Are sustainability claims sustainable? New proposed amendments to Competition Act target net-zero claims

New amendments to Bill C-59 introduce a novel misleading advertising provision that targets broad environmental representations, including “net-zero” type claims. 

As originally drafted, Bill C-59 included substantive changes to the Competition Act’s (the Act) civil misleading advertising provisions, including an explicit prohibition on product-specific misleading environmental benefit claims, which could attract significant penalties.¹ However, this new provision goes much further and confirms that potential greenwashing continues to be an enforcement priority.

Companies making climate-related, net zero, environmental impact or similar claims will have to consider the increased risk stemming from these new greenwashing provisions, while at the same time navigating the possibility of private applications.

Targeting net-zero and other general claims

The Commissioner of Competition (the Commissioner) welcomed the amendment in the original Bill C-59 that targets product-specific greenwashing (discussed below). However, he expressed concern that the provision, being limited to products, did not adequately cover claims for a business or a brand as a whole that can be false or misleading – i.e., claims to be net-zero or carbon neutral by 2030 or 2050.² The Commissioner recommended further “study” be done to potentially include broader greenwashing provisions in the Act.³  

Instead, a proposed new paragraph 74.01(1)(b.2), which will significantly affect companies making net-zero or carbon-reduction claims, was introduced into Bill C-59 without further study. This new provision makes it reviewable conduct to, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever:

make a representation to the public with respect to the benefits of a business or business activity for protecting or restoring the environment or mitigating the environmental and ecological causes or effects of climate change that is not based on adequate and proper substantiation in accordance with internationally recognized methodology, the proof of which lies on the person making the representation.

Product-specific greenwashing provision

From the outset, Bill C-59 proposed to target greenwashing by creating a product-related misleading environmental benefit claims provision. Specifically, the bill proposes to amend section 74.01(1) of the Act to expand the definition of civilly reviewable matters to include:

representations to the public in respect of a product’s benefits for protecting or restoring the environment, or mitigating the environmental, social and ecological causes or effects of climate change that is not based on an adequate and proper test, the proof of which lies on the person making the representation.⁴  

Private right of action

Bill C-59 also proposes to allow private parties to make applications to the Competition Tribunal (the Tribunal) to seek leave to bring an application under s. 74.1 where businesses contravene the civil misleading advertising provisions. This is a major departure from the status quo, under which only the Competition Bureau (the Bureau) can enforce the misleading advertising provisions. 

The Tribunal would be able to grant leave where it is “in the public interest to do so.” It remains to be seen how the Tribunal will interpret “public interest,” but the vagueness and breadth of this language suggests it will not be difficult for private applicants to obtain leave.

Penalties on private applications will include prohibition orders, restitution orders, and potential administrative monetary penalties, which can be up to 3% of annual worldwide gross revenues. 

Currently, the Tribunal can order restitutionary damages,⁵ but this remedy only applies to the general false or misleading in a material respect provision (ss. 74.01(1)(a)). However, it is likely that private applicants will bring claims under the new anti-greenwashing provisions and this general provision at the same time. 

Complexities of compliance

“Internationally recognized methodology” as used in the new paragraph b.2 is not a defined term and it is unclear how the Tribunal or the Bureau will interpret it or whether the Bureau intends to release guidance on what methodology will be acceptable. 

This lack of clarity is problematic for businesses, who will bear the onus of proving their claims were based on adequate and proper substantiation in accordance with internationally recognized methodology. 

This “reverse onus” provision puts the onus on companies to ensure their claims are appropriately substantiated, rather than requiring the Commissioner (or private litigant) to bear the initial burden of proof on this issue. Under the new provisions, there is no need to establish the representation is materially false or misleading. 

Despite this reverse onus and the lack of clarity on what constitutes an acceptable “internationally recognized methodology,” penalties under these new anti-greenwashing provisions will be significant, including prohibition orders, and administrative monetary penalties.⁶  

The Act contains a due diligence defence in s. 74.1(3) that will continue to apply where the business can establish it exercised due diligence to prevent the reviewable conduct from occurring. 

Timing considerations

Complying with the new law is further complicated by the aggressive entry into force date. There is no delayed entry into force provision for the new paragraph 74.01(1)(b.2), which means the Commissioner could immediately make an application for environmental claims that occur or continue after Bill C-59 receives royal asset, which could happen before the House rises for the summer. 

While the proposed amendments to permit private actions are subject to a one-year delay in coming into force, Bill C-59 specifies that an applicant can bring an application under section 74.1 no more than one year after the relevant practice or conduct has ceased – potentially negating the purpose of the delayed coming into force of the private access right. A year after royal assent, private parties could challenge conduct that occurred a year prior – when the law received royal assent. 

This provides very little time for businesses to bring their marketing materials into compliance with the new rules – which are unclear. This contrasts with the delayed coming into force of other substantive changes made previously. From a policy perspective, it is inconsistent with the notion that businesses should be given reasonable time to voluntarily bring their practices into compliance with a change in the law – in particular one with potentially significant financial consequences.

Key takeaways

Companies will need to closely and quickly scrutinize any current or planned environmental representations – including those relating to net-zero and carbon-neutral targets on websites, social media platforms, and in marketing materials. The royal assent date for Bill C-59 will be the critical date by which businesses should aim to comply with the proposed changes – a date that could come sooner, rather than later. It remains to be seen whether the changes to the bill will create an unintended chill on action towards and communication of environment-related pledges, but it is clear net-zero claims are not zero risk.