Regulators and environmental organizations are increasingly focused on holding companies legally responsible for the widespread practice of greenwashing — the use of misleading or unsubstantiated claims about the sustainability or environmental attributes of a product, service or business.
In 2021, the U.K. Competition and Markets Authority and the International Consumer Protection Enforcement Network (of which Canada’s Competition Bureau (Bureau) is an active member) conducted a global sweep of over 500 websites. They found that over 40% of these websites appeared to be using green advertising tactics that could be considered misleading and in contravention of applicable consumer protection laws.
While litigation and regulatory action targeting alleged greenwashing remains relatively uncommon in Canada, this is beginning to change. Regulators are directing more resources to investigating and addressing greenwashing. This will result in increased potential liability for companies that make public statements about the environmental performance of their products or businesses.
In this evolving legal landscape, senior management and in-house counsel can mitigate the legal risks that their companies face by proactively identifying and addressing areas of vulnerability.
This bulletin provides an overview of how Canadian businesses can be held responsible for greenwashing in the context of competition legislation. The Bureau has investigated several complaints of greenwashing over the last three years, including a significant settlement. The Bureau has also flagged environmental claims as a priority area of focus.
Given that enforcement action and private claims alleging a violation of the Competition Act (Act) are likely to increase in frequency in the coming years, it is important to consider how your organization’s marketing practices could be exposing it to liability.
The Bureau administers multiple statutes that prohibit false or misleading representations about a product or business interest. The Act has the broadest scope and provides for the highest penalties of these statutes. As a result, the Bureau’s anti-greenwashing efforts have focused on enforcing prohibitions in the Act against false or misleading representations and deceptive marketing practices. The Bureau does so through two key provisions:
Subsection 52(1) of the Act makes it a criminal offence for a person to promote a product, service or business interest by knowingly or recklessly making claims that are false or misleading in a “material” respect.
Section 74.01(1)(a) of the Act, in contrast, is a civil prohibition against deceptive marketing that allows the Bureau or private litigants to seek redress for alleged greenwashing. This section, similar to the criminal prohibition in section 52, forbids a person from making a representation to the public that is false or misleading in a “material” respect.
In both cases, a claim is considered false or misleading based on not only the literal meaning of the words used to communicate the claim, but also the “general impression” the claim conveys. The materiality of the alleged misrepresentation is based on whether the information conveyed or withheld could influence consumer behaviour by, for example, inducing a consumer to purchase or use a product or service.
Two key distinctions differentiate the civil prohibition in section 74.01 from its criminal equivalent. First, section 74.01 does not contain a requisite mental element. Therefore, tendering evidence of an intent to deceive is not required under the civil prohibition. Second, liability is proven on a balance of probabilities rather than on the higher “beyond a reasonable doubt” standard of proof in criminal cases. All that must be shown is that it is more likely than not that the alleged act or omission occurred. In most instances, the civil track will be pursued.
The Bureau also recently archived its previous Environmental Claims: A guide for industry and advertisers document (Guide), stating that the Guide may not reflect the Bureau’s current policies or practices. The detailed Guide has been replaced with more general guidance on the Bureau website, leaving businesses with more ambiguity regarding how to substantiate environmental claims.
Regulatory and Civil Liability Under the Competition Act
When the Bureau has reason to believe that a person has contravened either the criminal or civil prohibition against false or misleading representations, it can launch an investigation to determine whether to take further enforcement action. It can also obtain court orders compelling the target of any such investigation to produce documents and data. After an investigation, if the Bureau believes that the civil section of the Act has been violated, it may:
Negotiate a consent agreement with the alleged offender that may include any of the terms the Competition Tribunal may impose (noted below) or other terms, such as a requirement for the alleged offender to implement a corporate compliance program, or
Seek an order from the Competition Tribunal requiring that the alleged offender do one or more of the following:
Cease making false or misleading representations
Publish a notice correcting the alleged misrepresentation
Pay affected persons an amount that is no more than the revenue earned from the sale of the product or service
For corporations, pay an administrative monetary penalty (AMP) up to the greater of (1) C$10-million for a first occurrence and (2) three times the value of the benefit derived from the deceptive conduct (or where it is too difficult to calculate, 3% of the corporations worldwide annual gross revenue)
The ability to order AMPs of up to 3% of a corporation’s worldwide gross revenues is a new and potentially very powerful deterrent and remedy. The benefit derived from the deceptive conduct will likely be difficult to assess in most cases, and penalties could be based on the percentage of gross revenues.
When the Bureau believes that the criminal section of the Act has been contravened, it may refer the matter to the Public Prosecution Service of Canada for criminal prosecution. Upon conviction, the court can impose a fine with no restrictions and a maximum term of imprisonment of 14 years.
Private actors, such as consumers and competitors, can also bring civil actions seeking damages, although this can be done under the Act only where the criminal prohibition regarding false and misleading advertising has been contravened.
