Greenwashing | S2 EP12

The conversation on climate change and sustainability disputes continues. In this episode, we’re talking about greenwashing. Both public and private companies are being held to task on what they say about their climate footprint with regulatory bodies taking a bigger role in enforcement. Joining the discussion are Kellie Johnston and Ray Chartier. Kellie is chief sustainability officer (CSO) and general counsel to Northstar Clean Technologies in Vancouver. Ray is a commercial litigation partner based in our Calgary office, and one of the co-heads of our Canadian ESG practice. Kellie and Ray share remarkable insights with us about the role of the CSO in business, the rise of greenwashing risks and potential claims, and what trends we're seeing coming down the pike.

CPD credits: This episode qualifies for 0.75 hours of Substantive credit in Ontario and 0.75 hours of Substantive credit in British Columbia.

Transcript

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Transcript:

Andrew McCoomb  00:10
Welcome to Disputed, a Norton Rose Fulbright podcast. In this episode, we take a deep dive into a trending topic that we've mentioned in several previous episodes - greenwashing. As climate change continues to grow as a matter of interest to shareholders and consumers, what companies say about their climate footprint matters more every day. And it's not just the public that is holding companies accountable. Earlier this year, Keurig was hit with a $3 million fine from the Competition Bureau in relation to claims the Bureau determined were misleading about how recyclable Keurig’s coffee pods were. The Competition Bureau isn't the only regulator taking a closer look at corporate disclosure about environmental impact as the SEC has trained its focus on the space as well. To quote a Bloomberg article from June 2022, ‘The SEC war on greenwashing has begun’. We wanted to dive into this space but from a special perspective, that of the in-house counsel and external professionals managing their company's environmental disclosure and messaging. Our guests provide that special perspective. First, we welcome to the podcast Kellie Johnston. Kellie is Chief Sustainability Officer and General Counsel to Northstar Clean Technologies. Northstar is an amazing, clean tech company based in Vancouver. And as you'll hear, Kellie's role focuses significantly on what Northstar’s environmental impact and reputation are. Joining Kellie, is Ray Chartier. Ray is a commercial litigation partner based in our Calgary office, and one of the co-heads of our Canadian ESG practice at Norton Rose Fulbright. Kellie and Ray share remarkable insights with us about the role of the CSO in business, the rise of greenwashing risks and potential claims, and what trends we're seeing coming down the pike. We hope you enjoy.

Ailsa Bloomer  02:02
Ray, Kellie, welcome to the podcast. Thank you very much for joining us.

Ray Chartier  02:06
Thank you very much for having us.

Kellie Johnston  02:08
Yep. Thank you for having us.

Ailsa Bloomer  02:09
Okay, Kellie. So before you joined Northstar, you were of counsel at Norton Rose, and you worked closely with Ray heading up the firm's ESG practice. Now, it may seem like a long time ago, that, but actually, in reality, it was perhaps three years ago? So I just want to start this podcast with your perspectives on the history and the rise of ESG from your different views as practitioners?


Ray Chartier  02:37
Well, I was gonna-- I was gonna say, this is nice to be able to reconnect with Kellie and work with her again. And I recall, it wasn't that long ago. And in working through ESG topics, one of the first things that we always had to do was explain to people what ESG was and what these issues are. And that makes it seem like a very long time ago.

Kellie Johnston  03:00
No, absolutely, it feels like it should have been 10 years ago. And certainly we don't have to explain any of that. I would say where I was just previous to Northstar, I was still explaining ESG issues. And I think the difference now is that it's just so prolific in the news. So it's come a long way in a short period of time to be where ESG or sustainability is not something that needs to be introduced as it was when you and I are working together.

Ailsa Bloomer  03:30
Can I just ask where did you get the idea to develop the firm's ESG practice? Was it because clients were coming to you with similar types of questions? Or, were you scanning the market and figured that this is something that we need to start providing before we're asked for it?

Ray Chartier  03:48
Well, there were parts of our firm globally that were certainly seeing, you know, more of ESG issues coming to the forefront. And there were certain practice areas, particularly in project financing, where I think these issues have been at the forefront for a while. And so there were both a combination of different people within our firm that we were talking to, and different practice areas that we could see that these issues were becoming much more important and that you know, financial institutions, major corporations, and whole sectors were being held to account. And were seeing a real pressure to show up and actually start measuring ESG metrics, report on their sustainability. And so it kind of came up organically and there was a group of us are in early days in Norton Rose Fulbright, and some of us were in Canada, but it included a network that crossed into all sorts of jurisdictions in Europe and Australia as well.

