Market transformation beckons greenwashing

Market transformation beckons greenwashing

Outright misrepresentation and subtle insinuation taint environmental claims
Wednesday, November 16, 2022
By Barbara Carss

The market transformation process that’s giving rise to clean technologies and demands for climate change resilience and environmental, social and governance (ESG) accountability also creates openings for disreputable schemers. Greenwashing is potentially more lucrative than ever, tapping into both a demonstrated consumer preference for products and services with low-carbon credentials and the growing uptake of ESG reporting and benchmarking, which comes with a range of interpretations and validation measures.

Speaking in a webinar earlier this fall, Joanna Vince, a partner with Willms & Shier Environmental Lawyers, divided greenwashing activity into two general categories: outright misrepresentation; and more subtle insinuations of merit that has not or cannot be proven. The latter is perhaps the more prevalent tact for those looking to cash in on a market in which revenue growth from identified sustainable products has been charted at six times the rate of revenue growth for other types of products.

“A global review conducted by the International Consumer Protection Enforcement Network suggested 40 per cent of online green claims may actually be misleading,” Vince noted. “This can be the use of questionable labels, a failure to prove environmental claims, making vague or irrelevant statements, or making questionable comparisons that make a product seem like it’s the lesser of two evils.”

On the flipside, unmasked greenwashers can face steep financial penalties and embarrassing public exposure, particularly if they run afoul of Canada’s Competition Act and the federal Competition Bureau. Richard Butler, another partner at Willms & Shier, outlined the legislation’s consequences for deceptive marketing practices.

Individuals could be liable for maximum fines of $750,000 for a first-time offence with additional $1 million penalties for each subsequent violation, while corporations could be fined up to $10 million for a first-time offence and up to $15 million for each subsequent violation. However, it’s the “treble damages” clause that’s potentially even more costly.

In lieu of the fixed fines, violators could be compelled to pay restitution equal to three times the amount of their financial gains from greenwashing. The Act stipulates that the greater penalty of the two options must be assigned and, in the case of corporations, that could also be up to 3 per cent of annual worldwide gross revenues if a value figure for financial benefits derived from deception can’t be reasonably determined.

Proper and adequate testing lays basis for environmental claims

“This is a Regulator that deals in fines in the millions of dollars, which, in the environmental world, is quite rare and significant,” Butler said. “Under the Act, you may not make a claim about a product, its performance or effectiveness unless you can prove those claims are accurate based on adequate and proper testing, and the Act puts the burden on the person making the claim to prove, if challenged, that it’s true.”

Vince cited the example of Keurig, which paid out nearly $4 million in penalties and was forced to widely issue corrective notices after the Competition Bureau investigated the claim that a particular type of coffee-brewing product was recyclable. On a more modest scale, Imperial Manufacturing Group was ordered to pay out $65,000 and issue corrective notices when it was found there was no proof that its manufactured fireplace logs cleaned chimneys as they burned. In a more dramatic example, Volkswagen paid more than $246 million in fines and had to invest $2.1 billion into a vehicle buy-back program related to claims about emissions from diesel vehicles.

In making its assessments, the Competition Bureau applies ISO 14020 standards for environmental declarations and labels. Its stance on greenwashing is set out in a guidance document that lists best practices for environmental claims and counsels consumer vigilance. This is grounded on the premise that all claims must be based on “adequate and proper” testing and provide a precise and accurate description of the benefits.

Notably, the guidance explicitly states: “At this time, there are no definitive methods for measuring sustainability or confirming its accomplishment. Therefore, no claim of achieving sustainability shall be made.”

Among other claims greenwashers may commonly misappropriate, the guidance document provides direction on what can be labelled compostable, degradable, biodegradable, recycled and recyclable. It also calls for regular updating of environmental claims to keep them current with new developments, and requires public disclosure of testing procedures and results.

“If you’re going to make a claim, not only should you have proven it, you have to be able to show to the public where and how you’ve proven that claim,” Butler reiterated.

Financial regulators scrutinizing the ESG landscape

Beyond the Competition Act, greenwashing activities could contravene the Consumer Packaging and Labelling Act, which pertains to non-food consumer goods, or the Textile Labelling Act, which, among other things, mandates accurate information about fibre types and whether they are reused or recycled. As well, the Canadian Food Inspection Agency enforces regulations related to the verification of organic foods, and the self-regulating industry body, the Ad Standards Council, can force the revision or discontinuation of advertising that’s deemed either inaccurate or misleading due to the omission of relevant information.

In future, Butler foresees financial or securities regulators will become involved as more listed companies issue ESG reports and regulators impose climate-risk disclosure requirements. For example, 163 of 231 entities on the TSX composite index currently disclose their greenhouse gas (GHG) emissions, but only 80 employ third parties to verify those tallies.

“It’s still quite early on and there’s a lack of uniform ESG metrics, which creates inconsistency and deficiency in that disclosure regime,” Butler observed. “Until we get to a point where people can recognize what those individual frameworks require and what the reporting looks like, there’s room for ambiguity in the reporting and greenwashing.”

Temptation clearly lies in an estimated trillion-dollar market for green investments, but rule-makers are responding.

“The Canadian Securities Administration is developing a national instrument, so that’s a legislated tool, to regulate climate change risk and disclosure specifically,” Butler said. “I think we’re going to continue to see increased regulation and enforcement around greenwashing and claims of ESG or green sustainability that are not verified.”

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