US Companies Could Face $10 Million Fines For Green Marketing In Canada

AMSTERDAM, NETHERLANDS – 2021/11/27: XR activists hold a banner against consumerism during the … [+] demonstration. Extinction Rebellion organized in the center of Amsterdam a fashion parade, to mock fast fashion and to bring attention to the fast fashion industrys exploitative, profit-oriented, and greenwashing practices. The climate activists marched through the main shopping streets dancing and wearing repaired and second-hand clothes. (Photo by Ana Fernandez/SOPA Images/LightRocket via Getty Images)

Following new regulations, Canada is poised to begin cracking down on businesses for misleading environmental claims in marketing materials. Failure to comply could result in a fine of up to $10 million CAD, approximately $7.3 million USD, or 3% of a company’s gross annual revenues. Canadian companies are reacting, but the new law hasn’t gained much attention in the global business community, even in the United States. However, companies that do business in Canada need to adapt their marketing campaigns immediately or risk heavy penalties.

As international focus on climate change increased in the wake of the Paris Agreement, there has been a simultaneous increase in pressure on businesses to be environmentally friendly. Companies wishing to capitalize on the demand created marketing materials and sustainability reports showcasing green actions. However, without clear regulation or standards, those claims were broad and able to be made without supporting documentation.

Over the past year, there has been a notable increase in litigation and regulatory action relating to greenwashing, or the exaggeration of climate-friendly and other environmental actions by a company in marketing materials. Historically, this hasn’t mattered. A company highlighting minor environmentally friendly actions to make themselves look better was standard practice.

However, with the global focus on climate change, regulators and climate activists have started to challenge those claims. Companies are being investigated under consumer protection laws and being sued for statements made in marketing materials and sustainability reports. This is happening in jurisdictions around the world, even those without regulations directly aimed at greenwashing. Notably, the EU is currently drafting strict greenwashing legislation that could become the global standard.

New legislation adopted by the Canadian Parliament on June 20 is positioned to regulate environmental claims and prevent greenwashing in Canada. The legislation amends the Competition Act, Canada’s commerce law that regulates trade, mergers, and marketing practices. The act applies to companies that are based in Canada, as well as foreign companies that do business or operate within Canada. Enforcement is through the Competition Bureau, which operates in a similar function as the U.S. Federal Trade Commission. Penalties can be both civil and criminal.

The amendment addresses claims by businesses relating to “protecting or restoring the environment or mitigating the environmental and ecological causes or effects of climate change.” Those claims must be substantiated in “accordance with internationally recognized methodology.”

This language is problematic for companies, as there is no clear definition of “internationally recognized methodology.” International regulations are still being developed in this area, and it is unclear what methodologies the Competition Bureau will accept.

Despite the ambiguity of the law, the penalties are clear. Those found guilty of greenwashing can be ordered to not engage in similar conduct in the future, issue a public correction, and pay a monetary penalty. The monetary penalty for companies is up to $10 million CAD for the first violation and $15 million CAD for subsequent violations; or “three times the value of the benefit derived from the deceptive conduct, or, if that amount cannot be reasonably determined, 3% of the corporation’s annual worldwide gross revenues”, whichever is greater. For some companies, those penalties can be in the hundreds of millions or even billions of dollars.

Climate activists have grown notably frustrated with greenwashing and are aggressively using legal resources to force compliance. They want companies to make drastic changes to their operations to account for climate-change, not just talk about it. They have already filed complaints against multiple companies in Canada, the most notable being lululemon, under the previous laws. The change will enable them to aggressively go after companies, with a significantly higher chance of success.

This should concern board members, c-suite, and the legal counsel of companies with any presence in Canada. Ignoring this will not work. Companies must develop a strategy, engage outside counsel, and adapt to the incoming wave of regulations. Someone will be made the example and pay a heavy penalty. Who that will be is yet to be determined.

One Community. Many Voices. Create a free account to share your thoughts.

Our community is about connecting people through open and thoughtful conversations. We want our readers to share their views and exchange ideas and facts in a safe space.

In order to do so, please follow the posting rules in our site’s Terms of Service.  We’ve summarized some of those key rules below. Simply put, keep it civil.

User accounts will be blocked if we notice or believe that users are engaged in:

Thanks for reading our community guidelines. Please read the full list of posting rules found in our site’s Terms of Service.