Kellie Johnston  05:01
Yeah, I would just add that, really the rise of regulation, so government oversight, was really a-- an impetus as well. And of course, that did start in Europe, because that's really where they are at the forefront. You know, we are a little bit behind in Canada from that perspective, but quickly catching up. But definitely that was a big driver for looking at this and clients coming to say, we're feeling the pressure of this, what do we do?

Andrew McCoomb  05:28
Let's go straight to the C-suite, if we could, Kellie. You are Chief Sustainability Officer and General Counsel at Northstar Clean Technologies. So maybe first of all, maybe you could start by telling us a bit about Northstar. And then tell us a bit about your role as Chief Sustainability Officer and what that looks like these days.

Kellie Johnston  05:49
Sure, thanks, Andrew. So Northstar itself, we are a clean technology company. We have a proprietary process that essentially recycles asphalt shingles, so the shingles that you see on every roof. We're a startup company so we have a pilot facility in Delta, BC, and we're on our way to building our first commercial facility. We essentially take shingles and we reprocess them into their constituent parts. So we have liquid asphalt, aggregate and fiber. Our plan is to sell these products into the circular economy. So they can be reused in various industries most specifically, would be going back into an asphalt shingle. So a truly circular economy type solution, used in flat roofing systems, so the same type of thing, and also using aggregate in the liquid asphalt in paving. And just as far as a high level from a Chief Sustainability Officer position, I think, generally, this-- this position is a-- is a really important position, I think. It provides leadership and vision for sustainability, just generally. And really, what you need to do is coordinate with management, with stakeholders, so that includes your board, shareholders, different levels of government, potential funders and customers, as well as employees and develop, implement and then maintain a sustainability strategy for the company. Northstar is at an early stage right now of its sustainability strategy. But, it really involves speaking to stakeholders - this role, and thinking strategically. So from a general perspective, this role needs to think strategically about how best to substantiate the company's sustainability credentials with data, setting strategic priorities, goals, objectives for the organization. And then really importantly, ingraining sustainability practices across the business and cultures so that as you're building a business as we are right now, sustainability and culture, to support sustainability is just ingrained in the company. I've also been in positions where you need to sort of pivot a culture a little bit in order to be able to do that. But those I think, are the key challenges and opportunities for a Chief Sustainability Officer.

Andrew McCoomb  08:09
And acute challenges for someone who's the Chief Sustainability Officer, of a company that is making sustainability of its product offering and what it does, such a big part of its brand and its identity. I take your point about culture pivot, your company isn't in ESG, for ESG’s sake, I mean, your company's offering is tied up in the concept itself.

Kellie Johnston  08:36
Yeah, absolutely. And that's why, you know, from my perspective, personally, it's a great place to be at this stage of the company, because you can start from the ground up. What I was getting at is it-- it can be difficult to adjust a culture that isn't focused on sustainability, and I think from a challenge perspective for a CSO position, one of the biggest challenges is meeting negative feedback when you take a position on an issue that can be unpopular or controversial, which-- which happens all the time, you need to have the courage to handle these situations and lead a discussion to get to the best result for the company, and its stakeholders, but also the best result for the actual ESG issue at hand, whether that's environmental or social, because a company like ours, we are doing something to take shingles out of landfill and repurpose them in a circular economy, so that is our ultimate goal. That is our purpose. And so we need to do what can best achieve that result. So it's kind of twofold.

Andrew McCoomb  09:41
I can imagine our in-house counsel listeners are identifying with what you say about pushback in an organization because that's, I think something that in-house counsel are facing all the time. I mean, anyone who deals with sales, for example, and you got your salespeople who want to get their contracts through and legal is so often seen as this roadblock, this is speed bump to get past in order to get the deal done that you want to get your quota, get your bonus, get your quarter in and everything. But you're talking about something that's so macro, in terms of what you're trying to bring people around on from, from an ideas perspective, I--, I take your point about being in the, maybe the enviable position of trying to build that culture from the ground up, and hopefully drawing people into the business at first instance to share values around what it is that you can make and do in the model that you guys have chosen for a business.

