The new prohibition against greenwashing under the Competition Act took effect on June 20, 2024, while private actions for deceptive marketing practices will take effect next year. This prohibition merely codifies existing law against deceptive claims about the environmental benefits of a product and introduces an additional new requirement for general environmental claims by a business to align with internationally recognized methodologies (including Canadian best practices). Canadian businesses may be concerned about their potential liabilities under the new regime and the uncertainty surrounding the Competition Bureau and Competition Tribunal’s approaches to applying the new provisions. We expect that upcoming consultation and guidance from the Competition Bureau will help clear the air regarding the intended enforcement approach and do not foresee the Competition Tribunal greenlighting frivolous and vexatious private actions.

Greenwashing refers to misleading consumers about a company’s environmental practices or the environmental benefits of a product. As environmental and sustainability factors become increasingly important to consumers, businesses are responding to this demand by creating and promoting “green” messaging about their activities and products. This trend has reinforced greenwashing as a key enforcement priority for the Competition Bureau.

Since 2006, the Bureau has settled approximately 14 cases related to alleged false or misleading environmental claims and litigated only one, despite conducting investigations into several others in the last couple of years due to greenwashing complaints by activist interest groups. The Bureau’s enforcement approach has historically focused on product specific claims but a significant portion of the complaints the Bureau receives involve more general or forward-looking claims about a business or a brand as a whole.

The new greenwashing provisions under the Competition Act introduce two additional reviewable practices. These changes are concerned with how businesses communicate environmental claims about protecting or restoring the environment or mitigating the impacts of climate change to the public:

• Green claims about a product. Statements, warranties or guarantees about a product’s environmental benefits must be supported by adequate and proper testing. This new provision appears to merely be a codification of existing Bureau enforcement practices concerning environmental claims tied to product sales.
• Green claims about a business. Representations about the benefits of a business or business activity must be supported by adequate and proper substantiation in line with internationally recognized methodology.

The new amendments place a reverse onus on businesses to prove the claims they make. It includes, for example, any representations about carbon neutrality, net-zero, emissions, recyclability/biodegradability, eco-friendliness or sustainability efforts.

The new requirement for representations to be in line with “internationally recognized methodology” is undefined and its nebulous wording has raised concerns that businesses will likely face challenges to substantiate their claims without clear guidelines. To support compliance efforts, substantiating claims using methodologies that are internationally recognized can include standards recognized by governments, industry groups or standard-setting organizations, such as International Sustainability Standards Board and the United Nations report entitled Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions. According to the report presented by the Standing Senate Committee on National Finance, this analysis should also include “federal and other Canadian best practices”, such as those set out by Environment and Climate Change Canada.

In addition to the two new reviewable conduct provisions, the Act will also provide a private right of action for alleged deceptive marketing practices starting in June 2025. Private parties will be able to initiate proceedings at the Competition Tribunal where the Tribunal determines that doing so is in the “public interest”. The potential monetary penalties can be substantial: up to the greater of (1) $10 million for a first time offence; and (2) three times the value of the benefit obtained from the deceptive conduct, or, if that amount cannot be reasonably determined, 3% of the corporation’s annual worldwide gross revenues.

Takeaways for Canadian Businesses

While the expansion of private access may increase uncertainty for Canadian businesses in the absence of clear guidance from the Competition Bureau and Competition Tribunal about how the new provisions will be interpreted (especially in light of the potential for substantial financial penalties), we do not expect that the “sky is falling” for existing claims that have been made with appropriate support. Other than cases where businesses clearly violate the law by making unfounded claims, we do not anticipate a significant wave of ‘greenhushing’ or that successful private party litigation will occur.

Industry players in Canada making legitimate efforts to support the transition to a green economy should not be discouraged or hindered by concerns about unintended consequences, for the following reasons:

• Guidance from the Competition Bureau. The Competition Bureau is assessing the impact of the new legal requirements and will provide guidance (in consultation with a broad range of stakeholders and the public) that will offer transparency and predictability for businesses about enforcement of the law, including potentially about the types of environmental claims that can (and cannot) be made and how to properly substantiate them. This guidance is expected well before the private right of action comes into force in June 2025, which will help inform any potential private litigation about what may be considered deceptive where environmental initiatives are involved. This timeline should also allow businesses to make further adjustments, if necessary, prior to facing potential legal challenges by private parties.
• Gatekeeping role for the Competition Tribunal. Private parties will require leave from the Tribunal before they can commence a legal action starting next year. While the legal test for meeting the “public interest” requirement is new and yet to be tested, businesses can expect the Tribunal to exercise its gatekeeper role and filter out frivolous and vexatious claims while focusing on material ones. Canadian businesses with well-substantiated representations are unlikely to face significant penalties. In our experience, most businesses already adhere to internationally recognized standards, which provides a strong defense against potential legal challenges to their marketing and advertising representations.
• Ground environmental representations in specific and realistic terms. Businesses should not make representations about their brand, activities or products using imagery and language that is vague, overly broad, absolute and unqualified. Instead, ground environmental representations in specific, measurable and verifiable terms. This approach prevents conveying a general impression that exaggerates the benefits of a company’s business operations or the sustainability of a product that in reality are nuanced and context-specific.
• Gloss on disclosures. Businesses should consider providing on a go-forward basis additional context, clarification or detail in their marketing literature to help consumers better understand the basis for the representations. For example, disclosing the specific environmental standards or certifications supporting the claims, as well as outlining the methods used for substantiating claims and disclaiming that their accuracy is based on the methodologies available at the time the representations were made. This acknowledges that circumstances might change, affecting the accuracy of those claims in the future. The new greenwashing provisions and requirement for environmental claims to be adequately and properly supported under the Act do not apply retroactively to past claims made in publications (such as annual reports or ESG reports) that are also still accessible on a company’s website or other media. Businesses may choose to add disclaimers to old content to enhance clarity that these statements were made before the Act’s requirements came into effect.

Conclusion

The new prohibitions on greenwashing and the upcoming private right to action underscore the need for businesses to ensure that their sustainability efforts are substantiated with evidence before any representations are made to the public.

As businesses navigate these new requirements, guidance from the Competition Bureau and the Competition Tribunal’s gatekeeping function will be crucial in shaping compliance and mitigating legal risk.

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