The Competition Bureau’s anti-greenwashing guidance provides clarity, but uncertainty remains

On December 23, 2024, the Competition Bureau of Canada released draft guidelines (the “guidelines”) to clarify expectations relating to newly enacted anti-greenwashing provisions that amended the Competition Act via Bill C-59 in June 2024.  According to the bureau, these new measures are part of broader and ongoing efforts to combat deceptive marketing practices and ensure that environmental claims are truthful, not misleading, and properly substantiated in order to protect consumers and promote fair competition in the marketplace.

Within this article, we discuss the following topics relating to the guidelines:

1. Important initial considerations and observations
2. Four key anti-greenwashing provisions in the Competition Act
3. The bureau’s six principles for compliance
4. Remaining areas of uncertainty

The guidelines do not carry the force of law:

The guidelines explicitly state that the publication is not a legal document and is intended to provide general information only. Readers are reminded that the Competition Act and other laws enforced by the bureau, including the Consumer Packaging and Labelling Act, the Textile Labelling Act, and the Precious Metals Marking Act, also prohibit certain types of deceptive representations, and may be relevant to environmental claims.  Although they don’t carry the force of law, the guidelines are indicative of the bureau’s views and approach to enforcement and therefore potentially represent valuable guidance that businesses should consider in order to mitigate their risk of complaints and enforcement action regarding greenwashing.

Definitions are up to the courts:

Within the guidelines, the bureau does not provide specific, legally enforceable definitions for key terms included within the new anti-greenwashing provisions.  Rather, it explains key concepts from each provision and advises that it expects to rely on the “ordinary meaning” of certain terms, but explicitly states that it is ultimately up to the courts to interpret the language of the Competition Act.

Evidence-based claims:

The guidelines place significant emphasis on the need for evidence-based claims. This can mean carrying out actual testing in the context of product performance or benefit claims or substantiation in accordance with an internationally recognized methodology in the context of a business or business activity claim (e.g., net-zero or carbon neutral).

Adequate and proper testing / substantiation is required by small and large businesses:

Any environmental representation that is subject to the new anti-greenwashing provisions must be adequately and properly tested or substantiated, regardless of the size of the business making the representation.

Due diligence defence available:

The guidelines indicate that the Competition Act provides a defence for those who can show that they exercised due diligence to prevent deceptive marketing practices from occurring.

Within the guidelines, the bureau identified and discussed four civil provisions of the Competition Act that are most relevant to environmental claims and greenwashing, as follows:

1. False or misleading representations (s. 74.01(1)(a))

This provision existed prior to Bill C-59 and addresses any materially false or misleading representation to the public for the purposes of promoting a product or business interest.  The guidelines state that when assessing a claim under this provision, the bureau must consider the general impression conveyed by the claim and its literal meaning. Importantly, the bureau also needs to consider whether the representation is false or misleading ‘in a material respect’ (i.e. information that could influence consumer behaviour, such as influencing consumers to buy or use a product or service or to deal with a business

2. Product performance claims (s. 74.01(1)(b))

This provision also existed prior to Bill C-59 and prohibits representations to the public, for the purpose of promoting a product or any business interest, in the form of a statement, warranty or guarantee of the performance, efficacy or length of a product (a ‘performance claim’) that is not based on adequate and proper testing.  The guidelines outline that  actual testing must occur before a claim is made. ‘Actual’ testing has been described by the courts as “a procedure intended to establish the quality, performance or reliability of something”. Evidence of consumer use over a long period of time, technical books, bulletins and manuals, anecdotal stories and studies or sales of similar products have been found to not be actual tests.  Importantly, testing must also be ‘adequate and proper’, which is a flexible standard that has been interpreted by the courts to mean ‘fit, apt, suitable or as required by the circumstances’ and depends on the general impression that the representation conveys to consumers.

3. Claims about the environmental benefit of a product (s.    74.01(1)(b.1))

This provision is new and builds on the product performance provision (s. 74.01(1)(b), above) and requires that claims be evidence-based.  It prohibits representations to the public in the form of a statement, warranty or guarantee of a product’s benefits for protecting or restoring the environment or mitigating the environmental, social and ecological causes or effects of climate change that is not based on adequate and proper testing. 