Ray Chartier  10:33
Well, and I've heard that from clients. And I've seen that actually play out, Andrew, where there is sometimes a disconnect between those who are trying to either sell products or get deals done, and then the legal or the sustainability side that are seen as an impediment to that. And I think that speaks to why it's so important for someone to-- like Kellie, to be in a CSO role. So that there is a unified and integrated approach, so that the different parts of the company are talking to one another and are understanding these types of issues within-- within the importance of the overall strategy of the company.

Ailsa Bloomer  11:17
And it's interesting, Kellie that you mentioned that Northstar is obviously a startup and its-- its whole focus is-- is renewable technology. I wonder how this different challenges a CSO at a multinational company or probably a company that has been around for many, many years and is transitioning to renewable strategy, how that, the challenges, there would be slightly different because it's about almost kind of educating everybody from the old to the new.

Kellie Johnston  11:43
Yeah, and I've had that experience in a past position with a-- with a multinational company and being in the sustainability team. And I think what you need then is you need a very, very strong directive from the C-suite. And when you're working in a multinational company that has to come from wherever the headquarters. So in my position, I was lucky enough to have that high-level support and focus. Having said that, there's always challenges. I can think of many examples, you know, some that are funny now, some that weren't so funny at the time, of people standing up in meetings and saying, you know, this is complete garbage, what are we doing, and you have all these kinds of conversations. But it is a different, there's a couple of different aspects that I think about is, when you're trying to shift a company that is that ingrained. And I think most companies that are that large have-- have all have moved through all of this now. But there's a couple of different things, there's shifting the mindset, but there's also actually still putting in all the processes and the metering and all the data to be able to substantiate what you're doing. And then being able to ensure that all the work that's-- that's happening is, people are accountable for it, and they have to show that they're accountable. And kind of getting back to what Ray said, there's-- there's kind of a team that can integrate all of that information across the company and create the accountability you need to get it done. And make sure that anything that goes out, internally, you want to do the right thing. So you need to be doing what you say you're doing and actually creating that positive environmental impact. But you also need to be reporting on that positive environmental impact. And, with the negative, so you know, we set this target, this worked great, we set this target. We didn't get there, here's why. And all having all the data to substantiate it. So those I think are the bigger challenges in those big companies, because you have processes that are in place for so long. Whereas again, that might be an advantage of starting where we are right now, is we're able to long-term strategically plan and put all those things in place.

Andrew McCoomb  13:50
Those comments about accountability and everything you just said, Kellie, I think is the perfect table setting to kind of dive into the meat of this discussion, which is about greenwashing. So taking these cues from-- from where we are right now, what are we talking about when we talk about greenwashing?

Ray Chartier  14:07
Greenwashing is-- is at its core, representing yourself as something that you're not and so an accusation of greenwashing is essentially that an entity is saying it's one thing being more sustainable or more environmentally friendly, than it actually is being. And those are the types of claims that we're seeing as there is a greater and greater pressure for companies, not just startups that are sort of premised on the idea of being ecologically friendly and sustainable and having ESG at the forefront like Kellie's company, Northstar, but where-- where there are companies that-- that are putting forward information that they've increased their sustainability, and there are those that are looking at them and saying you just can't back this up you. You're just saying it, but you're not actually doing it.

Ailsa Bloomer  15:03
When you talk about greenwashing, there is almost a spectrum of intent, right? I mean, it's presumably not the case that most companies out there are deliberately misleading consumers and investors about the sustainability of their product. And I'm assuming that there's a lot of companies that just accidentally engage in-- in greenwashing, or don't really know how much data they need to have to make a certain claim. And so I wonder if we could just dig a bit deeper on that point about, you know, are there, is it more common that we are seeing accidental greenwashing activities as opposed to deliberately misleading behavior?

