Canada is preparing to amend its greenwashing regulations, which raises questions regarding the future for businesses aiming to communicate their environmental performance. In the federal budget announced last week, the government highlighted plans to eliminate certain aspects of the greenwashing laws enacted in June last year, which form part of the Competition Act.
The government stated that the existing 'greenwashing' provisions are inducing investment uncertainty, resulting in some companies slowing or reversing efforts to improve environmental protections. Specifically, the proposed changes include the removal of the requirement for businesses to substantiate their environmental claims with internationally recognized methodologies, along with the elimination of the ability for third parties, such as environmental organizations, to challenge these claims.
There have been concerns regarding the ambiguity of the current methodology standards in the greenwashing laws. Although the Competition Bureau has provided guidelines, these are not enforceable and lack precise definitions in Canadian law. An analysis by the law firm Gowling WLG indicates that while the government may not entirely abolish rules requiring that a product's 'green' benefits be supported by adequate testing, it does seem poised to relax the evidentiary requirements backing such claims.
Similarly, McMillan LLP noted in their bulletin that businesses would still be prevented from making misleading or false environmental assertions, though the full parameters of the proposed changes remain unclear. University of Ottawa law professor Jennifer Quaid expressed uncertainty about whether the government intends to completely rescind the rule concerning business claims or if it merely plans to adjust the evidence requirements.
Quaid pointed to other nations like Switzerland that mandate green claims to rely on “objective and verifiable criteria,” which can help ensure clarity in regulation. While acknowledging that improvements could be made, she argued that retreating from greenwashing regulations could discourage genuine environmental progress and innovation. She emphasized that companies should substantiate their environmental claims if they seek to associate themselves with positive outcomes.
Environmental advocacy groups have criticized the reduced regulations, while business organizations have shown support for the government's intentions. The Canadian Chamber of Commerce expressed appreciation for the commitment to refine greenwashing regulations for more certainty, and the Business Council of Alberta welcomed the reassessment of these provisions.
Since the law's inception, various companies have opted to curtail their disclosures. For instance, the Pathways Alliance group of oilsands producers removed its social media presence and website content immediately upon the law's implementation. Other businesses have approached their disclosures more cautiously, meticulously reviewing all statements to avoid potential investigations.
A KPMG report revealed that sustainability disclosures often contained one to two potential misrepresentations per page, with nearly one-third involving excessively broad language. Conor Chell, KPMG's national leader in Environmental, Social, and Governance (ESG) law, noted that even a year after the law took effect, many companies were still struggling to adapt fully to the new requirements. He observed a significant gap between disclosures and the organizations' capabilities to support those assertions.
While the potential removal of the clause concerning business claims might bring some clarity, Chell questioned the extent of any actual changes in the legal risk landscape for companies, reminding that greenwashing has always been regarded as illegal. Quaid highlighted that the law had shifted the onus onto the companies making claims to appropriately verify them rather than requiring the Competition Bureau to establish the claims' falsity. The prospects of whether this responsibility will hold under the revised regulations remain uncertain.
As debates regarding the government's amendments unfold, experts like Chell will be attentively observing whether the entire business claims clause will be rescinded or if it will merely adjust the criteria for backing such claims. He stressed the importance of understanding the nuances of the law as it evolves, indicating that these details will play a crucial role in shaping the regulatory environment moving forward.
