Green Claims can be risky business: prospect of greater enforcement on the horizon

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JOHN VALLEY: On January 6, 2022, to the Canadian Competition Bureau announced that it reached an agreement with Keurig Canada to resolve concerns over false or misleading environmental claims made to consumers about the recyclability of its single-use Keurig K-Cup pods. In today's episode, we look at green claims and the prospect of greater enforcement regarding potentially false or misleading environmental claims in the wake of the Keurig settlement.

First off, I'm joined by Isabelle Crew. Isabelle is a former associate in Osler's litigation department and now works as litigation counsel at the Department of Justice, Aboriginal Law Services Division. Isabelle, thanks for joining us today.

ISABELLE CREW: Thanks so much for having me.

JOHN VALLEY: So today, we're talking about green claims. And maybe you can help us set the stage, Isabelle. What are green claims?

ISABELLE CREW: So green claims also are referred to as environmental claims. And it's an umbrella term that refers very broadly to assertions made by companies about the environmentally beneficial qualities or characteristics of their products. And by products, I mean goods or services.

That's a very broad definition, obviously. It can capture a really wide variety of assertions or representations. Can appear on product labels, on packaging, on related literature, obviously in advertising. It can take the form of words or symbols, albums, logos, graphics, colors-- really, anything that the company is using to convey a message about the products or services that it's presenting to the marketplace and the environmental benefits of those products or services.

JOHN VALLEY: That makes sense. And what are some examples of the types of green claims that we've seen?

ISABELLE CREW: I think just moving through the world as a consumer, we can see a lot of them. Maybe it's something that said, this is made with recyclable material, or this product requires the use of less hot water, or this product will be delivered using electric vehicles. This product is recyclable. This product is sustainable. This service is carbon-neutral. Any kinds of claims like that or what we're really thinking about when we're talking about green claims.

JOHN VALLEY: So we've seen a lot of those types of representations. As you point out, you can see them. Take one look in a store anywhere, and you'll see these types of environmental claims. I've also heard the term greenwashing. How does that relate to environmental claims?

ISABELLE CREW: Well, this is really the flip side, or the dirty underbelly, I guess you could call it, of green claims. And it's this idea of green claims that are false or misleading. The idea of greenwashing is sort of a parallel to whitewashing. It's making something that is not green or environmentally friendly sound like it is.

There's a really interesting report by the OECD committee on consumer policy that looked at environmental claims specifically. And it found that in response to growing consumer concern about environmental degradation and climate change, green claims/environmental claims are an increasing tool of corporate marketing. But at the same time what this report found was that consumers are increasingly concerned that companies are engaged in greenwashing.

They're making false or misleading claims about the environmentally beneficial aspects of their products and services. And what that report also found as a corollary to that consumer concern was a concern on the part of businesses. For firms, their concern is that consumer confusion and skepticism about greenwashing will devalue legitimate green claims and reduce consumer confidence in the market for green claims and services.

JOHN VALLEY: So in light of that concern about greenwashing and the increase in the number, is there someone looking out specifically for consumers in Canada? And I guess in that regard are there any examples in the recent past of enforcement that you can tell us about?

ISABELLE CREW: Yeah, so there are two parts of your question. The first is, who is looking out about green claims? What may surprise people who haven't thought about green claims is you hear green and/or environmental, you might think, oh, this must be the ministry of the environment. This is about the environment.

But actually, it falls under the jurisdiction of the Competition Bureau and under the deceptive marketing practices. So green claims fall under a type of marketing. And so they're not governed in the green sense. They're governed in the claims sense. So the Competition Bureau is the regulator that oversees these kinds of claims, just like any other kind of claim.

JOHN VALLEY: I think a lot of our listeners would find that quite surprising. That's interesting.

ISABELLE CREW: Yeah, it really is. But on the other hand, it makes sense. What green claims are is a subset of any other kind of marketing.

It's just a type of marketing that's evolved in response to consumer concerns about the environment and climate change. And so it's a subset. But what is really interesting is it raises these unique concerns, because the claims are environmental in nature, that environmental aspect of them takes them outside of the realm of what you would typically think of as within the jurisdiction of the Competition Bureau. And I think this is really an evolving area.

JOHN VALLEY: Absolutely. And given the amount of green-based marketing, have there been any other examples of major enforcement initiatives by the Competition Bureau?

