Amendments To The Competition Act – Bill C-59 And Its Impact On "Greenwashing"

OVERVIEW

On June 20, 2024, the Federal Government passed Bill C-59, known as the Fall Economic Statement Implementation Act, 2023 (the "Bill C-59")¹, amending certain provisions set out in the Competition Act (the "Act")². The amendments to the misleading advertising provisions arise out of consumer protection concerns involving "greenwashing," a practice that regulators around the world have a keen eye on. Greenwashing is the act of providing misleading or false information to the public or investors about the environmental benefits of a company's products or operations. The Act was amended to place more accountability on businesses who make environmental claims to the public³. In particular, section 74.01(1) of the Act now requires that:

1. claims about a product's environmental benefits be supported by adequate and proper testing (the "Product Provision"); and
2. claims about the environmental benefits of a business or its activities be adequately substantiated by adequate and proper testing using an internationally recognized methodology (the "Benefit Provision").

The onus of proving compliance with these requirements lies with the person making the representation. In addition, as described below, the amendments have expanded private rights of action to the Competition Tribunal and have also introduced a process by which the Competition Bureau (the "Bureau") can exempt certain environment-related agreements from the criminal and civil collaborations provisions of the Act.

I. THE PRODUCT PROVISION – ADEQUATE AND PROPER TESTING

• Under the new provisions, businesses and individuals are prohibited from making claims about a product's environmental impact without fulfilling the "adequate and proper" test requirement.
• To ensure that a claim is based on sufficiently supported testing, the Bureau has issued a set of guidelines. Amongst these requirements, testing must be conducted before the claims are made, be carried out under controlled conditions, and substantiate the overall impression created by any marketing claims⁴.

II. THE BENEFIT PROVISION – ACCORDANCE WITH INTERNATIONALLY RECOGNIZED METHODOLOGY

• The Benefit Provision requires those making claims that their business or business activities are in some manner protecting or restoring the environment, or mitigating the effects of climate change, to also be able to substantiate those claims with adequate and proper testing, but in this case, the testing must be in accordance with "internationally recognized methodology."
• Currently, there is no universally adopted standard for environmental testing that would give full effect to this amendment. Internationally, practices and approaches to marketing regulations and consumer protection vary. However, on July 4, 2024, the Bureau issued a press release confirming that it will be developing guidance regarding these new provisions on an accelerated basis, and will be launching a public consultation in the coming weeks to gather input from stakeholders.

GREENWASHING IN PRACTICE

In 2022, after complaints by environmental activist group Stand.earth, the Bureau launched an investigation into alleged greenwashing practices by international clothing brand, Lululemon. Lululemon had introduced its "Be Planet" marketing campaign, which made broad claims about climate and environmentally friendly actions. Stand.earth's application claimed that these statements by Lululemon were false or misleading. Stand.earth referenced Lululemon's 2022 Impact Report, which showed a one-hundred percent increase in climate pollution since 2020, despite the campaign's focus on avoiding environmental harm and promoting practices aimed at restoring the environment. The Bureau is currently investigating Stand.earth's claim. Amendments to the Act, particularly those increasing routes for private litigation, will likely lead to a rise in similar claims both initiated by the Bureau and by private parties after June 2025⁵.

COLLABORATION AGREEMENTS – ENVIRONMENTAL CERTIFICATES

Amendments to the Act also introduce section 124.3(1), which allows businesses to enter into collaborative agreements with unaffiliated companies for the purposes of protecting the environment, so long as the agreement is: (i) not likely to prevent competition, or (ii) unlikely to lessen competition substantially in a market. The Commissioner of Competition ("Commissioner") can now grant a certificate indicating their satisfaction with the agreement⁶.

The introduction of this certificate can offer some relief for businesses entering into agreements for environmental protection, alleviating concerns about collusive sanctions and penalties. However, while the Commissioner can grant a certificate, the Bureau also retains the authority to revoke the certificate if the business fails to satisfy the above-mentioned criteria. Furthermore, although this certificate creates an exemption from the criminal and civil collaboration provisions of the Act, it does not apply to deceptive marketing provisions⁷.