Kellie Johnston  15:42
What I think happens in companies, and I think that's why the-- the role of CSO has become so prominent, very quickly over the last little while, is you need a strong network across the company, which is kind of what that CSO does. And you need to be able to touch on all areas of ESG. And there's a lot of data and a lot of information, and if you have part of the company that saying, Well, we're we are environmental, because internally we talk about it, and we're doing all these things and that leads to a disclosure that says, you know, something general, like we're green, or we're eco-friendly, eco-friendly, or whatever that is, but there may not have been all the work done to actually substantiate it through data. Now, that doesn't mean no work was done. So it's getting to your point of it's-- it's certainly not deliberate deception, but it is just we've done all this work, so we must be green. But-- but what companies I think are being pushed to, especially with this regulatory focus, and with external stakeholder focus, is companies need to be able to really assert something, and be able to explain why they are green, or whatever term they've used, leads me to think about third-party verified-- verifiers as well, because often companies will say, well, we're green, because X group verified us as green. And again, I think that can lead to issues because those types of third-party certifiers, they have a certain window of what they look at. And as a company, you need to be responsible to say, oh, are they looking at our whole product and process in the way that we need them to? That they can certify everything? Or are there qualifiers we need to put on? So it sort of gets to the company's responsibility to say, what are we going to say? What data do we have to protect it? And if we have a third-party certification, does that third-party certification actually cover everything we do? Or do we say we're third-party certified by this, however, these things are not looked at, or however you qualify, but being really transparent and upfront and data-focused. And I think what happens is companies do all of this work, and they come to these conclusions. But there hasn't been the diligence till now of what exactly do we know? And what exactly can we show? And being brave enough, frankly, to just say, we think we're green for these reasons, but it doesn't include X, Y, and Z. Because no one, no--, nobody and no company can be perfect. And I don't think perfection is actually expected from any part of the market or any part of the external stakeholders or financial institutions. I don't think anyone expects perfection, but they do expect a transparent disclosure of what a company is doing and why.

Andrew McCoomb  18:26
Picking up on that though, our cynical listener is hearing you refer to responsibility. And they're saying, well, hold on, Kellie, wait a sec. Company is out there for purposes of generating returns for shareholders, it's employing people, it's delivering products and services to the community, maybe abroad. It probably has a charitable arm that's doing good works in the community. It's not breaking any laws. And it's not lying to anybody, or maybe it is. What's-- what's the big deal. What-- Why is this an issue recently? Why is this an issue now? That is creating a responsibility to get this disclosure out there.

Kellie Johnston  19:13
I'm going to answer it and maybe a different way than you expect. But I think if we get back to greenwashing, I think fundamentally greenwashing misleads consumers, into buying something they might not otherwise have bought, because the company said it's green, or whatever they said. And the other issue is, the company then doesn't actually do or assist or protect the environment in the way that they're saying. So you kind of have a double whammy of consumers buying products that they might not otherwise have bought, had they known the reality of it, and you have an environment that's not being protected, or helped in a way that the company is saying it's-- it's doing that. And I think that regardless of anything else on ESG, it's the externality and your social license to operate, which I think is still a very critical aspect of this, that is driving companies to do that. You need to be responsible for that as a company. And if you want to be a responsible company, and do good for the environment, then you need to do both ways, and you need to sell products to consumers, where they fully appreciate and understand what part of that product is green, so to speak, and what part isn't, and where you're working to get it better. And you need to actually be showing what you're doing to help the environment. 

Andrew McCoomb  20:33
I think the point I take away is-- is it matters in a vacuum. But it also matters in a compound way, in a world where both investors deciding to make their stock picks based on what a company's global footprint looks like, not just in terms of the P&L, but in terms of everything else it's doing, that influences their-- their purchasing decisions of where they want invest in the company. And it's also influencing decisions that people make day to day on whether they want to buy their products, just the same way that, you know, 25 years ago, people started to take really seriously the question of, where did my, you know, my retail clothing come from? And how was it made? And how do I feel about that as a consumer? I mean, we're seeing that change now, on the environmental side, because people have finally come around to understanding of what's happening to the planet. And so that's influencing just, it's amplifying all the things that I think in a vacuum, that you just mentioned, would be true regardless, but they're-- they're much more significant in the facts and circumstances of the world as we take it.