ISABELLE CREW: Yeah, so this was the second part of your question. We have, at the beginning of 2022 in January 2022, the Competition Bureau made some headlines certainly in the area in which you and I practice because they announced that they had entered a settlement agreement with Keurig Canada. So that was announced on January 6 of 2022. And that announcement was that the Competition Bureau and Keurig had entered into a settlement to resolve concerns over environmental claims made to consumers about the recyclability of single-use K-Cup pods.

I'm sure we all know previously seen on packaging of K-Cups, advertising of K-Cups was that they were recyclable. What the Competition Bureau had found in the course of this settlement, they had conducted an investigation and concluded that this was actually a false or misleading claim. It was greenwashing they had determined because K-Cups were, in fact, only recyclable in a very few jurisdictions.

In a lot of jurisdictions across Canada, they just weren't accepted for recycling. And so what the Competition Bureau said was, well, actually, by saying that your product is recyclable, you're engaging in false or misleading advertising. It's a form of greenwashing.

So they had reached this settlement agreement with Keurig. And the numbers might surprise people, the quantum of the settlement. Keurig Canada agreed to pay a $3 million penalty, and also agreed to donate $800,000 to a Canadian charitable organization focused on environmental causes.

It also had to pay the Competition Bureau's cost of investigation. That was about $85,000. It had to change the recyclable claims on all of the K-Cup pods and packaging, had to publish corrective notices. And it was also agreed to enhance its corporate compliance programs to ensure that it was compliant with these requirements in the future.

JOHN VALLEY: That's a considerable penalty given that many companies are attaching green claims or green benefits to their products, what kind of guidance is out there to help mitigate issues with the Competition Bureau that might be specific to environmental claims? What are companies doing to try and manage that risk?

ISABELLE CREW: This is a really great question because if you had asked me that question in October of 2021, just a few months ago, I would have had a different answer for you. And that's because before November 4, 2021, the Competition Bureau had published a guidance document called Environmental Claims, a Guide for Industry and Advisors. And what that guy did was largely incorporated a CSA standard, the CSA 1421.

And so previously, this was a very large guidance document that was kind of the do's and don'ts of green claims. If you're going to make a claim about recyclable content, for example, this is how you can make sure that claim isn't false or misleading. If you're going to make a claim about green energy use, here's how you can make that claim. And this provided a little bit more certainty for corporations and advertisers when they were looking to make green claims.

And what was surprising to a lot of us in the industry was on November 4, without really any warning, the Competition Bureau archived that guidance. You can still see it. But if you look for it now, what you'll see really prominently at the top of the website-- it says, archive, may not reflect the Bureau's current policies or practices and does not reflect the latest standards and evolving environmental concerns.

And what the Competition Bureau put up in its place was quite generic guidance, really high-level, not specific to the types of claims, recyclable content claims versus green energy claims versus carbon-neutral claims. The new guidance is really broad. And it basically is that the best practices are to be truthful and not misleading, to be specific and precise about the environmental benefits you're claiming. Make sure your claims are substantiated and verifiable.

It means claims should be tested, that they do not result in misinterpretations, that they don't exaggerate environmental benefits, and they don't imply that a product has been endorsed by a third-party organization if it hasn't. And the broadest guidance that the Competition Bureau gives is, quote, if you're unsure whether a claim will mislead or misrepresent, then don't make it. And this is really what we're left with as the state of play from the regulator.

JOHN VALLEY: So to recap, we had a former guidance document published by the Competition Bureau that was fairly detailed, that guidance document drew from a standard published by the Canadian Standards Association and was generally recognized as a market standard, but the competition Bureau's guidance document and, by implication, the CSA guidance document were archived and are no longer available and, therefore, it seems no longer considered best practices or best practices accepted by the Competition Bureau. Is that right?

ISABELLE CREW: Yes, exactly. And that does leave a question mark because the Competition Bureau hasn't provided a lot of insight into why it archived that standard beyond the statement that it doesn't reflect the Bureau's current policies or practices and does not reflect the latest standards and evolving environmental concerns. One of the things we're thinking about is, well, is this because the CSA standard was originally published several years ago, only updated most recently in 2018? Is the nature of green claims just evolving? Or is the way that the Competition Bureau is thinking about green claims evolving? And we just don't have a clear answer on that yet, but it's a really interesting question that we're grappling with.

JOHN VALLEY: So it sounds like we're waiting to see if the Competition Bureau publishes more detailed guidance on green claims. But in the meantime, we have to rely on first principles and general experience with the Competition Bureau to navigate the current landscape relating to green claims.

