Canada Seeks Input On New Greenwashing Law That Will Impact US Businesses

In an effort to combat greenwashing, the Canadian government has amended the Competition Act, adding a new provision that regulates environmental claims in marketing materials. For U.S. companies that do business in Canada, this creates a new legal liability that could result in heavy fines. The Canadian Competition Bureau has released a draft of the proposed guidelines and is seeking feedback from impacted businesses.

As international focus on climate change increased in the wake of the Paris Agreement, there has been a simultaneous increase in pressure on businesses to be environmentally friendly. Companies wishing to capitalize on the demand created marketing materials and sustainability reports showcasing green actions. However, without clear regulation or standards, those claims were broad and able to be made without supporting documentation.

Over the past year, there has been a notable increase in litigation and regulatory action relating to greenwashing, or the exaggeration of climate-friendly and other environmental actions by a company in marketing materials. Historically, this hasn’t mattered. A company highlighting minor environmentally friendly actions to make themselves look better was standard practice.

However, with the global focus on climate change, regulators and climate activists have started to challenge those claims. Companies are being investigated under consumer protection laws and being sued for statements made in marketing materials and sustainability reports. This is happening in jurisdictions around the world, even those without regulations directly aimed at greenwashing. Notably, the EU is currently drafting strict greenwashing legislation that could become the global standard.

On June 20, the Canadian Parliament amended the Competition Act to regulate environmental claims in marketing in an effort to prevent greenwashing in Canada. The Competition Act is Canada’s commerce law that regulates trade, mergers, and marketing practices. The act applies to companies that are based in Canada, as well as foreign companies that do business or operate within Canada. Enforcement is through the Competition Bureau, which operates in a similar function as the U.S. Federal Trade Commission. Penalties can be both civil and criminal.

The amendment addressed claims by businesses relating to “protecting or restoring the environment or mitigating the environmental and ecological causes or effects of climate change.” Those claims must be substantiated in “accordance with internationally recognized methodology.”

Notably, under the Act, any six residents of Canada over the age of 18 may file for an inquiry with the Competition Bureau. Once the complaint is filed, the language of the Act requires the Commissioner to commence an inquiry. Climate activists are already taking advantage of that provision, most notably filing a complaint against lululemon athletica inc.

Despite the amendment going into effect immediately on June 20, the specifics of enforcement were unclear. The Competition Bureau began drafting guidelines on enforcement. The draft guidelines were made public on December 23 and will be open to comment until February 28, 2025.

The draft points to four areas of the Competition Act that are applicable to greenwashing: false or misleading representations, product performance claims, claims about the environmental benefit of a product, and claims about the environmental benefit of a business or business activity.

The draft provides six principles that the Competition Bureau will use for enforcement:

• Principle 1: Environmental claims should be truthful, and not false or misleading.
• Principle 2: Environmental benefit of a product and performance claims should be adequately and properly tested.
• Principle 3: Comparative environmental claims should be specific about what is being compared.
• Principle 4: Environmental claims should avoid exaggeration.
• Principle 5: Environmental claims should be clear and specific – not vague.
• Principle 6: Environmental claims about the future should be supported by substantiation and a clear plan

The proposal is now in the public consultation stage, allowing those that are impacted or have an interest in climate change to submit impact.

Given the high potential penalties, businesses that have any presence in Canada would be wise to submit a comment. The deadline to submit a response is February 28, 2025. Adding another climate change related deadline for businesses already seeking to respond during the comment period for California’s climate reporting requirement that closes on February 14.