Ray Chartier  21:36
There's an obvious economic harm that can potentially be done, and I mean, the easy example is, if you're selling something as a company, and you're saying, this is 100% recyclable, but you know, well, that it's 50% recyclable, you're misleading, and you're doing so intentionally. Becomes more of a gray area. When you say, our product is fully recyclable, but you just haven't done your homework, you actually haven't looked at it, and you don't have the data to back that up. And it becomes somewhere between an innocent misrepresentation and an actual misrepresentation, and that's where, you know, increased regulation to ensure that proper disclosures are made, comes into play, because it's the regulation is tightening on this and becoming, you know, an area where there's greater and greater scrutiny, there's greater reporting requirements for companies, so that they're required to actually report and be able to backup those reports. And I guess the other harm that, you know, obviously comes out of this is you can say anything, but there has to be accountability for when you represent things, and they're not true. And it's an obvious case where you know they're not true. But if you haven't put in place those things that will allow you to verify and justify and show that what you're saying is accurate, well, that is also a problem, and that's where you run into the regulatory issues as the regulations get strengthened. 

Ailsa Bloomer  23:15
And what about aspirational statements? So the net-zero pledge, there was an interesting case of an airline that said that it planned to make flying sustainable, and then that obviously faced legal action, because there were some point of saying, well, you flying is never going to be sustainable. This is-- this is greenwashing and you know it. And I think that's an interesting area too, because for many companies, particularly in industries, like the aviation industry, there's going to require substantial investment to take them to the sustainable future. And to do that they need to obviously make the sense that we are committed to doing X, Y, Z, and to not, you know, run the risk of being accused of greenwashing. So what do you think about companies in that position?

Ray Chartier  23:59
I would say that not all greenwashing claims will stick, not all are valid, you see them raised from time and time again. And, you know, just trying to do better and make statements that you are making commitments into the future alone, are not things that should attract a greenwashing allegation in my view, but I think as you make concrete commitments, and you put certain timeframes on them as time passes, and you get closer, so if you're looking at a 2050 pledge, or a 2030 pledge, well 2030 is much closer in time to where we are now, than 2050. And if you don't have the details to back up a claim that you are going to do something specific, then you could run into trouble in a-- in a greenwashing claim situation where you've actually gone to the extent of misleading. Now if you just say, as a company aspirational things, we plan to do X or we plan to, you know, be carbon neutral by this date, there may not be an actual actionable greenwashing claim against you, but you may lose credibility and the reputational damage of not backing that up amongst the consumers who are utilizing your product may be, you know, equally harmful as-- as anything when you make those types of statements but you can't back them up. But I take your point. And that is one of the tensions that exists is certain sectors, certain businesses are going to have a much more difficult time in achieving some of these pledges that are now expected than others, and the airline industry is a great example. 

Ailsa Bloomer  25:49
So we've mentioned kind of briefly, made various references to the regulations and guidelines that are out there, I wonder if you could just give us a high-level overview of the legal landscape when it comes to greenwashing. What are the laws, rules and regulations that companies both within Canada and internationally have to navigate?

Kellie Johnston  26:08
I'll start with the US, I think the US is closest to Canada. And we-- we often follow up, you know, they usually follow Europe and we follow them. So I think most recently, and most importantly, in the US, the SEC has launched its Climate and ESG Task Force. And this is really aimed at protecting investors and actively identifying misconduct that's related to ESG. And then what they're doing there is they're analyzing issues. They're analyzing ESG disclosures in order to see if there's any sort of misleading of investors from that perspective. And this is actually where a lot of the regulation is coming from, both in Europe and also in the US, it's looking at the financial markets. So those that are putting out financial products, and claiming that these are green funds or social funds, and saying, are these truly green funds or social funds? And not in the sense that they have to be something, you know, from a general perspective, but the funds themselves if they're saying that they're doing a certain process, so they're going to exclude certain types of companies, oil and gas companies, weapons companies, other companies like that, ensuring that the product that they're putting out there actually does that. Or if they're saying that we have a focus on-- on companies that do a certain something, then making sure that the fund managers are adhering to a process to ensure that their product does what it says it's going to do. The SEC is also bringing actions, so there's a lot more actual government oversight and regulatory oversight, not from kind of a courtroom perspective, but from a regulatory perspective. So in April of this year, the SEC Task Force brought its first action. And I think that these types of cases really send a message to public companies regarding the importance of what we've been talking about, which is the accuracy and sufficient documentation of their ESG disclosures and their other filings, as regulators are starting to look at what they're putting out publicly, it's going to be really important that companies ensure, especially public companies at this point, although I think the line between a public and a private company at this stage is very grey, because even though they aren't under the regulatory auspices of SEC, for example, private companies are still looking to find funders, usually who actually are regulated by the SEC generally, and therefore can't get away with it because they also need to meet those standards in order to have some of the big funders that they hope to attract.