In addition to the key concepts outlined above with respect to s. 74.01(1)(b) which the bureau assumes will apply equally to s. 74.01(1)(b.1), the guidelines also outline that it is expected that many of the key concepts set out in this provision will ultimately be interpreted by the courts.  In the interim, the bureau will be relying on the ordinary meaning of the words used where they have not been previously interpreted by the courts (e.g., ‘benefits’, ‘environment’, ‘protecting’, ‘restoring’, ‘mitigating’, ‘environmental’, ‘social’, ‘ecological’, ‘climate change’).

4. Claims about the environmental benefit of a business or business activity (s. 74.01(1)(b.2))

This is also a new provision of the Competition Act that deals with environmental representations made with respect to a business or business activity (e.g. net-zero or carbon neutral claims).  It prohibits making a representation to the public with respect to the benefits of a business or business activity for protecting or restoring the environment or mitigating the environmental and ecological causes or effects of climate change that is not based on adequate and proper substantiation in accordance with an internationally recognized methodology. Similar to s. 74.01(1)(b.1) discussed above, it contains some of the same concepts (e.g. protecting, restoring, mitigating, environmental, ecological and climate change).  However, it also introduces several new key concepts which have been the subject of significant discussion and debate, which are discussed in the guidelines as follows:

“Business activity”: Any activity carried on by a business, including but not limited to manufacturing, transporting, storing, acquiring, or otherwise dealing in articles and services, as well as raising funds.

“Adequate and proper”: This language has been interpreted by the courts in the context of paragraph 74.01(1)(b) of the Act, as discussed above. It remains to be seen how the courts will interpret the term in the context of this provision. In the bureau’s view, businesses should choose substantiation that is suitable, appropriate, and relevant to the claim, and sufficiently rigorous to establish the claim in question. Often, this will require substantiation that is scientific in nature. Third party verification will be required in circumstances where it is called for by the internationally recognized methodology relied upon for adequate and proper substantiation.

“Substantiation”: Establishing by proof or competent evidence. While substantiation does not necessarily involve testing in a lab, businesses should ensure that the methodology selected is suitable for the claim, having regard to all the relevant circumstances.

“Methodology”: A procedure used to determine something.

“Internationally recognized”: The bureau will likely consider a methodology to be internationally recognized if it is recognized in two or more countries. Further, the bureau is of the view that the Act does not necessarily require that the methodology be recognized by the governments of two or more countries.

Within the guidelines, the bureau provides a very common example of a Canadian company making a 2050 net zero goal “before doing its homework”.  In the example, the company failed to take steps to substantiate its claim in accordance with an internationally recognized methodology and did not develop a “concrete plan” to identify and mitigate its greenhouse gas emissions, and as a result the claim would likely be considered by the bureau to be a misrepresentation in accordance with this new provision.

In Volume 7 of the bureau’s Deceptive Marketing Practices Guide, it had previously developed six high-level principles to help businesses stay onside the law and avoid making misleading claims.  In the guidelines, the bureau re-introduced these six principles with some modification to reflect the new anti-greenwashing provisions.  A summary of each principle discussed in the guidelines, as specifically applied to anti-greenwashing, is set out below.

Principle 1: Environmental claims should be truthful, and not false or misleading

An environmental claim must be true, both in terms of its literal meaning and the general impression it conveys. Where an environmental claim is misleading without including important information, then the information required to make the claim not be misleading must be included as part of the claim. Disclaimers or fine print should not be relied on to cure what would otherwise be a misleading environmental claim.

Principle 2: Environmental benefit of a product and performance claims should be adequately and properly tested

For these kinds of claims to be in compliance with the Act, businesses must be able to show that the claims are based on adequate and proper testing, which must be conducted before making the claims.

Principle 3: Comparative environmental claims should be specific about what is being compared

Every time a business makes any type of comparison in its promotional materials, the business should be specific about what is being compared, and the extent of the difference between what is being compared.

Principle 4: Environmental claims should avoid exaggeration

The general and literal meaning of a claim must be considered, and inadvertent exaggeration or overstatement can occur if businesses don’t consider all the facts or evidence; small environmental benefits should not be marketed as big ones.