ISABELLE CREW: That's exactly right.

JOHN VALLEY: All right. Well, we will certainly be continuing to keep an eye out for updates from the Competition Bureau regarding green claims guidance. 

ISABELLE CREW: Sounds like a great idea.

JOHN VALLEY: Thanks again, Isabelle.

I'm delighted to welcome Shuli Rodal to the show. Shuli is a Partner and the Chair of Osler's Competition Law and Foreign Investment Group. She has extensive experience in all aspects of competition law and foreign investment review.

Shuli's competition law expertise includes mergers and acquisitions, strategic alliances, price fixing, and bid-rigging investigations, abuse of dominance, pricing and distribution matters, and marketing and advertising. Shuli is also Chair of the firm's Diversity Committee. Thanks for joining us, Shuli.

SHULI RODAL: Thank you very much. Happy to be here.

JOHN VALLEY: Now we've just heard from Isabelle Crew, who provided an overview of green claims and the problem of greenwashing generally. She also highlighted the Competition Bureau's recent settlement with Keurig Canada regarding its claims over the recyclability of its K-Cup pods. And she explained that the Competition Bureau recently removed its detailed guidance regarding green claims, which was a document entitled, Environmental Claims, A Guide for Industry and Advertisers, and replaced the guide with a website providing some more general information and some best practices about environmental claims.

So it seems like we're back to first principles in terms of understanding how the Bureau might view green claims. And we're glad to have you here to help us understand what some of those first principles might be. To kick things off, Shuli, maybe you can help us understand, how does the Competition Act regulate deceptive marketing provisions?

SHULI RODAL: Sure. So there's a couple of general principles, I think, to keep in mind here that cover both green claims as well as any representations that may be made in connection with the advertising or sale of a product. The first is that the Competition Act includes general provisions that enable enforcement action to be taken where representation is made to the public that is false or misleading in a material respect. And their provisions enable action to be taken either on a criminal or a civil track.

In addition to that, the Competition Act prohibits performance claims that are not based on adequate and proper testing. So I think if we keep in mind those two principles, I think that generally covers the overall approach to what we would be describing here as greenwashing representations. So let's break that down a little bit.

First of all, what is a false or misleading representation? And the Competition Act says that you have to keep in mind the general impression that is created by a representation. And the general impression means the impression that's given by what is stated as well as what is omitted. So essentially, if the impression that's being given by a statement is not accurate, then it might be misleading. And then that takes us to whether it is materially misleading.

And the case law generally says that something is material or misleading in a material respect if, in the context, it influences the consumer's decision to purchase the product. And the impression that we need to take into account is seen through the eyes of an ordinary person with no special knowledge. And the bar for that is pretty low. So bringing this back then to green claims, we know that consumers are conscious of the environmental consequences of their lifestyle.

And that means that they may be seeking a greener, cleaner products and services and, importantly, being willing to pay more for them or to switch away from their usual brand if they believe that the product that they're buying is better for the environment. And so I think it's fair to say, then, that the impression that a product has environmental benefits may therefore be material to a purchasing decision. And so it's really important, then, that the representations that are made that create impressions about the environmental impact of a product be accurate.

So what does this mean in practice? Well, maybe we can think about a few examples. First of all, I mean, false and misleading are the two types of representations covered. False is easier. I mean, it's sort of suggesting something is good for the environment when it is not really at all.

But that's not really what we're talking about here. I think we're talking about being really conscious of representations that may be misleading. And that's a more nuanced concept. So what does that mean?

It means, first of all, that the representation should be specific. So the Competition Bureau is warning against vague or absolute statements, such as that a product is organic, or eco-friendly, or biodegradable, safe for the environment, good for the Earth. These kinds of vague statements are potentially objectionable. The Competition Bureau warns that the claims should be more specific and that there should be supporting statements and data.

And another example would be representations that create an impression that is true, but it's only true in certain contexts. So a very good example of this is the Keurig investigation and settlement that occurred earlier this year. So what happened is Keurig-- and I think everyone knows Keurig, the coffee device and pod maker-- reached a consensual agreement with the Competition Bureau to resolve concerns over allegedly false or misleading environmental claims made to consumers about the recyclability of its single-use Keurig K-Cup pods.