Ray Chartier  28:43
There is sort of a network of regulations and disclosure requirements in other jurisdictions. The SEC has obviously just upped its game and has increased its oversight. In Canada, it's a combination of government oversight, and-- and occasionally you will have class actions filed, where there's actually been an allegation that there's been something put out that's misleading to consumers. But in general, the Competition Bureau oversees a lot of these things, and they will pursue environmental claims that come under the Competition Act, that prohibit companies from making false and misleading statements to promote their interests or essentially just putting out misleading statements into the public without adequate testing to ensure that there's informed consumer decision making. There are some proposed amendments to the Competition Act at the moment that would increase the penalties under it, for making misleading statements. And there are also within Canada, other specific pieces of legislation and regulation that relate to disclosure or not making misleading statements such as the Textile Labeling Act, the Consumer Packaging and Labeling-- Labeling Act, and things of that nature. 

Andrew McCoomb  30:07
And the Consumer Protection Acts, to the extent that provinces have them as well would be hugely applicable giving consumers rights to bring private actions to seek damages for rescission of contracts or maybe reimbursement of part of what they pay for a product, depending on the change value. Maybe we've seen those types of cases come up in the environmental context in relation to, you know, automobile emissions promises or commitments, for example. So that would be another kind of fertile ground forward-looking for these types of claims, I would think.

Ray Chartier  30:39
Yeah, absolutely. So recently, in October of 2021, the Canadian Securities Administrator did publish for comment, the Proposed National Instrument 51-107, Disclosure of Climate-related Matters, as well as the companion policies and the comment period for that closed in January. This forthcoming disclosure requirement, if implemented, and when implemented, will provide much more standardized guidelines for public disclosures in Canada, and it will increase the degree and specificity of those disclosures.

Andrew McCoomb  31:19
It's interesting that you mentioned that because it's a theme that we've picked up in a couple of our prior episodes talking about, for example, in modern slavery legislation, and how companies can manage their supply chains because there's this increasing trend towards requiring disclosure of what's going on in your supply chain and requiring disclosure of your efforts to manage issues like modern slavery, you can just-- you can see this trend towards an expectation, and indeed, now a regulation requiring a really fulsome and open kind of disclosure about what your ESG-related practices are across your business, and for a global business, that gets more and more complicated as-- as the expectations around business practices evolve.

Ray Chartier  32:05
Well interestingly, this is an area where Canada is actually a little bit behind other jurisdictions. So for example, in Australia, there has been modern slavery legislation for a longer period of time. And so, when we talk to our colleagues in our Australian offices, we’re able to see a roadmap of what the Modern Slavery Act reporting requirements, and potential penalties for-- for not properly reporting may look like in Canada as they unfold, and the moves by the Securities and Exchange Commission to increase ESG-related disclosures, again, is a significant move forward from some of the disclosure requirements that currently exist in Canada, but all-- all jurisdictions are moving in this direction. That is certainly the direction of travel for all of these types of issues.

Ailsa Bloomer  33:09
I guess we'd be remiss if we didn't mention European regulations and legislation, because they, I think, as you mentioned earlier, Kellie, it's Europe who really kind of started the regulation when it came to greenwashing and environmental disclosure.

Kellie Johnston  33:22
Yeah, absolutely. I think when, getting back to sort of Competition and Consumer Protection legislation, both, you know, in the UK, for example, the Competition and Markets Authority, just this year launched a review of misleading green claims on the fashion industry, for example. And they're just diving in and looking at what the fashion industry is saying, and looking to see how they can hold the fashion industry to account on some of their, you know, conscious clothing campaigns or sustainable clothing campaigns and making sure that all of those are actually legitimate, as we talked about backed by data. Same thing in New Zealand. So there is-- there is a big push, there's no doubt that Europe is leading in all of these areas, from a financial regulatory perspective, consumer protection, requiring ESG, human rights, modern slavery, all of that, and there's-- that's no exception on the greenwashing front.

Andrew McCoomb  34:16
We have the benefit on this podcast and both the external and the internal perspective, on what to tell clients who are looking to either protect themselves against greenwashing claims, or you know, defend against them when they come up. I mean, how do you advise clients, or your client, on-- on how to-- how to run a business and avoid these types of pitfalls? In a world where scrutiny on these fronts is obviously considerably increased?