Principle 5: Environmental claims should be clear and specific – not vague

Businesses should be clear and specific when making environmental claims, which includes being transparent about whether the claim applies to a part of or to the whole of a product, business or business activity, or only to a specific part of it. When in doubt, spell it out.

Principle 6: Environmental claims about the future should be supported by substantiation and a clear plan

Businesses should ensure that future claims (e.g., net-zero or carbon neutral by a certain date) are well-founded and are adequately and properly substantiated in accordance with an internationally recognized methodology. Before making these kinds of claims, businesses should have a clear understanding of what needs to be done to achieve what is being claimed; a concrete, realistic and verifiable plan in place to accomplish the objective, with interim targets; and meaningful steps underway to accomplish the plan.

Although the guidelines provide clarity and guidance in several areas as outlined above, there are also several areas where uncertainty remains.

Private right of action and reverse onus

One of the key anti-greenwashing amendments introduced via Bill C-59 is the private right of action whereby private parties can seek leave of the Competition Tribunal to bring actions against businesses regarding allegations of greenwashing. It is expected that this amendment will result in a significant increase in the number of complaints filed and in the number of businesses that will be required to defend themselves in resultant proceedings before the Tribunal.  However, the private right of action is not addressed in the current version of the guidelines although the bureau indicates that subsequent guidance on this topic is forthcoming (specific date not provided).

Another key amendment relates to the introduction of a ‘reverse onus’ in relation to the new provisions s. 74.01(1)(b.1) and (b.2).  Interestingly, in several instances, the guidelines seem to indicate that businesses don’t need to ‘prove’ their environmental claims are not false or misleading, but then go on to say that for certain environmental claims, they must be able to ‘back their claims up’. It is unclear what the difference is between ‘proving a claim’ and ‘backing a claim up’.  In any event, given that the new anti-greenwashing provisions contain the reverse onus requirement, once a private right of action is deemed by the Tribunal to be in the ‘public interest’ and allowed to proceed, it will then be up to the business that is the subject of the complaint to prove that their claim was made in accordance with adequate and proper testing (s. 74.01(1)(b.1)) or based on adequate and proper substantiation in accordance with internationally recognized methodology (s. 74.01(1)(b.2)).

Key concepts are broad and vague

As noted in the guidelines, and especially in relation to the new provisions s. 74.01(1)(b.1) and (b.2), several key terms and concepts are not defined in the Competition Act. In the interim, the bureau will be relying on the ordinary meaning of the words used where they have not been previously interpreted by the courts. As outlined above, the result of this approach is that several key concepts and definitions are very broad.  The ordinary meaning of terms like ‘environment’, ‘social’ and ‘climate change’ have the potential to significantly increase the scope and number of representations business make that could be subject to the new anti-greenwashing provisions.  Similarly, although the term ‘adequate and proper’ has been canvassed extensively by the courts, the terms ‘substantiation’ and ‘internationally recognized methodology’ have not; given that it is expected that many complaints will be filed in relation to the new s. 74.01(1)(b.2) business interest or activity provision (e.g. net-zero or carbon neutral claims), significant uncertainty remains as to how the new anti-greenwashing provisions will be interpreted and applied.

‘Internationally recognized methodologies’

As noted above, the guidelines do not provide specific, legally enforceable definitions and it will be up to the courts to determine how key terms will be interpreted. Perhaps the most discussed debated and discussed term is that of ‘internationally recognized methodology’ which applies to claims about the environmental benefit of a business or business activity (s. 74.01(1)(b.2)) (e.g. net-zero, carbon neutral).

