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) amended the Competition Act to establish standards for assessing green claims and expanded the ability of private parties to bring actions challenging those claims as "greenwashing."
These new green marketing rules introduce uncertainty and could expose corporations pledging on environmental initiatives to significant risks. Some companies have already reacted cautiously to this law by taking down and amending documents on their websites, citing uncertainty regarding how the law will be interpreted and enforced. This has raised concerns that the law could increase "greenhushing" – muting communications regarding environmental goals and practices to avoid any possible violations.
Key Takeaways:
Notable amendments to Canada's Deceptive Marketing Practices of the Competition Act include:
- Establishes criteria for evaluating environmental claims but leaves these criteria undefined, creating uncertainty as to how to comply
- Includes a new and expansive enforcement process allowing private parties to bring actions challenging green claims the Competition Tribunal deems to be in the "public interest"
- Explicitly subjects companies to the Act's substantial penalties where green claims are deemed deceptive
Businesses can expect even greater scrutiny of green claims and an increase in private actions challenging those claims. Accordingly, businesses should comprehensively review green claims, including those made on their websites, in ESG Reports and marketing materials.
Green Claims
Green claims about a product must be "based on an adequate and proper test," while green claims about a business or business activities must be "based on adequate and proper substantiation in accordance with internationally recognized methodology" (emphasis added). Because neither of these criteria are defined in the Act, it is unclear how they will be interpreted and enforced.The "adequate and proper test" criterion has been applied and will continue to apply to claims regarding a product's "efficacy or length of life," but it is uncertain how it will be interpreted when considering green claims about a product. Moreover, the burden of proof lies with the entity that allegedly made a misrepresentation.
Criteria to evaluate green claims under development by the Federal Trade Commission in the U.S. and by the European Union will likely inform how the Competition Law criteria are interpreted and applied. It is unclear what "substantiation" may be demanded with respect to representations in the form of aspirational goals to reduce impacts or emissions where a company's growth may be complicating achieving progress towards those goals. B&D has experience interpreting internationally recognized methodologies such as the GHG Protocol, EU CSRD, ISSB, and GRI, amongst others. (More on the litigation risk of greenwashing from B&D.)
Enforcement
Beyond the creation of the new prohibition against unsubstantiated green claims, the most significant development is that Canada now permits private litigants to initiate proceedings to review a company's green claims seeking monetary relief. Private parties may bring these actions on behalf of themselves and others, as the Competition Tribunal may now grant leave to file the claim where the Tribunal finds it is in the "public interest."
The Competition Act imposes heavy penalties on entities that engage in deceptive marketing practices. Corporations can be subject to a penalty of 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 can be used).
The court can additionally orderentitiesto stop engaging in violative conduct and publish a notice of the conduct, which may also have implications for brand reputation.
Other Notable Environmental Impacts of the Act:
- The Act creates a certificate regime for parties to an agreement made "for the purpose of protecting the environment." The Commissioner may now issue a certificate where they deem an agreement for this purpose satisfactory, provided that it won't substantially lessen competition in a market.
- The Act creates refundable investment tax credits for eligible
carbon capture, utilization and storageequipment and for eligible
clean technology equipment.
- Enacts investment tax credit for businesses that incur qualified expenditures related tocarbon capture, utilization and storageprojects after 2021 and before 2041.
- Creates a new section of the Income Tax Act that introduces a 30% refundable investment tax credit for eligible investments in clean technology equipment, to be phased out over time.
- The Act enacts the Canada Water Agency Act and establishes the Canada Water Agency as a standalone entity reporting to the Minister of the Environment. The intent is to coordinate the efforts of the 20 departments and agencies addressing freshwater challenges.
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