Canada Solicits Opinions on upcoming Eco-deception Regulation, which may Impact American Corporations
In reaction to greenwashing being a growing issue, the Canadian government changed the Competition Act, introducing a new section that oversees environmental statements in advertising materials. This leads to a fresh legal responsibility for U.S. firms transacting in Canada, potentially resulting in substantial fines. The Canadian Competition Bureau has shared a preliminary version of these guidelines, seeking input from affected organizations.
With escalating global concern over climate change, following the Paris Agreement, businesses have seen a surge in demand for environmentally friendly goods. Firms capitalized on this trend by promoting eco-friendly actions in marketing materials and sustainability reports. However, with no standardized rules or evidence, these claims often lacked substantial backing.
There has been an upsurge in lawsuits and regulatory actions related to greenwashing, which encompasses presenting overstated climate-friendly and other environmental actions in marketing materials. Historically, making minor eco-friendly claims to boost a company's image was common practice.
However, spurred by a global emphasis on climate change, regulatory bodies and environmental activists are now scrutinizing these claims. Companies are facing investigations under consumer protection laws and lawsuits for assertions made in marketing material and sustainability reports. This trend is evident in various jurisdictions, even those lacking rules specifically aimed at greenwashing. Notably, the EU is currently drafting strict greenwashing guidelines that may serve as global benchmarks.
Roughly 6 months ago, the Canadian Parliament modified the Competition Act to manage environmental claims in advertising with the aim of discouraging greenwashing in Canada. The Competition Act is a law governing commerce in Canada that covers trade, mergers, and marketing practices. The statute applies to both domestic and foreign companies engaged in business in or operating within Canada. Regulation comes under the jurisdiction of the Competition Bureau, a function similar to the U.S. Federal Trade Commission, with both civil and criminal penalties.
Claims regarding "protecting or restoring the environment or mitigating the environmental and ecological impacts of climate change" should now be supported by internationally recognized research methods. Notably, if six Canadian residents aged 18 or over file a complaint, due to language in the Act, the Commissioner is obliged to initiate an investigation. Climate activists have already taken advantage of this provision, most notably lodging a complaint against lululemon athletica inc.
Although the changes went into effect on June 20, the enforcement specifics were uncertain. Guidelines on enforcement were subsequently drafted by the Competition Bureau and made public on December 23, with the public comment period extending until February 28, 2025.
The draft zeroes in on portions of the Competition Act that are pertinent to greenwashing: false or misleading representations, product performance claims, environmental benefits of products, and environmental benefits of businesses or business activities.
The draft supplies six criteria that the Competition Bureau will employ for enforcement:
- Environmental claims should be accurate and not misleading.
- Claims about the environmental advantage of a product and performance should be thoroughly checked.
- Comparative environmental claims should specify what is being compared.
- Environmental claims should avoid exaggeration.
- Environmental claims should be precise and not vague.
- Environmental claims about the future should be substantiated and supported by a clear plan.
Public consultation is currently underway, enabling organizations impacted or interested in climate change to submit comments. With extensive penalties on the table, businesses operating in Canada should consider participating in the comment period. The deadline for submission is February 28, 2025, coinciding with the comment period for California's climate reporting requirement that concludes on February 14.
- Lululemon, like other companies operating in Canada, is now under the scrutiny of the Competition Bureau due to claims made about its environmental social and governance (ESG) efforts, as the Canadian government seeks to combat greenwashing in advertising.
- The Canadian Competition Bureau's draft guidelines on greenwashing in advertising materials require companies to back up claims about mitigating climate change or protecting the environment with internationally recognized research methods, a change aimed at preventing greenwashing.
- The growing issue of greenwashing in environmental marketing has led to increased legal responsibility for U.S. firms doing business in Canada, with the possibility of substantial fines for false or misleading environmental statements, as per the modified Competition Act.
- In the face of stricter greenwashing regulations in various jurisdictions worldwide, including the EU's draft guidelines, Canadian firms like Lululemon must ensure that their ESG claims are substantiated and comply with the six criteria outlined in the Competition Bureau's draft guidelines, to avoid potential fines and lawsuits.