Within the guidelines, and with respect to ‘internationally recognized methodologies’, the bureau provides its perspective as follows:

• A methodology that has been recognized in two or more countries will generally be internationally recognized, provided it results in adequate and proper substantiation
• Internationally recognized methodologies can be created by industry, provided that the use of such methodology results in adequate and proper substantiation
• A methodology does not have to be part of a standard, although many methodologies are found in standards
• Businesses are not specifically required to follow any standards; however, certain environmental claims must be adequately and properly substantiated in accordance with an internationally recognized methodology.  Businesses must demonstrate that any methodology used is adequate and proper in the circumstances, including with regard to the Canadian context as appropriate (e.g. geography and climate)
• Substantiation does not necessarily require testing but does require having evidence to show that a claim is true
• Third party verification is not expressly required, although certain internationally recognized methodologies require third party verification
• The bureau starts with the assumption that methodologies required or recommended by government programs in Canada for the substantiation of environmental claims are consistent with internationally recognized methodologies, however, business should exercise due diligence to ensure that any such methodology is indeed internationally recognized
• If more than one internationally recognized methodology exists, a business is not required to use the best methodology available, however, businesses are encouraged to base their substantiation on a methodology that is robust and reputable
• If there is no methodology for testing an exact claim, a business may be able to rely on several internationally recognized methodologies that together can create substantiation
• With respect to net-zero claims specifically, there are a number of different standards to help businesses learn how to meet the challenge of reaching net-zero, and many can offer proper substantiation in accordance with methodologies that are internationally recognized.

Despite the important and useful perspective provided in the guidelines as outlined above, significant uncertainty remains in relation to how and which ‘internationally recognized methodologies’ are to be used by businesses, and how the bureau will assess complaints relating to this subject matter.  Specifically, although not stated explicitly in the guidelines, it should be expected that complaints will be filed not only in relation to which methodology was selected, but also in relation to how the methodology was applied and how it was described (or not) in relation to any environmental claim being made about a  business or business activity.  Further, and in reference to net-zero claims specifically, the bureau advises that there are ‘many’ standards that ‘can offer proper substantiation’. Based on this verbiage, presumably there are a number of methodologies that cannot offer proper substantiation.  Lastly, it also appears that the bureau intends to assess each complaint on its specific facts, and reminds business that they should also remember for a methodology to be adequate and proper, it needs to be suitable for the claim ‘having regard to all of the circumstances’.  In other words, business will be required to exercise due diligence in the selection, use, and communication of any ‘internationally recognized methodology’ it intends to rely on to substantiate any claim about the environmental benefit of its business or business activity.

Overlap with securities legislation

In several instances, the guidelines comment that the bureau’s focus is on marketing and promotional representations made to the public as opposed to representations made ‘solely’ or ‘exclusively’ for a different purpose, such as investors and shareholders in the context of securities filings.  However, it remains to be seen to what extent securities disclosures will become the subject of complaints under the new anti-greenwashing amendments (and how the bureau would treat or assess such complaints).  Specifically it is not clear how it will be determined what the ‘sole’ or ‘exclusive’ purpose of securities disclosures are and whether marketing and promotion could be determined to be an ancillary purpose of such documents, thus bringing them within the ambit of the new anti-greenwashing provisions.

Enforcement criteria, approach, and timelines

Within the guidelines, the bureau provides high-level commentary regarding how and whether it will proceed with enforcement actions, but is not specific in such comments.  As an example, the guidelines state that the ultimate resolution of issues will depend on the particular circumstances of the matter in question, and that the Commissioner has broad discretion in determining whether to proceed with enforcement action or not.  In terms of timing of enforcement, the guidelines note that the new anti-greenwashing provisions came into effect on June 20, 2024 and have the force of law; however, the bureau will consider the circumstances of each case when exercising its enforcement discretion.  For further information, the guidelines refer to the bureau’s Competition and Compliance Framework, which sets out the bureau’s general approach to outreach, enforcement, and advocacy.  Although the Framework sets out several details in this regard, it has not been updated following the passage of Bill C-59, so it does not contain information specific to how, on what basis, nor when the anti-greenwashing provisions will be enforced.

While the guidelines offer valuable clarity on sustainability claims and the new anti-greenwashing measures introduced to the Competition Act via Bill C-59, significant uncertainty persists regarding their practical application and interpretation.  Businesses must exercise caution, rigorously review and revise their sustainability disclosures to ensure compliance and avoid allegations and complaints of greenwashing.  Stakeholders are also encouraged to engage with the open consultation process, which runs until February 28, 2025 to provide feedback and help shape a clearer regulatory framework for the future of sustainability disclosure in Canada.