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Shades of Green: Canadian Greenwashing Litigation Primer

Published:

August 26, 2024

Author(s):

• Melanie Gillis
• Lucia Westin-Eastaugh
• Alexandra Gosse
• Basia Dzierzanowska

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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:

• How frequently to report.
• What content to report – and not to report.
• How to report in terms of the reporting form, method and distribution.
• Which of the numerous – and competing – ESG performance tracking standards to choose.

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:

• ESG due diligence and disclosure, including environmental, is now expected of M&A transactions – and lenders have pulled out of deals due to poor ESG performance, a trend likely to intensify.

• The December 2022 Treasury Board Standard on Embodied Carbon in Construction requires the reporting and reduction of the embodied carbon footprint of all new major government construction projects. And while this reporting obligation is currently limited to concrete, it’s likely to expand to other construction elements.

• The April 2023 Treasury Board Standard on the Disclosure of Greenhouse Gas Emissions and the Setting of Reduction Targets requires suppliers to individual federal government procurements valued at over $25M to disclose their Greenhouse Gas (GHG) emissions and set reduction targets.

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:

• In March 2024, Canada’s Office of the Superintendent of Financial Institutions (OFSI) published Guideline B-15: Climate Risk Management setting out its expectations for the management of climate-related risks for federally regulated financial institutions – including climate-related financial disclosures. Technically the framework will directly impact banks and insurers. But banks and insurers will in turn collect climate risk and emission information from their clients so practically, their clients will be required to disclose their climate-related information to access financing.

• Canadian securities laws arguably already apply to an issuer’s disclosure of climate-related information. For example, when completing their annual information forms issuers are currently required to disclose “material” risk factors – which can include environmental risks – that could influence an investor’s decision to purchase their securities. The Canadian Securities Administrators’ (CSA) March 2024 Staff Notice 81-334 (Revised) ESG-Related Investment Fund Disclosure gives investment funds guidance on how to disclose ESG factors in part, “to reduce the potential for greenwashing”. And more are likely coming. In October 2021, the CSA released proposed National Instrument 51-107 Disclosure of Climate-Related Matters and Companion Policy 51-107CP Disclosure of Climate-Related Matters. Neither is final, but both would require most issuers to disclose certain climate-related matters.

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:

• Federal Competition Act. The Competition Act applies to virtually every industry sector. The Act prohibits representations, including any form of statement, warranty or guarantee of a product’s performance, efficacy or life, including claims not based on adequate and proper testing, that are false or misleading in any material respect. And effective June 20, 2024, Bill C-59 amended the Competition Act to provide that a person engages in reviewable conduct if they assert that their product or business activity will protect or restore the environment or address climate change impacts, without having sufficient and proper substantiation according to internationally recognized methods. While the requirement that the party making the representation must provide substantiation in accordance with internationally recognized methodology has been widely criticized as “vague” and “undefined”, the Competition Bureau has indicated its intention to issue guidelines to offer greater clarity. A “representation” can take many forms, including messages, pictures, verbal communications, online and in-store advertisements, social media messages and promotional emails. Whether a claim is false or misleading is based on both its literal meaning and its “general impression”. A claim is “material” if the general impression it conveys could influence someone to do something like buy or use a product or service. Bill C-59 also establishes a private right of action for individuals against companies accused of violating the Act’s deceptive marketing rules. This means that a private litigation process will be available for greenwashing claims. The Competition Bureau of Canada, specifically its Deceptive Marketing Practices Directorate, has broad authority under the Act to investigate and prosecute false, misleading, vague or unsubstantiated environmental representations about a product or business.
• Sector-Specific Federal Legislation. Several other Canadian statutes set out mandatory provisions and prohibit false or misleading representations in specific sectors. For example, the Consumer Packaging and Labelling Act applies to prepackaged non-food consumer product labelling. The Textile Labelling Act applies to textile fibre products. The Competition Bureau also has authority over greenwashing allegations claims based on these two Acts.

