Greenwashing rules to be scaled back, scope remains unclear

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Greenwashing regulations are being scaled back in Canada, but it remains to be seen what these changes mean for businesses looking to tout their green credentials.

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In the federal budget released last week, the government said it plans to remove some of the greenwashing laws introduced last June that are part of the Competition Act.

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“These greenwashing provisions create investment uncertainty and have the opposite of the intended effect by slowing or reversing environmental protection efforts by some parties,” the government budget states.

In particular, the government says it plans to scrap the rule that a business's environmental claims must be backed by an internationally accepted methodology, and to remove the ability for third parties such as environmental groups to challenge claims.

There has been criticism that the wording of the methodology standard is too vague. Although the Competition Bureau has made recommendations, they are not enforceable and have not yet been defined in Canadian law.

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In a review of the proposed Budget changes, law firm Gowling WLG says the government does not appear to be planning to scrap rules requiring a product's green benefits to be backed up by adequate testing, but appears to be lowering the bar on the evidence to support those claims.

McMillan LLP said in a bulletin that the rules would still prevent businesses from making misleading or false environmental claims, but it was unclear what the scope of the proposed changes might be.

Jennifer Quaid, a professor at the Faculty of Law at the University of Ottawa, said it's unclear whether the government plans to repeal the commercial claims rule in its entirety or just the part that deals with the evidence needed to substantiate them.

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“It's unclear to me whether the government actually intends to scrap it, whether there will be any initiative or opportunity to change the wording or clarify it.”

Other countries have taken their own approaches to greenwashing laws, such as Switzerland, which requires green claims to be based on “objective and verifiable criteria,” which Quaid says are at least identifiable.

She said while the law could be improved, the government should not deviate from greenwashing rules as they help reward companies that make real progress.

“If you want to encourage sustainability innovation, you have to make sure that those who actually invest are rewarded,” Quaid said.

“Claims like this are actually used to sell things,” she said.

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“If you want to brag about it and associate your business with positive outcomes, you need to have some basis to claim it.”

Environmental groups also criticized the repeal of the rules, while business groups supported it.

The Canadian Chamber of Commerce said it is encouraged by the government's commitment to eliminate some aspects of the greenwashing provisions to provide greater certainty, and the Alberta Business Council said it welcomes a review of the greenwashing provisions.

Many companies refused to disclose information after the law passed, including the oil sands group Pathways Alliance, which deleted its social media and website the day it took effect.

Other companies have had to take a more methodical approach, scrutinizing all their disclosures and statements for anything that might interfere with the investigation.

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A KPMG assessment found that each sustainability disclosure page contained between one and two potential misstatements, with nearly a third being overly broad statements.

Conor Chell, national leader for ESG legislation at KPMG in Canada, said that even more than a year after the law came into force, companies still have not fully adjusted to it.

“When you actually look at the disclosures, the sustainability disclosures, we still see quite a noticeable gap between what that information was and the ability of the organization to actually substantiate it.”

While eliminating the commercial claims provision might provide some clarity, he wonders how much would actually change.

“I'm not sure that these changes will really have a big impact in terms of the overall legal risk profile for organizations,” Chell said.

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“Because greenwashing has always been illegal.”

Quaid noted that the new law does place the onus on the company filing the claim to substantiate the claim rather than requiring the Competition Bureau to prove it is false, but it is unclear whether that requirement will remain after the amendments.

Chell said he will also be watching to see whether the government eliminates the commercial claims clause altogether or just the methodology requirements, among other possible outcomes.

“The devil is in the details and the law, how it ultimately works, is really what we're going to have to adhere to.”

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