Ailsa Bloomer  34:47
Particularly, as well, in your position, Kellie, where you're with a startup that needs to attract investment and advertising your core USP which is your sustainability.

Kellie Johnston  34:57
Yeah, no, that's a very astute question, observation. You know, data, data, data. So as-- as we move forward to a commercial operation, we are looking at very specifically, how do we set up a system with accountability, that includes an automated process so that we can meet disclosure requirements? Disclosure requirements, and ESG, are getting to have the level of scrutiny of financial disclosure. So we need to be able to set up a system from the get go, that gives us the auditable quality from, same as a financial, that would audit our greenhouse gas emissions, for example, that would audit our water use, for example, that is able to take what we're doing in the plant, and provide it through the whole process so that at the end of the day, the numbers that we have is the data that we need to show ourselves. Have we done what we said we were going to do? What do we need to fix it if we haven't? Or where are we going wrong? Where-- where we haven't done it? Or where are we going right? And what can we, you know, improve on? But also from a disclosure perspective. So it's data, it's backing our statements up with clear factual, specific information that we know internally, and being able to put that together from the get go. Again, my experience from coming, also having been in just a huge company, those things all they started out as, you know, for example, on the greenhouse gas emissions and climate change, which is such a huge focus in this area. Those were Excel spreadsheets. And they were massive and unwieldy, and really, really hard to do. And so there is no doubt that that took a long time for companies to pivot and figure all that out. Whereas now companies have an opportunity to meter everything and get all of their data, even their data from, for example, from electricity consumption, I mean, that we can we can get right now by not having to ask for their invoices. And obviously, our invoices, come ahead. So they're all consolidated at the end of the year. So now you have to go back and change everything, we can actually get real time data now. I think that's, that's really key. Because as you go through the year, it's kind of like feedback, I prefer someone to tell me I'm doing good, or I'm not doing so good as I go as opposed to telling me at the end of the year, everything I did wrong. And it's the same thing with a company internally, you really need to be able to look at everything as you go, and being able to set up these automated systems that are truly auditable. And that gives you the confidence as a company to say, here's, first of all, it helps you to say, here's what we're going to project will be our goals and our targets and where we think we can get. And here's why-- where pushing ourselves in areas, but also keeping yourself on track throughout the year. And keeping the whole company focused on that because you can report on it consistently all the time, throughout the year. So as I just talked about metering, automated systems with processes with accountability, that way you can avoid these claims, I think, have a really good defense against claims of greenwashing. You can save potential regulatory fees, you can save potential regulatory penalties, damages, legal fees, and also really importantly, the reputational fallout that can happen.

Ailsa Bloomer  38:11
And also having the ability to just-- just be honest, when the data isn't perfect, you know, and to some extent, almost like we talked about this in our modern slavery episode, is that companies almost need a safe space to be open about the fact that they haven't eradicated modern slavery in their supply chain. And it's to be expected at this stage, and it's necessary to recognize that in order to keep moving forward. Another thing you mentioned earlier was third-party verifiers. And I just wanted to ask you about the role of third-party verifiers in managing the greenwashing risk, and what a third-party verifier really does and how useful they are.

Kellie Johnston  38:51
Sure, so a third-party verifier, the most accessible or even for me is, you know, say from a cocoa standard. So from a food--, food is the easiest, I think, to think about where you have a verifier that says, you know, these chickens are free-run chickens, and they have all the space, and they're not fed any harmful food or chemicals or antibiotics. There's a third-party that would verify that that's the case. And if you can get that third-party certification, what they do is they would come to your facilities and they would review everything, they would do a desk review, they would do an on-site audit, etc. and determine whether or not you meet their standards to have their sort of stamp of approval or certification. And I think it is very important for companies to do that. I think-- I think there's a lot of value. However, I do think that there's some risk because you need a third-party verifier that has a very good reputation themselves, but also a company needs to fully understand what a verifier is verifying, because they might verify something, but not have knowledge of another piece of your business, or another part of your process, that may not meet the standard of their verification, or may not meet the standard of their consumers. And so then you put yourself out there with a verification that actually doesn't fully reflect your business. And I think there's a lot of risk in that.