INCREASED PENALTIES AND EXPANDED ACCESS FOR PRIVATE ACTIONS TO THE COMPETITION TRIBUNAL

Administrative Monetary Penalties ("AMPs") for violating the Act by engaging in false or misleading advertising are significant, and have been increased as part of the amendments:

• For corporations, the penalty is the greater of: $10 million CAD ($15 million for each subsequent order) and three times the value of the benefit derived from the deceptive conduct, or, if that amount cannot be reasonably determined, 3% of the corporation's annual worldwide gross revenue.
• For Individuals, the penalty is the greater of $750,000 CAD ($1 million for each subsequent order) and three times the value of the benefit derived from the deceptive conduct, if that amount can be reasonably determined⁸.

A significant change to the Act comes into force in June 2025, allowing private parties to initiate proceedings in front of the Tribunal. Previously, only businesses whose entire operations were impacted by a company's alleged uncompetitive conduct were permitted to bring applications in front of the Tribunal. Consequently, only the Bureau had the authority to commence proceedings for limited provisions, such as refusal to deal, price maintenance, and abuse of dominance, amongst others.

Effective June 2025, private parties will be able to request leave from the Tribunal for all reviewable conduct (including "greenwashing"), if it is determined that it is in the "public interest" to do so. These private litigants will be able to seek remedies from the Tribunal including temporary orders, full prohibition orders, interim injunctions and restitution orders, as well as the AMPs described above. It is expected that private litigation will increase exponentially once this provision comes into effect⁹.

KEY TAKEAWAYS

In summary, businesses should prepare to be impacted by the new "greenwashing" prohibitions in the following ways:

1. Any claims regarding product or practice benefits and impact on the environment must be supported by adequate and proper testing;
2. Claims about a business or business activities (including the services it provides) and their environmental benefits must adhere to internationally recognized methodology, a term awaiting clarification from the Bureau; and
3. There is increased potential for private litigation beginning in 2025 alongside notable penalties.

Your marketing department will need to assess if they have conducted "adequate and proper" testing in advance of making potential environmental benefit claims. The amendments expressly mention internationally recognized methodologies as the required standard for adequate testing. Therefore, businesses should consider using internationally recognized third-party compliance experts for the testing of their environmental claims.

Footnotes

1 [1] Bill C-59, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 1st Sess, 44th Parl, 2024, cl 236(1) (Assented to 20 June 2024).

2 Competition Act, RSC 1985, c. C-34.

3 Notably, "greenwashing" was not previously permitted under the Act, but rather was recognized as a false and misleading practice that would be in violation of the general prohibition against making false and misleading representations under Sections 74.01 and 52 of the Act. These amendments now codify and add specificity to the prohibition against greenwashing. In particular, if your business advertises beneficial environmental claims for its products, services or business activities, these claims can possibly contravene the Act even if they do not materially influence a purchasing decision or concern the performance of a product or service.

4 Competition Bureau. "Performance claims not based on an adequate and proper test." Government of Canada, 24 June 2022, https://competition-bureau.canada.ca/deceptive-marketing-practices/types-deceptive-marketing-practices/performance-claims-not-based-adequate-and-proper-test.

5 McGowan, Jon. "Canada's New Greenwashing Law Will Impact U.S. Companies' Climate Marketing." Forbes, 21 June 2024, www.forbes.com/sites/jonmcgowan/2024/06/21/canadas-new-greenwashing-law-will-impact-us-companies-climate-marketing.

6 Supra note 1, at cl 265.

7 Competition Bureau. "Guide to the June 2024 amendments to the Competition Act." Government of Canada, 25 June 2024, https://competition-bureau.canada.ca/how-we-foster-competition/education-and-outreach/guide-june-2024-amendments-competition-act.

8 Supra note 2, s74.1(1)(c).

9 Supra note 5.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.