Ottawa says it is committed to stiffening rules, language reflects 'broad, cross-partisan consensus'
Proposed Competition Act amendments aimed at curbing ESG greenwashing require clarity, says Cassandra Brown, a partner at Blake Cassels & Graydon LLP. The changes would require companies to substantiate their environmental claims according to “internationally recognized methodology.” But, with multiple methodologies widely in use, the bill does not specify which would apply, she says.
Bill C-59, the Fall Economic Statement Implementation Act, 2023, is currently in the Senate Committee stage, having completed third reading in the House of Commons on May 28.
The legislation added language to s. 74 of the Competition Act. The addition states that a person engages in reviewable conduct when claiming that their product or business activity will protect or restore the environment or mitigate the causes or effects of climate change, and the claim “is not based on adequate and proper substantiation in accordance with internationally recognized methodology.”
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The requirement that a public statement on a company’s environmental impact must be substantiated according to internationally recognized methodology is “vague,” “undefined,” and could be unconstitutional for that reason, says Brown, who advises clients on all aspects of competition law. There are numerous international bodies and task forces that have established methodologies for this type of reporting. These include the International Financial Reporting Standards, the Task Force on Climate Related Financial Disclosures, and the Global Reporting Initiative.
“The statute has does not prescribe how a business should choose among these standards, particularly where they're not consistent,” says Brown. “It does not make it clear what an internationally recognized methodology is. And who does it need to be recognized by, in order to qualify as an internationally recognized methodology?”
The language “creates needless uncertainty” for businesses which have made significant investments in institutional infrastructure to address shareholder demands for information on sustainability metrics, she says.
The Competition Act is a “principles-based framework,” and commonly contains “general terms” that the Competition Bureau and the Competition Tribunal will refine further through enforcement guidelines and caselaw, says Isabelle Echeverri, media relations at Innovation, Science and Economic Development Canada (ISED).
“It can be expected that the same process will unfold with the most recent amendments,” she says.
Echeverri adds that while complaints can trigger a Bureau investigation, the Bureau will determine if an application to the Tribunal is necessary and “can be expected to do so in a pragmatic manner, taking the novelty of the provisions into consideration.”
One year after Bill C-59 passes, a private litigation process will be available for greenwashing claims. She says the tribunal must grant leave for such applications and can only do so if it is in the public interest to proceed.
“This presents a significant safeguard against frivolous or unjust applications.”
In an article from the law firm Burnet Duckworth & Palmer LLP, authors Brittney LaBranche and Alicia Quesnel agree that the language is unclear because there are a “multitude of methodologies and standards that have been adopted by international organizations, as well as national and provincial or state governments.”
In response to the proposed amendments, the Calgary Chamber of Commerce said that if companies are unable to comply with “these currently undefined standards,” the monetary penalties and reputational hazard could “significantly impact ESG reporting, investment attraction, and climate ambition.”
The Quebec Environmental Law Center, Ecojustice, the Canadian Association of Physicians for the Environment, and Équiterre put out a joint statement which said that Bill C-59 will enhance greenwashing regulation. Though the changes represent “significant progress,” the organizations added that “certain flaws persist.” For example, the bill will not require firms to disclose the evidence on which they base their ESG claims, preventing consumers from “easily identifying potential cases of greenwashing.”