• Environmental Legislation. Both federal and provincial statutes prohibit greenwashing. In particular, the federal Canadian Environmental Protection Act (CEPA) outlines offences relating to environmental protections in Canada. It’s an offence under CEPA to knowingly or negligently provide any person or to file any documents with false or misleading information about any matter under the Act. Environment and Climate Change Canada enforces CEPA and has broad investigative and remedial authority.

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:

• National Instrument 51-102 – Continuous Disclosure Obligations respecting forward-looking information.
• CSA Staff Notice 81-334 (Revised) – ESG-Related Investment Fund Disclosure respecting ESG disclosure by investment funds.
• Form 51-102F1 Management’s Discussion and Analysis respecting the “materiality” disclosure test.
• Form 51-102F2 Annual Information Form requiring noting of “materials risks”.
• National Policy 58-201 – Corporate Governance Guidelines, National Instrument 52-110 – Audit Committees and National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings guidelines for risk identification and management, including climate-related risks and opportunities.

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:

• It’s (relatively) easy. The Act’s prohibition of, and the Bureau’s broad authority to investigate and prosecute, false, misleading, vague or unsubstantiated environmental representations about a product or business are pretty clear. A complainant doesn’t require legal “standing” to launch a complaint with the Bureau, as they sometimes do to launch a civil lawsuit and which can pose a hurdle to environmental interest groups. An individual can file a complaint with the Bureau; if the Bureau decides its warranted, it takes it from there – from investigation to inquiry to prosecution. And if six residents together file the complaint, the Bureau is compelled to launch an inquiry. The Bureau’s inquiries are generally private and the source’s identity and information provided confidential. And the evidentiary threshold is low: the Bureau doesn’t have to prove that any person was deceived or misled as a result of such information.

• It’s (relatively) fast. Civil litigation typically takes a while. The process under the Act isn’t fast – but it can be faster than civil litigation.

• It can pack a punch. The Bureau can prosecute a complaint under either of two adjudicative regimes. First, it can prosecute materially false or misleading representations made knowingly or recklessly before a criminal court. Penalties range from a maximum fine of $200,000 and/or one year of imprisonment on summary conviction, to a fine in an amount of the court’s discretion and/or up to 14 years’ imprisonment on indictment conviction. Second, it can prosecute materially false or misleading representations before the Competition Tribunal, the Federal Court of Canada or a province’s superior court. The Competition Act gives courts a range of remedial powers they don’t always have in in a civil misrepresentation lawsuit, including one or a combination of an order to cease and desist, publish a notice, restitution to consumers, an interim injunction to freeze assets, and pay an administrative monetary penalty. Penalties range from a maximum of $750,000 for individuals and $10M for corporations for a first occurrence to $1M for individuals and $15M for corporations for subsequent occurrences.

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.

• Vehicle Emissions. In an investigation launched in 2015, Environment and Climate Change Canada investigated Volkswagen Aktiengesellschaft’s compliance with the federal Canadian Environmental Protection Act (CEPA) and its On-Road Vehicle and Engine Emissions Regulations. Its investigation revealed that between 2008 and 2015, Volkswagon imported 128,000 vehicles into Canada that failed to meet federal emissions standards – and that it did so knowingly. Volkswagen pleaded guilty to 60CEPA offences for misleading information and unlawful importation of vehicles that failed to meet emissions standards. In 2020, the Ontario Court of Justice ordered Volkswagen pay $196.5M.

• Gas Pipeline. In June 2021, the Centre Québécois du Droit de L’Environnement filed a complaint with the Competition Bureau against Gazoduq Inc. and its majority shareholder, Société en commandite Symbio Infrastructure alleging they repeatedly made false representations to the public that their proposed project to construct and operate a pipeline to transport methane gas from Western Canada to Saguenay, Quebec would be carbon neutral and globally reduce greenhouse gas emissions. The complaint is pending. However, it seems unlikely the project itself will move forward at this time because the Impact Assessment Agency of Canada terminated the federal impact assessment for the project in July 2023 due to failure to provide with required information/studies within the required time period.

