Greenwashing: How companies should manage their risks and obligations on sustainability and ESG

The avenues for regulators and the public to scrutinize and act against greenwashing are widening. Given the potential risks, companies must be ready to reinforce their internal processes and subject their sustainability/ESG reporting to regular legal review.  

Three months have passed since Parliament amended the Competition Act to introduce new greenwashing provisions to enhance the accountability of businesses making environmental claims. Soon, the Competition Bureau will publish enforcement guidance on these provisions, following feedback from a public consultation that closed on September 27, 2024. 

In an ideal world, the Bureau will provide certainty to the public and companies by adopting a principled and flexible approach, addressing undefined and ambiguous terms, establishing criteria for adequate and proper substantiation, and remaining consistent with other Canadian regulators, like Environment and Climate Change Canada, and incoming mandatory ESG reporting requirements, concerning “internationally recognized methodologies.” Unfortunately, there is no way to know how the Bureau will decide to enforce these new greenwashing provisions until the new guidelines are published. Only time will tell. 

A notable omission from the Bureau’s public consultation is the new public interest test for private parties seeking leave from the Competition Tribunal to bring legal proceedings against companies and individuals for deceptive marketing practices. What constitutes public interest in this context is not yet defined, and there is no precedent yet on how this provision will apply.  

The Bureau and the Tribunal will determine what, if any, penalties to impose on companies found to be non-compliant. Under the new greenwashing provision, companies cannot consider principles, factors, or assessment criteria to understand their compliance risk. 

One can only speculate why the Bureau did not ask the public for feedback on these two critical issues. 

Even in the face of this uncertainty, what is certain is that companies must now substantiate claims made to the public about the benefit of a product, business, or business activity related to protecting or restoring the environment or mitigating the environmental, ecological, and social (for product claims only) causes or effects of climate change. Those who cannot back up their claims will face stiff penalties.  

Although greenwashing – making exaggerated, inaccurate, or misleading statements about an organization’s environmental and social impact – is not new, it has become more prevalent and problematic in recent years as the demand for ESG information and the scrutiny of stakeholders has grown. What is more, opinions are divided on the new greenwashing provisions. Some believe they will deter companies from voluntarily disclosing their efforts to reduce their environmental impact, while others argue these provisions are modest amendments which do not go far enough.  

While we expect the Bureau will soon publish guidelines informing companies on how to enforce the new greenwashing provisions, companies should not wait to start aligning with these new provisions. There are several practical steps that companies should start taking today: 

1. Identify ESG disclosures and public commitments and determine where companies have made ESG disclosures or talked about their ESG commitments publicly (e.g., website content, investor decks, media interviews, sustainability reports, social media, etc.).  

2. Assess ESG disclosures from a legal risk perspective, including whether companies’ ESG data, information, targets, and goals are credible and verified and, alternatively, are not vague, overly broad, selective, absolute, or unqualified.  

3. Conduct multidisciplinary reviews of companies’ claims to ensure they are substantiated and, where applicable, aligned with internationally recognized standards. 

4. Close compliance gaps and strengthen internal controls by identifying gaps in compliance programs and ensuring internal and external processes and controls can withstand the expected additional legal scrutiny from the public. Companies can better mitigate the risk of greenwashing allegations by strengthening systems, programs, and processes. 

It is no longer optional for companies to not take accountability for or provide further transparency into their public ESG commitments. Companies that fail to adapt will risk legal repercussions and lose the trust of the public and the investment community. 

Conor Chell will be the keynote speaker at the ESG Summit in Toronto on October 30, speaking on “Greenwashing and C-59: guidance and best practices for managing your risks and obligations.”