Andrew McCoomb  40:13
And obviously taking care to understand what the third-party verifier is taking in as its inputs. Because if those inputs or company generated inputs that may be susceptible to flavouring from people who have an interest in what the outcome is going to be. It's always going to be accountants and audits have always faced that challenge since time immemorial. So that's, I suppose part of the challenge, too, can you-- can you make sure that your third-party verifier is really digging in and doing the assessment itself to the extent possible, or getting data that's reliable?

Kellie Johnston  40:47
Yeah, I agree, you're only doing yourself a disservice by not providing --as false of-- of information to a third party verifier. And setting yourself up for risk of a greenwashing claim,

Ray Chartier  40:58
That point kind of comes down to the integrity of the third-party accreditor. If you have a third-party going in and verifying things, if it's reputable, it will not be satisfied, and it will not sign off and accredit you unless they know that the data that they're reviewing, and that the accreditation that they're providing, hasn't been coloured in any way by the company that that is providing access and seeking that kind of certification.

Kellie Johnston  41:27
It gets back to the conversation we had a couple of times earlier. And that is about being transparent and sort of—and honest. So Ailsa, you said that not too long ago as well. And that is that you can have a third-party verifier verify as part of your process, and then still talk about, we didn't cover this, or it doesn't cover this, here's an area where we need to work on and here's what we're doing in that area. And I think, that I actually think in my, in my experience, I believe that the market, investors, stakeholders, they respond very well to that sort of thing, to being very upfront, it gets back to the modern slavery conversation that we had, to say, here's where we are, because there can be no expectation of perfection. And really, what, if you're looking at a funder, an investor, if you're looking at a consumer, whatever that stakeholder is, really what you need is just a fulsome piece of information to make a decision on, but when you don't have that information, or you're given something that's false, you don't have that option to think it through for yourself and make a decision, fundamentally. And so I think that's the difference. And that's why I think it's a very good thing for companies to say, we're good here, we're lacking here, we didn't meet this target and this is why. And I think that that actually is taken very well from-- from all aspects of external stakeholder perspective.

Ailsa Bloomer  42:47
Okay, so as we head into 2023, I just want your thoughts on the top trends that you are going to be monitoring in this space.

Ray Chartier  42:55
There's going to certainly be increased regulation, increased reporting requirements, and with that, I would expect there'll be a bit of a proliferation of greenwashing claims, because there's going to be more information that is required to be published that could attract such a claim. So, one of the things that I think we should expect for 2023, is those increases that will be a period where I think there will be again, increasing rapid change, which gets back to the question that Andrew asked before about things that clients can do in order to better protect themselves against greenwashing claims, and one of the things is to stay informed. It's a rapidly changing area, I expect there to be developments in 2023 that increase the level of scrutiny of claims to sustainability and-- and in this area. So staying on top of those things, being informed of changes, and sometimes understanding comparative jurisdictions like Europe, that have greater regulations to understand what is coming our way, are all things that are both helpful to mitigate the risks, and things that we should look for as trends in 2023.

Kellie Johnston  44:14
Yeah, I agree. And from my perspective, just add enforcement actions by governments, so not necessarily claims from a litigation standpoint, but enforcement actions by government, I think will be on the rise and straying--, still greenwashing, but straying a little bit to the side of that. For me, I think one of the biggest things that I'm interested in watching is the rise in prominence of actually social dimension of ESG. So greenwashing, as it relates to social issues, I think that that is going to become a much bigger thing. There's some reports out from the ‘21 and ‘22 proxy season, where social issues are really rising in prominence with investors. And I'm really interested to know what types of social issues, and when I say that what I'm talking about are social issues such as, labour practices, diversity, equity and inclusion, health and safety, community engagement and all these types of claims that companies are making.

Andrew McCoomb  45:09
Fantastic. Well, Ray, I take your comments about staying informed, as volunteering to return to update our listeners at some point in time in the future, on developments in the area and everything else that we've learned. And so thank you for this and for that, for that commitment. But Kellie, and Ray, thank you so much. This has been extremely informative for us. We really appreciate your time.

Kellie Johnston  45:36
Thank you very much.

Ray Chartier  45:37
Yeah, thank you very much, and listening to podcasts is an excellent way to stay informed.

Ailsa Bloomer  45:44
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