Regulators are directing more resources toward investigating false or misleading green claim cases
Canada is seeing a rise in penalties for so-called “greenwashing.” It’s a reflection, lawyers at Blakes say, of how regulators are directing resources towards investigating inaccurate and misrepresented claims of environmentally friendly products and practices.
“The issue of greenwashing has really come to the forefront in Canada,” says Pei Li, whose practice focuses on food, health, cosmetic and consumer products and the labelling, marketing, and advertising of such regulated products.
“It’s emblematic of a larger trend across different countries looking at the same issue,” she says, noting that there is often pressure to make such claims, even if unsubstantiated, because of stiff competition. “Even if you weren’t willing to get into the space, you find yourself and your business being pushed . . . just because of the market pressures to remain competitive.”
Greater scrutiny from regulators
On the regulatory front, Li says there has been greater scrutiny from the federal Bureau of Competition to enforce “green” claims. She also notes that the bureau amended the Competition Act in 2022 to stiffen the penalties.
For example, there used to be a $10 million cap on companies that engaged in fraudulent or misleading practices. That is now up to three percent of the value of the benefit derived from the product or three percent of worldwide annual gross revenue.
Another development, Li says, is a pullback in regulator guidance in this area. Recently the bureau “archived” its environmental claims guidance, “so what we have now is a bit of a regulatory vacuum – we’ve got greater scrutiny, but less guidance.”
Li explains that when the bureau put out its guidance in 2008, it was a document that companies used as a roadmap for making green claims in areas such as recyclability, compostability, and carbon neutrality. However, the bureau recently said the 2008 guidelines don’t reflect current thinking and archived it as a piece of “historical documentation.” New guidelines have yet to be published.
“So, although we still have the law, and the law is generally the same as misleading advertising, which governs greenwashing, . . . we don’t have that prescriptive guidance anymore,” she says. “A lot of companies are now struggling to figure out, for example, what are, say, the four factors I should consider when making a recycling claim.”
A rising number of greenwashing litigation cases
Li’s colleague at Blakes, litigator David Tupper, adds that activist organizations, such as Greenpeace, have been actively pursuing greenwashing complaints, including those that result in investigations by securities regulators or competition regulators.
He points to cases catalogued in Climate Case Chart, which provides a US climate change litigation database and a global climate change litigation database.
The US chart is updated monthly and includes 1,613 cases, while the global database includes 741 from over 55 countries. The database also provides climate litigation cases before international or regional courts or tribunals. Under the category of “misleading advertising” in the global database, there are 39 cases, including Greenpeace Canada’s to the Competition Bureau of Canada in March 2023, alleging that the Pathways Alliance’s “Let’s clear the air” advertising campaign makes false or misleading representations.
Formed in 2021, the Pathways Alliance is a coalition of Canada’s six largest oil sand producers: Canadian Natural Resources Limited, Cenovus Energy, ConocoPhillips Canada, Imperial, MEG Energy, and Suncor Energy. Collectively, these six companies produce 95 percent of Canada’s oil sands production and are responsible for 63 percent of Canada’s total daily oil production.
Greenpeace Canada alleges that Pathways Alliance’s claim that they are actively reducing emissions and helping Canada achieve its climate targets is false and misleading for four reasons:
- Pathways’ net zero plan fails to incorporate the lifecycle of their products and does not account for more than 80 per cent of their emissions, meaning that their calculations do not result in them achieving net zero;
- Pathways members claim to be “making strides toward net zero” but at the same time are expanding their fossil fuel production;
- Pathways has indicated that the only issues facing their carbon capture and sequestration project are related to financing and regulatory approval, but the technologies themselves are speculative; and
- the representations give the impression that Pathways Alliance is a climate leader, but individually and through industry affiliation, PA members have advocated, advertised, or spoken against climate action in Canada.
The database also features another complaint Greenpeace Canada made to the Competition Bureau against Shell Canada, alleging that its drive carbon neutral products are making false or misleading that customers can reduce the carbon emissions from their fuel purchases by offsetting those emissions from three forest-based offset projects that Shell supports.