• Sustainability Certification. In July 2021, six individuals backed by three environmental organizations submitted a complaint to the Bureau against the Canadian Standards Association (CSA) alleging the CSA’s description of its forestry certification standard as the “Sustainable Forest Management System” standard and representations about it are false and misleading because it doesn’t prescribe or require that logging meet any definition of “sustainable.” The complaint is still pending investigation. And in November 2022, eight Canadian environmental organizations and one individual filed a complaint with the Competition Bureau against the Sustainable Forest Initiative (SFI), one of North America’s largest forest certification systems. The complaint alleges SFI’s description of its “sustainable” forestry certification standard is false and misleading because it sets out steps that could result in sustainable forestry but doesn’t require any practices meeting “sustainable”, “sustainable forestry” or “sustainable forest management” In early 2023 the Board opened an investigation into the complaint.

• Carbon Offsets. In November 2021, Greenpeace Canada filed a Canadian Competition Bureau complaint alleging Shell’s “Drive Carbon Neutral” products claims that through Shell’s Drive Carbon Neutral program customers can reduce the carbon emissions from their fuel purchases by offsetting them from three forest-based offset projects that Shell supports are false and/or misleading. The complainants allege Shell hasn’t demonstrated the validity of its carbon neutral claim and the offsets “have serious legitimacy concerns”. In November 2023, Shell retired its “Drive Carbon Neutral” program in Canada and the Bureau closed the complaint. However, it bears a striking resemblance to the complaint that led to the 2022 decision of the Dutch Advertizing Code Committee Appeal Board about Shell’s ad campaign promoting carbon-dioxide emission credits and offering customers the option to pay extra for their fuel with funds going to buy offset credits. That Board concluded “there [was] no or insufficient evidence that the forest projects in which Shell invests are actually capable of realizing the carbon credits…in a way that fully offsets the CO2 emissions of Shell’s fossil fuel.”

• Recyclability. In early 2022, the Competition Bureau found that because K-Cup pods aren’t widely accepted in municipal recycling programs except in British Columbia and Quebec, Keurig Canada Inc. had made false or misleading claims about the recyclability of its single-use coffee pods. Keurig ultimately agreed to a settlement in which it paid a $3M penalty, made an $800,000 donation to a Canadian charity focused on environmental causes, paid $85,000 to cover the Bureau’s investigation costs and changed its packaging and widely published notices about the changes.

• Environmental Alignment. In June 2022, six individuals (representatives of four climate change action groups and two First Nations) submitted a complaint to the Competition Bureau alleging the Royal Bank of Canada’s representations that it supports action to reduce greenhouse gas (GHG) emissions and address climate change are false and misleading given its continued financing of fossil fuel projects. The Competition Bureau reportedly opened an inquiry into the complaint in September 2022.

• Advertising Campaigns. In September 2022, six physicians Canadian Association of Physicians for the Environment (CAPE) submitted a complaint to the Competition Bureau against the Canadian Gas Association (CGA) alleging its advertising campaign portraying natural gas as clean and affordable is false and misleading. In November 2022, the Bureau opened an investigation into the complaint. And in March 2023, Greenpeace Canada submitted a complaint to the Competition Bureau alleging Pathways Alliance’s (a coalition of six of Canada’s largest oil sands producers) “Let’s clear the air” ad campaign claiming its members are actively reducing emissions and helping Canada achieve its climate targets are false and/or misleading. The complaint is still pending. In February 2024, Stand Environmental Society (aka Stand Earth) filed a complaint with the Competition Bureau against Lululemon Athletica Inc. alleging its “Be Planet” marketing campaign claims that its actions and products contribute to improving the environment and the restoration of a healthy planet are false and misleading. And most recently, in March 2024, Stand Earth and two B.C. residents launched a civil lawsuit against FortisBC alleging Fortis’s ad campaigns respecting the proportion of renewable natural gas in its system are exaggerated and misleads consumers. The lawsuit remains pending.

Please contact your McInnes Cooper lawyer or any member of our ESG Team @ McInnes Cooper to discuss the risks of greenwashing.

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