August 26, 2024
On June 20, 2024, the Canadian Competition Act was amended to specifically make greenwashing claims reviewable conduct. Pressure on Canadian organizations to align themselves with “green” initiatives and supply “green” products and services is mounting, driving more to make public claims and disclosures about their environmental values and performance. It’s natural to want to paint your environmental performance in the best possible light. But there’s a thin line between transparency and ‘greenwashing’ – and a risk in crossing it. As the number of organizations making public environmental claims increase, so is the number, types and targets of greenwashing litigation. And successful or not, these claims can be both financially and reputationally costly. To help you understand – and manage – the legal risks, here’s a primer on greenwashing litigation in Canada.
Going Green
There are three key sources of the pressure on organizations to make public representations about their environmental values and performance, whether on their website, product labelling, advertising campaigns, or otherwise:
ESG Momentum. The growing adoption of ESG (Environment, Social and Governance) organizing principles globally and in Canada is leading more public and private organizations to choose to voluntarily disclose their ESG performance, primarily via continuous disclosure filings and standalone sustainability reports. But they are faced with difficult decisions:
Market Demand. Canadian consumers, both individual and business, are increasingly seeking “green” products and services. In March 2021, 49% of Canadian consumers buy from companies supportive of environmental protection and 48% purchased more biodegradable and eco-friendly products, according to Statista. And while still theoretically voluntary, if you want to sell to some business consumers then ESG-related disclosure is a practical necessity. For example:
Legal Requirements. The Canadian government is increasingly imposing mandatory ESG-related reporting obligations on organizations in areas including forced and child labour, governance diversity and the environment. For example:
As more organizations respond with public environmental claims about their values, their activities and their products or services, they face the natural temptation to paint their ESG performance in the best light. But the line between honest and transparent reporting and ‘spin’ is a thin one, and the legal risks of crossing that line are also growing.
Shades of Green
Organizations’ public environmental claims are under increasingly intense scrutiny: by regulatory bodies, by stakeholders (like environmental watchdogs and consumers) and by the public. And if their claims don’t measure up, organizations are exposed to claims of false or misleading environmental claims – aka “greenwashing”. In Canada, there are four main types of legal greenwashing claims:
Unfair & Deceptive Trade Practices Legislation. The three types of Canadian statutes that most commonly ground greenwashing litigation are:
Civil Misrepresentation Lawsuit. A person or organization can launch a civil lawsuit for misrepresentation alleging you either knowingly made a misleading representation (fraudulent misrepresentation) or you didn’t do due diligence on whether your representation was true (negligent misrepresentation). Like any civil lawsuit, the process is lengthy, time-consuming and uncertain – for all parties involved. Of particular concern to environmental groups is the requirement that a civil litigant have “standing”: a legal basis on which they are entitled to ask the court for a remedy. Generally, to have standing a claimant must be personally and directly affected or have a statutory right to standing, and a compensable injury caused by the defendant’s conduct. But the ability to prove that an individual claimant suffered a unique and specific impact of climate change and putting a number to it is a high and often insurmountable hurdle. However, in its February 2023 decision in Ecology Action Centre v. Nova Scotia (Environment and Climate Change), the Nova Scotia Court of Appeal decided the Ecology Action Centre and the New Brunswick Anti-Shale Gas Alliance had legal standing to bring forward a concern about climate change to the courts on the basis a project with a “significant” and “adverse” environmental effect informs the assessment of “seriousness” – and each of the organizations’ allegations were sufficiently “serious” for public interest standing.
Securities Regulations Breach. The Competition Act contains provisions prohibiting false or misleading representations and deceptive marketing practices in promoting the supply or use of a product or any business interest. CSA Staff Notice 51-356 – Problematic promotional activities by issuers illustrates specific problems with misleading promotional activities concerning to the Competition Bureau and reinforces its commitment to ensuring issuers’ promotional activities aren’t misleading. On November 3, 2022, CSA Staff Notice 51-364 – Continuous Disclosure Review Program Activities 2022 and 2021, the CSA specifically examined “climate change” and noted an increase in issuers disclosing their ESG performance – and an increase in greenwashing. The Notice provides guidance for issuers when disclosing ESG performance in both mandatory and voluntary disclosures. Though not yet finalized, proposed National Instrument 51-107 – Disclosure of Climate-Related Matters and its Companion Policy 51-107CP – Disclosure of Climate-Related Matters, as drafted, require most issuers to disclose certain climate-related matters. However, it’s also important to note that ESG and climate-related disclosures could also be subject to existing continuous disclosure requirements. For example:
If an issuer doesn’t comply with its disclosure obligations, the applicable securities regulators can impose a range of consequences, including adding the issuer to its defaulting reporting issuers list, directing the issuer to re-file an amended continuous disclosure filing, and/or referring the issuer to enforcement.
Canadian Greenwashing Litigation
The risk of greenwashing litigation is very real – and growing.
More Claims. There’s more climate change litigation generally and more greenwashing claims specifically, according to Columbia University’s Climate Change Litigation Databases.
Canadian Approach. To date most Canadian greenwashing litigation appears to be based on regulatory complaints to the Competition Bureau under the Competition Act, for a few reasons:
Expanding Litigants & Targets. A look at greenwashing litigation in Canada over the years also demonstrates that both the identity of those making greenwashing claims and those against which claims are being made are expanding.
Please contact your McInnes Cooper lawyer or any member of our ESG Team @ McInnes Cooper to discuss the risks of greenwashing.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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