This blog was written with assistance from Summer Law Student Alex Woitas.
As discussed in our previous post, "generational" changes to the Competition Act (the "Act") are now in force, as Bill C-59 received royal assent this past June.
This insight focusses in on the newly added "anti-greenwashing" provisions to the deceptive marketing practices sections of the Act that require that environmental claims made by businesses be adequately and properly tested or substantiated in an attempt to prevent "greenwashing." Claims which are found to contravene the anti-greenwashing provisions may attract civil liability and hefty monetary penalties.
The amendments to the Act also introduce a new process which allows the Commissioner of Competition (the "Commissioner") to issue a certificate temporarily exempting certain agreements and arrangements from application of the Act's criminal and civil competitor collaboration provisions if satisfied that the parties have proposed the agreement for the purpose of protecting the environment and that the agreement is unlikely to substantially lessen or prevent competition. This new certification process helps to provide some comfort to competitors that may wish to collaborate on legitimate environmental initiatives without concern of contravening the Act.
Additionally, other amendments to the Act will come into force on June 20, 2025. This will allow private parties to seek remedies for the anti-competitive conduct of another person or business, including claims of greenwashing. While entities found to have engaged in greenwashing cannot be ordered to make monetary payments to the private parties who commence such an action, they can be ordered to pay significant monetary penalties to the federal government.
Environmental claims
Greenwashing generally refers to the practice of making claims which represent that a business or its products are more environmentally friendly or "greener" than they really are. The Competition Bureau (the "Bureau") uses the term to refer to environmental claims that are deceptive because "they are false, misleading or not adequately and properly tested or substantiated."
The amendments to the Act include revisions to the civil misleading advertising provisions which deem representations regarding the environmental benefits of a product, business or business interest to be a misleading representation, unless:
- For representations about a product, such representations are based on "adequate and proper testing," the proof of which lies with the party making the representation; or
- For representations about a business or business interest, such representations are based on "adequate and proper substantiation in accordance with internationally recognized methodology," the proof of which lies with the party making the representation.
If the Federal Court finds that a party has contravened the anti-greenwashing provisions, it may order the payment of the following administrative monetary penalties set out in s. 74.1 of the Act:
- For individuals, the greater of:
- $750,000 on first orders and $1 million on subsequent orders; and
- Three times the value of the benefit derived from the deceptive conduct, if that amount can be reasonably determined.
- For corporations, the greater of:
- $10 million on first orders and $15 million on subsequent orders; 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 revenues.
Guidance for businesses regarding environmental claims and request for feedback
The Bureau has acknowledged that the new anti-greenwashing provisions have attracted considerable attention from consumers and business. The Bureau has also indicated that it intends to publish further guidance in the near future to facilitate compliance with the new provisions.
As part of its development of new guidance, the Bureau has launched a public consultation process in order to gather perspectives and feedback from the public. Particularly, the Bureau is asking for input relating to the enforcement and scope of the amendments to the Act. Submissions received by the Bureau will be published online (unless otherwise requested) to ensure transparency in the consultation process. Interested parties are invited to submit their thoughts by September 27, 2024.
In the meantime, the Bureau has released some interim guidance regarding environmental claims and greenwashing, which includes high-level tips to help businesses make sure that they "stay on the right side of the law" when it comes to environmental claims. In particular, the Bureau outlined the following categories of greenwashing complaints it regularly receives:
- Composition of products and their packaging;
- Process of production, including claims about the resources, energy or material used in that process;
- Disposal of products after use, including claims that a product is fully compostable or recyclable;
- Claims of comparison between products or services;
- Vague claims, e. claiming a product is eco-friendly with no specification as to why or how the product is environmentally beneficial; and
- Claims about the future.
The Bureau also provided the following general tips for businesses who are considering making environmental claims:
- Be truthful, and not false or misleading;
- Be mindful of the general impression your claim imparts;
- Ensure claims are properly and adequately tested, including claims regarding performance, efficacy or the length of life of a product;
- Claims of comparison must be specific about what is being compared;
- Avoid exaggeration;
- "When in doubt, spell it out"; and
- Avoid aspirational claims about the future; claims must be factual rather than aspirational.
