Greenwashing Amendments

There is broad principle that goes something like this; environmental and social claims must be backed up by actions that generate the benefits described in the claim and must be in some way amenable to testing and verification. Where such claims are found to be specious the term “greenwashing” is often applied.

The term was apparently first coined in 1986 by environmentalist Jay Westerveld. He wrote about his disappointment at being asked, while at the Beachcomber Resort (ironically, where I stayed a few times when teaching for two years at the University of the South Pacific in Suva, Fiji) to recycle used towels to preserve the coral reef, while down the way, the beach was being extensively dredged for industrial-scale expansion of the same resort. He noted the paradox in an essay and the phrase slipped into the collective lexicon.

Greenwashing comes in many forms and can include everything from unproven, vague, exaggerated misleading, misaligned and selective statements or claims to outright lying. It is an element of deceptive business practice and is associated particularly with the use of terms such as environmentally clean, green, sustainable, eco-friendly and earth friendly. It is not to say that these terms have no honest meaning, but the lack of specificity around the definitions means that they are open to abuse; window dressing that may conceal inaction or bad behavior.

Now, recent changes to the Competition Act in Canada mandated by Bill C-59 (The Fall Economic Statement Implementation Act, 2023) herald an important change to the way in which companies can promote the environmental and social benefits of their climate change actions and strategies. In short, the Act makes it illegal to make a representation (statement, warranty, or guarantee) that a particular product or activity has benefits for the environment, or mitigates the environmental, social and ecological causes or effects of climate change, without proof in the form of an adequate and proper test or substantiation in accordance with internationally recognized methodology.

Further, as of the 20 June 2025, private citizens will be able to ask for a review of corporate claims by the Competition Bureau; this is an avenue that was not previously available and if reviewed the burden of proof lies entirely with the entity that made the claim. If found to be out of compliance the penalties can be severe, including fines for Directors and others and retention of up to 3% of global revenues.

Industry has voiced its frustration at several aspects of the Act including the lack of prior consultation, concerns about the review process, questions about the competency of a Commission to assess claims, and the risk of politically motivated decision bias. A lack of definitions for terms used in the amendments, the relative place of competing methodologies and standards, and questions about the role of certification increase uncertainty about future disclosures. This creates the risk that companies, at least in the short term, may shy away from articulating anything about future aspirations.

The Act may also have an impact beyond its focus on climate change measures and their ecological and social benefits. It will provide increased leverage for investors, NGOs and civil society to question claims by companies that their products and strategies lead to environmentally and socially sustainable outcomes. It may also lead to increased demands for verification and independent assessment of all claims, including for example reporting on modern slavery and the associated reporting to government as impact investors seek proof before deciding where to allocate funds.

Some anticipate a rash of frivolous litigation, a Competition Bureau overwhelmed with requests for review of company claims (perhaps as part of an organized campaign by those opposed to specific projects), and cacophony and political maneuvering that outweigh common sense decision-making about what is in the public interest.

If so, this will have a deleterious effect on energy transition, climate and environmental strategies being pursued particularly by energy companies. Industry will no doubt lobby for the amendments to be overturned or at least modified and clarified; such clarification is essential if the energy industry is to continue to innovate and contribute to energy transition in a transparent and collaborative way.

That said, in reality, there are several tests that must be met for a review to proceed including whether the claim proposed for review is covered by the Act, and if so whether it is in the public interest to pursue a review. Ultimately under review a decision must be made as to whether the claim is deceptive, although guidelines for this decision have not been specified and it should be noted that no proof is required that anyone was deceived.

The Competition Bureau has said it will be releasing guidance later this year following the launch “of a public consultation process in the coming weeks to gather views and input.” In the absence of such guidance, the first concern has been (as it must be) to manage the legal risk associated with potential future litigation by reviewing, revising and potentially deleting language that might fall foul of the Act. The stakes are high; no corporate leader wants to be explaining to investors at the AGM why 3% of global revenues disappeared.

While managing the legal risk of being in contravention of the amendments is top of mind, it seems that simply expunging the record of past statements and avoiding any future claims, will have precisely the wrong effect from a risk management and a sustainability perspective. If companies cannot stand by their past claims and statements and are wary of making future ones (at least to some extent) that is surely a step backwards?

One strategy has been to acknowledge that sustainability is an inexact science (and art), that good practice at the time supported these statements and claims even if they are imprecise and the addition of disclaimers to any claims (the confidence behind such approaches may only be tested after further guidance is released by the Competition Bureau).

However, when the dust settles and even prior to the release of guidance from the Competition Bureau, companies should be gearing up to view this differently, looking instead at the opportunity this presents to distinguish themselves and double-down on strategies.

Going-forward, organizations will have to set clear, measurable goals using precise language, and provide evidence of the achievement or benefit in question. Verification based on international norms and standards will be necessary. Supply chain evaluation will increase as supply chains account for a high proportion of environmental impact and this will bring a greater emphasis on partnering with reputable companies.

In future disclosures, companies will need to be transparent about challenges and any trade offs so that benefits are not highlighted at the expense of downplaying effects. Companies must explain their efforts in terms of impact and if they say that they are moving the needle, they will need to support this with verifiable data and factual information. They will need to assess their compliance programs and controls and in some cases strengthen these to withstand the additional scrutiny that public ESG disclosures will undoubtedly attract.

Notwithstanding the mitigations listed above, the best defense against greenwashing is firstly to be aware of how claims may be perceived by others. Avoid statements that are intentionally ambiguous, practice transparent disclosure and support claims regarding the climate change impacts of a product or business strategy with evidence that is based on sound tests, methodologies and certification.

Second is to have accurate, defensible ESG data which can be verified across a wide range of ESG data points (particularly for carbon emissions and Net Zero statements). Ensure that data is collected and reported in alignment with “internationally recognized methodologies” as the bill requires (e.g., GHG protocol, Global Reporting Initiative (GRI), Carbon Disclosure Project (CDP), the Science Based Targets initiative (SBTi), Sustainability Accounting Standards Board (SASB), and the UN Sustainable Development Goals (SDGs) for example).

It seems that this is fertile territory for sustainability, environmental and social specialists to step up. Lawyers and communications people alone will not always have all the answers about how to react to these changes, because while there are legal considerations, these changes have far-reaching consequences across a broad spectrum of corporate activities.

Ultimately, collecting and reporting on high-quality, audit-grade ESG data from the start will pay dividends in ensuring that greenwashing is avoided and that climate change strategies can be implemented with confidence.

¹An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023, and certain provisions of the budget tabled in Parliament on March 28, 2023 – See 236 (1) Subsection 74.01(1).