Recent Bureau Enforcement Action
One of the most prominent greenwashing investigations the Bureau has conducted in recent years is its inquiry into claims made by Keurig Canada Inc. (Keurig) about the recyclability of its single-use coffee pods. After its investigation, the Bureau found that these claims were false or misleading, since most municipalities outside of British Columbia and Quebec did not accept Keurig’s coffee pods or required that consumers take complicated steps to prepare the pods for recycling.
In January 2022, Keurig entered into a settlement with the Bureau. As part of the settlement, Keurig agreed to pay a C$3-million penalty, donate C$800,000 to environmental charities and pay C$85,000 for the cost of the Bureau’s investigation.
The Bureau has also received greenwashing complaints alleging that claims made about certifications regarding sustainable forestry practices and programs to reduce greenhouse gas (GHG) emissions or corporate efforts to facilitate the transition to a low-carbon economy are false or misleading. Some of these complaints have resulted in high-profile investigations. One such investigation was launched in November 2022 in response to a complaint by the Canadian Association of Physicians for the Environment. That complaint alleged that the Canadian Gas Association’s characterization of natural gas as “clean” and “affordable” in one of their advertising campaigns was false and misleading. This investigation and investigations in the forestry and financial services sectors remain ongoing.
The increase in Bureau investigations into businesses’ environmental marketing claims appears to be fueled, at least in part, by a new strategy being adopted by environmental activists. Activist groups are commencing applications under section 9 of the Act, which provides that six persons may apply to the Commissioner of Competition to commence an inquiry into conduct that contravenes the misleading advertising provisions of the Act. The use of six-person complaints under section 9 of the Act appears to have been the genesis of the Bureau’s most recent greenwashing investigations.
Potential for Climate-Change Class Actions
Pursuant to subsection 36(1) of the Act, any person who has suffered loss or damage as a result of conduct contrary to Part VI of the Act, which contains the criminal prohibition against false or misleading representations, has a statutory right of action. As climate-change class actions proliferate in other non-Canadian jurisdictions, particularly in the United States, prospective plaintiffs are increasingly likely to use this statutory right of action, as well as provincial consumer protection statutes, to bring class proceedings related to alleged greenwashing.
A growing number of class actions have been commenced based on alleged contraventions of the criminal provisions of the Act in recent years, partly due to a series of plaintiff-friendly Supreme Court of Canada decisions. These decisions include a trilogy of cases decided by the Supreme Court in 2013 (Pro-Sys Consultants Ltd. v. Microsoft Corporation, Sun-Rype Products Ltd. v. Archer Daniels Midland Company and Infineon Technologies AG v. Option consommateurs) and a case in 2019 (Pioneer Corp. v. Godfrey). These decisions allowed certification of indirect purchaser classes and lowered the evidentiary standard for certification, thereby creating more favourable conditions for a wider range of competition class actions than previously contemplated.
Class actions alleging conduct contrary to Part VI of the Act have generally been based on collusion allegations. However, actions for criminally deceptive marketing practices have also been brought, typically following successful prosecutions under the Act or after the alleged offender entered into a consent agreement with the Bureau. For example, in 2022, a class action was commenced against Keurig alleging that its single-use coffee pods were not recyclable, contrary to Keurig’s marketing and labelling of the pods as recyclable. This class action commenced shortly after Keurig’s settlement with the Bureau was announced and has not yet proceeded to trial.
In addition, a class action was brought in 2015 against Volkswagen AG and a number of its Canadian subsidiaries alleging that the car manufacturer materially misrepresented the tailpipe emissions of certain diesel-powered vehicles for the model years 2009 to 2015, causing consumers to believe that those models were “cleaner” than they actually were. In April 2017, the class action was settled with respect to vehicles with two-litre diesel engines for C$2.1-billion. This was one of the largest consumer settlements in Canadian legal history. A subsequent settlement was reached in 2018 with respect to three-litre diesel vehicles for a settlement amount of C$290.5-million, further emphasizing the potential magnitude of competition class-action damage awards and settlements.
As environmental claims continue to receive more attention and the Bureau increases its enforcement activities, we expect that prospective plaintiffs will consider bringing claims alleging a breach of the Act, especially since such causes of action can be advanced alongside other common law or equitable claims.
While it is not always easy to be green, companies that take proactive measures to vet the claims they make about their products and services can mitigate their risk of greenwashing liability.
For more information, please contact:
David Tupper +1-403-260-9722
Jonathan Kahn +1-416-863-3868
Laura Weinrib +1-416-863-2765
Kevin MacDonald +1-416-863-4023
Pei Li +1-416-863-4265
Ryan McNamara +1-416-863-2180
Fahim Rahman +1-403-260-9797
or any member of our Litigation & Dispute Resolution, Environmental, Competition & Antitrust or Marketing & Advertising groups.
Blakes and Blakes Business Class communications are intended for informational purposes only and do not constitute legal advice or an opinion on any issue. We would be pleased to provide additional details or advice about specific situations if desired.
For permission to republish this content, please contact the Blakes Client Relations & Marketing Department at [email protected].
© 2024 Blake, Cassels & Graydon LLP