Perhaps the biggest settlement involving greenwashing in Canada to date was a case brought in 2015 against Volkswagen AG and several of its Canadian subsidiaries, alleging it misrepresented the tailpipe emissions of certain diesel-powered vehicles for model years 2009 to 2015 as being “cleaner” than they actually were.
In April 2017, the class action was settled with respect to two-litre diesel engines for $ 2.1 billion, one of the largest consumer settlements in Canadian legal history. A settlement was reached in 2018 on three-litre diesel vehicles for $ 290.5 million.
The Keurig Canada settlement with the competition bureau
An example of a more recent competition bureau complaint that was settled involves Keurig Canada Inc. reaching an agreement over false or misleading environmental claims made to consumers about the recyclability of its single-use Keurig K-Cup pods.
The Bureau’s investigation concluded Keurig Canada’s claims are false or misleading in areas where they are not accepted for recycling. The Bureau found that, outside the provinces of British Columbia and Quebec, K-Cup pods are currently not widely accepted in municipal recycling programs.
The bureau also concluded claims about the steps involved in preparing pods for recycling are false or misleading in certain municipalities. The claims give the impression that consumers can prepare the pods for recycling by peeling the lid off and emptying out the coffee grounds, but some local recycling programs require additional steps to recycle the pods.
Keurig Canada agreed to pay a $3 -million penalty and donate $800,000 to a Canadian charitable organization focused on environmental causes. It also agreed to pay $85,000 for the costs of the bureau’s investigation and change its recyclable claims and the packaging of the K-Cup pod.
Li says that “you have to be able to substantiate a claim, and have a proper study done” and decide “Is it too general? Is it too vague? Are you appropriately limiting it to the parameters of what you are claiming?”
Tupper says that competition bureaus and securities regulators are more interested in greenwashing cases because “many consumers and securities holders want to invest ethically or to purchase products that reflect their own views on the need to protect the environment.”
He adds: “I think both the securities regulators, competition regulators and the courts care more about greenwashing than in the past because of . . . the focus on the need for change.”
Why fighting greenwashing claims is important
Tupper also points out that enforcing misleading or false green claims is becoming more critical because “people are making decisions about purchasing decisions, or what stocks to buy, based upon companies’ claims about how green they are.” Regulators and courts also realize that because more people are expressing concern about climate change, “they are more vulnerable to deception and ambiguity.”
From a regulatory perspective, Tupper adds there is a concern “about ensuring a level playing field so that parties making unsubstantiated claims are not unfairly benefitting from those that do not. It’s not just a consumer focus.”
Tupper says that his practice provides an advisory role to companies who want to understand the “risk profile” of making environmental claims, advising them on how to market their goods and services and react when they receive complaints.
“These companies are trying to understand the area, and they want to understand the risk profile.”
Li and Tupper also say they have “receptive audiences” to the firm’s seminars on dealing with securities disclosure and emerging trends in climate-related litigation and class actions. “Generally, corporations want to do the right thing. The question is, what is the right thing, and what is the wrong thing? If you’re providing disclosure that is aspirational, how do you do it without getting in trouble?”
Trends related to greenwashing
Tupper points to several trends related to greenwashing, including:
- More effort by regulators to provide concrete guidance, which will also be more rigorous regarding expectations and standards.
- A continued increase, especially by non-profit organizations, in the use of regulators as a way to affect environmental change.
- An increase in consumer and security holder class actions. In the Keurig example, once there was a settlement with the bureau, there were several class actions launched, including Buis v. Keurig Canada in the Superior Court for Ontario and Finch v. Keuring Canada Inc. in the Federal Court of Canada. Says Tupper: “We will continue to see that any time there is a complaint to the regulator, there will also be consideration of whether it should be a class action.”
- Courts recognizing that climate change is a reality, and they will get more comfortable “wading into these complicated issues and trying to figure out what the role of the courts is and how to address the problems.”