The lessons on ESG greenwashing in a regulator's Lululemon investigation
The recently announced Competition Bureau investigation into athleisure clothing company Lululemon Athletica’s sustainability claims holds several lessons for businesses interested in touting their ESG credentials, says Miller Thomson’s Christie McLeod.
Canada’s competition watchdog recently announced an inquiry into the company following complaints from the environmental advocacy organization Stand.earth that it was misleading consumers about its environmental impact. The examination is centred around Lululemon’s Be Planet, a pillar of the company’s Impact Agenda, which it launched in 2020.
“Under the Competition Act, businesses should really be considering both the literal meaning of claims that they're making, but also the general impression that is conveyed by any claims that they're making,” says McLeod.
Companies should avoid “vague assertions” and “buzzwords” such as “green, sustainable, environmentally friendly – terms that don’t have a defined meaning,” she says.
If a business wants to make a sustainability claim, McLeod says they should provide data and supporting statements substantiating it. Businesses should also consider the scope of the claim and ask whether it is still true if all product or service components are considered and the entire lifecycle is analyzed. Companies must limit claims to “an appropriate scope” and to what they have “sufficient evidence to back up,” she says.
Stand.earth applied under s. 9 of the Competition Act, requesting the Competition Commissioner to launch an inquiry. According to their application, “Lululemon publicly represents that its practices, solutions, products and actions contribute to restoring the environment and a healthy planet.” But the garment industry contributes between 1.8 and eight percent of the world’s greenhouse gas emissions, Lululemon’s most used materials – polyester and nylon – are derived from fossil fuels and release microplastics when washed, the company transports more by air freight than its competitors, and it used more than 29 billion litres of freshwater in 2022.
According to the application, while the company publicly states that it works throughout its value chain to reduce its carbon footprint, its Scope 3 emissions – representing 99 percent of its carbon footprint – have more than doubled since 2022. Scope 1 emissions are the direct emissions a company produces through its operations. Scope 2 emissions are caused indirectly by the company’s operations. And Scope 3 is the emissions produced upstream and downstream of the company’s operations.
McLeod says Lululemon promotes a promised curb in scope 1 and 2 emissions, which account for merely 0.3 percent of its total emissions. The company makes “lofty commitments” about “restoring a healthy planet” when its massive supply chain uses lots of water, generates lots of waste, and relies heavily on fossil fuels to make its products.
A Lululemon spokesperson told Canadian Lawyer that the company is confident that the Bureau’s review will confirm that its representations are “accurate and well-supported.”
“We have achieved 60% absolute reduction of greenhouse emissions in our owned and operated facilities but recognize most of the impact comes from emissions within the broader supply chain. That is why we have set externally validated (SBTi) 2030 climate targets and a goal to be Net Zero by 2050.”
Under the Competition Act, the commissioner is not required to find that the claims misled any consumer, says McLeod, only that the claims were made publicly and were “materially misleading.”
“It's really about the impression that your marketing is giving people and whether that's false or misleading.”
ESG should not be relegated to a small environmental team within the business, she says. Departments should work together, share information, and ensure the company is tracking all its emissions scopes, water consumption, and any other ESG data, including workforce diversity.
“It's all about data,” says McLeod. “We're starting to see a push for more data. Regulators, consumers, investors – they're looking for data across the company's value chain, as well as the full lifecycle analysis of products.”
“It's not enough anymore to just consider your company's direct operations, but ignore what happens once the product you create goes out your door.”
McLeod is a member of Miller Thomson’s ESG and carbon finance national group. She is also part of the firm's advocacy group and advises on ESG, Indigenous, administrative, and regulatory law matters.