If a business wishes to make a forward-looking claim, it should:
- Have a clear understanding of what needs to be done to achieve what is being claimed;
- Make sure to have a concrete, realistic and verifiable plan in place to accomplish the objective, with interim targets; and
- Be sure there are meaningful steps underway to accomplish the plan.
To determine whether a claim has been adequately and properly tested, the Bureau looks to various elements related to the general impression an advertisement makes on consumers. What is considered "adequate and proper" testing will depend on the general impression that the advertisement makes on consumers and must be conducted prior to making the claim. In its interim guidance on environmental claims, the Bureau directed readers to a summary which identifies the following factors as indicators of an "adequate and proper" test:
- It is done under controlled circumstances, controlling for external variables;
- Subjectivity is eliminated as much as possible;
- It is not necessarily measured against a test of certainty, but it should establish that the results are not mere chance or a one‑time effect;
- It should establish that the product causes the desired effect in a material manner; and
- The results of the testing support the claim made.
Environmental certificates regarding collaboration agreements or arrangements to protect the environment
The amendments also introduce a new process which allows the Bureau to certify certain environment-related agreements and arrangements such that those agreements and arrangements will be exempt from the criminal and civil competitor collaboration provisions under the Act.
The Commissioner may issue a certificate where satisfied that: (i) a party or parties propose to enter into an agreement or arrangement that is for the purpose of protecting the environment; and (ii) that the agreement is not likely to prevent or lessen competition substantially in a market.
Upon receipt of the request, the Commissioner has a duty to consider the request as soon as practicably possible, and the parties seeking the certificate have a duty to provide the Commissioner with any information related to the agreement or arrangement on request. Once issued (on terms or otherwise), the parties to the certified agreement or the arrangement will be exempt from the criminal and civil competitor collaborations provisions under the Act with respect to the certified agreement or arrangement for a period of 10 years (plus any renewal period).
This new certification process helps to provide some comfort to competitors that may wish to collaborate on legitimate environmental initiatives without concern that the criminal or civil provisions of the Act will be triggered by virtue of the collaboration itself. Additionally, the certification process allows a party to ensure their business plans are in accordance with the Act in an advanced ruling by the Commissioner.
Private actions
The amendments to the Act expand the circumstances in which private parties may seek remedies for the civilly reviewable anti-competitive conduct of another person or a business. However, these changes will not come into effect until June 20, 2025.
Previously, private parties could only seek remedies in relation to the Act's "restrictive trade practices" provisions (ss. 75, 76, 77 and 79), and these parties could not be awarded monetary relief. Under the amended provisions, private parties will also be able to commence private actions for deceptive marketing (s. 74.1), which includes greenwashing.
The Tribunal will also be empowered to make monetary awards in amounts "not exceeding the value of the benefit derived" from the conduct, which are to be distributed to the applicant and other persons affected by the conduct. This will essentially create a new form of "quasi" class action remedy under the following sections:
- Section 75 (refusal to deal);
- Section 76 (price maintenance);
- Section 77 (exclusive dealing, tied selling, market restriction);
- Section 79 (abuse of dominance); and
- Section 90.1 (anti-competitive agreements between competitors).
The Tribunal will not be permitted to grant monetary awards to private persons in relation to applications under section 74.1, suggesting that this new monetary remedy will not be applicable to the new anti-greenwashing provisions. That being said, the monetary penalties set out in s. 74.1 of the Act could still be ordered in private actions based in greenwashing.
Other changes relating to private actions include:
- Relaxed standards to obtain leave to bring private actions: applicants will only be required to demonstrate that they have been affected in the "whole or part" of their business (sections 75, 77, 79 and 90.1), or that it is "in the public interest" that leave be granted (section 74.1); and
- Approval of private settlements: agreements to settle private actions will be subject to approval by the Commissioner, who is empowered to apply to the Tribunal to challenge its terms.
Key takeaways
The legislative landscape regarding the regulation of competition in Canada continues to evolve. In this new legislative context, it is of the utmost importance for businesses to understand the risks of making environmental claims and the need for proper and adequate testing or substantiation in the circumstances. MLT Aikins will continue to monitor pronouncements by the Bureau in this regard.
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.