commission and the European Union are likely to indicate how competition law criteria are interpreted and applied. It is unclear what “justification” can be required for claims that involve ambitious reduction targets or emissions where company growth may impede progress toward those targets. B&D has experience interpreting internationally recognized methodologies such as the GHG Protocol, EU CSRD, ISSB, and GRI, among others. (More on greenwashing litigation risks from B&D.)

Enforcement

In addition to the new ban on undocumented green claims, the most significant development is that Canada now allows private litigants bring proceedings to hear the company’s environmental claims for monetary compensation. Private parties can bring such suits on their own and others’ behalf, as the Competition Tribunal can now grant leave to bring a claim if it considers it is in the “public interest” to do so.

The Competition Act imposes severe penalties on entities that engage in deceptive marketing practices. Corporations may be subject to penalties of up to the greater of (a) up to $10,000,000 (and up to $15,000,000 for each subsequent order) or (b) three times the value of the benefit derived from the deceptive conduct (if the value of the benefit cannot be determined, 3% of the corporation’s annual worldwide gross revenues may be used).

The court may additionally order entities to cease infringing conduct and publish information about such conduct, which may also affect the brand’s reputation.

Other significant environmental impacts of the Act:

• The Act creates a system of certificates for parties to an agreement entered into “for the purpose of protecting the environment”. The Commissioner can now issue a certificate if he finds the agreement satisfactory for that purpose, provided it does not significantly reduce competition in the market.
• The Act introduces refundable tax relief for investments in qualified equipment for the capture, use and storage of carbon dioxide, as well as in qualified equipment for clean technologies.
  • Establishes an investment tax credit for businesses that incur eligible expenses related to carbon capture, use and storage projects after 2021 and before 2041.
  • Creates a new section of the Income Tax Act that introduces a 30 percent refundable tax credit for qualifying investments in clean technology equipment, which will be phased out.
• The Act enacts the Canada Water Agency Act and establishes the Canada Water Agency as a separate entity under the Minister of the Environment. Its purpose is to coordinate the efforts of 20 departments and agencies dealing with freshwater issues.