ARTICLE
19 September 2024

Increased "Green" Advertising Risks Under Canada's Amended Competition Act

GW
Gowling WLG

Contributor

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In Canada, advertising campaigns that feature "green" environmental claims are widely used to appeal to consumers' growing concern for the environment...
Canada Media, Telecoms, IT, Entertainment

In Canada, advertising campaigns that feature "green" environmental claims are widely used to appeal to consumers' growing concern for the environment and demand for companies to establish environmentally friendly practices. However, environmental commitments and related advertising claims that companies make can prove to be a double-edged sword if not properly expressed or executed.

As detailed in our previous article, recent amendments to the federal Competition Act (the "Act") have significantly increased the risks associated with greenwashing in Canada – a practice that is generally characterized by making false, misleading, overstated or unsubstantiated environmental advertising claims. On June 20, 2024, new provisions were added to the Act that explicitly target greenwashing. The new greenwashing provisions were introduced alongside a number of other considerable recent amendments to the Act, including amendments with respect to available penalties and remedies for such conduct.

As a result of these recent amendments made to the Act, the risks in connection with deceptive "green" advertising practices are much greater than the risks that existed under previous law. Changes to the Act have made it easier for regulators, competitors, consumers, public interest groups and non-governmental organizations to take action against perceived greenwashing.

Accordingly, advertisers now face stronger incentive for making compliant environmental representations to the public.

New greenwashing provisions

New provisions have been added to the Act, effective June 20, 2024, that explicitly target greenwashing. As a result of these amendments, businesses are now specifically required by the Act to have prescribed substantiation to support certain environmental claims.

Previously, greenwashing practices were subject to regulation under the Act's general prohibitions against false, misleading and deceptive marketing practices. However, the new greenwashing amendments broaden the existing deceptive marketing provisions to require that:

  1. Advertising claims promoting a product's benefits for protecting or restoring the environment, or for mitigating the environmental, social and ecological causes or effects of climate change, must be based on an adequate and proper test.
  2. Advertising claims promoting the benefits of a business or business activity for protecting or restoring the environment, or for mitigating the environmental and ecological causes or effects of climate change, must be based on adequate and proper substantiation in accordance with internationally recognized methodology.

These targeted environmental advertising prohibitions provide that the onus of proof that a business has properly substantiated its environmental advertising claims lies on the business making the representation.

On July 22, 2024, the Competition Bureau launched a public consultation (closing September 27, 2024) regarding these new greenwashing prohibitions and to inform its development enforcement guidance. In the interim, the Competition Bureau released The Deceptive Marketing Practices Digest — Volume 7, which provides high-level guidance to help businesses make sure that, when it comes to environmental claims, they are compliant with the law.

Amended penalties and remedies

The Act's greenwashing provisions were introduced in addition to a number of other recent significant amendments made to the Act. As further detailed below, greenwashing risks are significantly higher pursuant to expanded administrative monetary penalties and private rights of action under the Act.

Regulatory enforcement

In 2022, amendments to the Act dramatically increased the quantum of administrative monetary penalties that may be ordered in connection with a civil deceptive marketing practices offence. These penalties can apply to the new greenwashing offences under the Act.

The amended Act now provides that the following maximum monetary penalties can be imposed, based on the value of the benefit derived from the deceptive conduct or a company's annual worldwide gross revenues:

  1. In the case of an individual, the greater of:
    1. $750,000 (for each subsequent order, $1,000,000); and
    2. Three times the value of the benefit derived from the deceptive conduct, if that amount can be reasonably determined.
  2. In the case of a corporation, the greater of:
  1. $10,000,000 (for each subsequent order, $15,000,000); and
  2. Three times the value of the benefit derived from the deceptive conduct, or, if that amount cannot be reasonably determined, 3 per cent of the corporation's annual worldwide gross revenues.

With this amendment in force, corporations and individuals can be subject to much higher penalties for deceptive environmental advertising practices than could have been imposed in the past.

Notably, the amended maximum monetary penalties available to corporations could potentially result in multinational companies having to pay penalties that are disproportionately high relative to their Canadian revenue, if the value of the benefit derived from deceptive greenwashing conduct cannot be determined and a fine based on worldwide gross revenues is imposed.

Private right of action

Prior to the most recent amendments of the Act, a statutory private right of action related to the Act's misleading advertising prohibitions was only available in respect of a criminal misleading advertising offence. No right of action for private parties to commence litigation in relation to the civil deceptive marketing practice prohibitions was provided for.

The existing private right of action for competitors and consumers in respect of a criminal misleading advertising offence is limited. In order to pursue a claim under this private right of action, the competitor/consumer is required to establish that the advertiser "knowingly or recklessly" made a false or misleading representation, that the representation is false or misleading in a material respect (i.e., in a manner likely to influence a consumer's behavior or purchasing decision), and that the competitor/consumer suffered actual damage or loss as a result of such conduct.

If established, the competitor/consumer may recover damages in an amount equal to the loss or damage proved to have been suffered (along with certain legal costs). As such, the scope for competitors and consumers (whether acting individually, or as a representative member to launch a class action lawsuit) to address issues with misleading environmental advertising under this right of action is narrow.

However, effective June 20, 2025, private parties may seek leave from the Competition Tribunal to bring a claim for the civil greenwashing offences, provided they show that granting such leave is in the "public interest." Notably, these civil deceptive marketing practice prohibitions do not require that an advertiser acted "knowingly or recklessly" in the course of making the applicable claim at issue. Further, the "public interest" allowance does not specifically require that a private party be affected by the reviewable conduct.

The Act's amendments also result in expanded remedies available in relation to private greenwashing claims. Once the amendments are in force, if following a private claim a court determines that a person is engaging in or has engaged in reviewable greenwashing conduct, the court may order the person not to engage in the conduct, to publish a corrective notice, or to pay an administrative monetary penalty subject to the maximum values discussed above (which, as noted, could result a fine based on a corporation's worldwide gross revenues).

In addition, private applicants may seek restitution (in connection with the Act's general civil misleading advertising offence) in the form of an amount to be distributed among the persons to whom were sold the products in respect of the offending conduct.

Consequently, the Act's amendments have increased private litigants access to remedies for greenwashing. The amendments appear to open the door to competitor companies, individual and private litigants (notably, public interest groups and non-governmental organizations) to challenge perceived greenwashing.

The importance of re-assessing the risk levels associates with current "green" advertising claims

Given these reforms to environmental advertising law, the risk profile for "green" advertising claims has increased significantly. It is important for businesses to re-assess the risk levels associated with their current "green" advertising claims (including as may be included in ESG reports and other similar corporate communications) and to update their corporate compliance programs and policies to help limit their exposure to these significantly expanded risks.

Read the original article on GowlingWLG.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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