And what the Competition Bureau found in that case is that the claims regarding recyclability were potentially false or misleading, not because they were never recyclable, but because they were not accepted for recycling in all areas where the representation was made-- so outside the provinces of British Columbia and Quebec. In fact, the Competition Bureau found that K-Cup pods were not widely accepted in municipal recycling programs. And there were also some conclusions made relating to the various steps that consumers believe need to be taken to prepare the pods for recycling that, in fact, were not, in the overall context, true. So that's, I think, a good example of a warning against making statements that are true in some circumstances but not in others.

And then another example would be tests or claims that are not scientifically sound or that did not provide a representative result. So a good example of that would be advertising a heat pump that provides a specific level of energy savings. And then the test for that led to the specific claim is done in an area, for example, in Southern Ontario, where the winters tend to be milder. So it is a test that was accurately done in one context. But if the representation is made that a certain level of savings can be achieved across Canada, that then might be considered materially false or misleading.

And then one other example that comes to mind is implied endorsements from organizations. So that might be organizations that champion environmentally friendly practices when that endorsement hasn't been made. These are all principles that apply to representations under the Competition Act generally, but helpful, I think, to think of the specific examples that could arise when it comes to green claims.

JOHN VALLEY: Those are very helpful examples, Shuli. Thank you for those. And so if I understand it correctly, deceptive marketing can include not just outright false claims, but also claims that can leave a misleading impression and, importantly, on an ordinary person.

SHULI RODAL: That's exactly right.

JOHN VALLEY: And so how does the Bureau go about enforcing those deceptive marketing provisions of the Competition Act?

SHULI RODAL: So the Competition Bureau or the Commissioner of Competition who heads the Competition Bureau has the option to investigate and take action either on a civil basis or on a criminal basis. And the criminal track is usually reserved for more egregious cases or repeat conduct. But it is really important to have in mind that there is actually an ability of the Commissioner of Competition to take action. And that may ultimately lead to a referral for prosecution and a finding of a criminal offense.

The criminal provision is also noteworthy because private parties are entitled to bring actions for damages based on an alleged offense having occurred under the Competition Act. And so the existence of a criminal provision provides an Avenue for private parties to bring actions for damages claiming that they were harmed by a representation.

JOHN VALLEY: So individual citizens, in other words, could bring claims? Is that right?

SHULI RODAL: That's right. And that's because there is a criminal provision in the Competition Act and also another provision that allows private parties-- and we often see this in a class action-- to bring actions for damages based on an alleged breach of a criminal provision of the act.

JOHN VALLEY: And I should add that-- if I understanding you correctly-- that the Competition Bureau also has authority to regulate claims under the Consumer Packaging and Labeling Act and the Textile Labeling Act. Is that correct?

SHULI RODAL: That's correct.

JOHN VALLEY: Are provisions similar in terms of enforcement?

SHULI RODAL: The provisions there, those are separate statutes. And I think they're much more specifically focused on the labeling and what is disclosed on the product.

JOHN VALLEY: I understand. And so how does the process get started from either a prosecution under the criminal provisions or a claim under the civil provisions?

SHULI RODAL: I think it's worth noting that the penalties that are possible under these provisions are pretty significant. So it's not just the criminal penalties-- and that is fines, potential imprisonment. But under the civil provisions, it has been, for some time now, possible for an award of administrative monetary penalties, which were $10 million and up to $15 million if it's not a first violation.

It's noteworthy that under the Budget Implementation Act, which is making its way through the House of Commons now, there is a proposal in there for materially increased penalties under the civil provision. And that would actually include the full profits of conduct that is found to be an infringement of the Competition Act or, if that can't be determined, 3% of worldwide revenue. So this is a pretty dramatic change to the Competition Act that's been proposed, so we're watching that carefully.

JOHN VALLEY: Those are significant penalties. 

SHULI RODAL: 3% of worldwide revenues, depending on who is found to have engaged in the conduct. But for a global corporation, that's a big number. That's a really big number. So this is, I think, put much more focused. And I think to your question, how does this actually work in practice? Is there a material risk of enforcement action being taken of finding a violation of the Competition Act?

And I think it's really important to note that this is one area of the Competition Act that is very actively enforced by the Competition Bureau. And how these things unfold, often, there's a settlement reached. But these settlements are not insignificant, and we all really do wonder what the impact on settlements under the Competition Act will be once these much higher penalties, assuming they come into force, assuming those are in effect.

But the way that these processes get started-- so the Competition Bureau may receive a complaint. And that's often how Competition Bureau investigations get started. But in this particular area, because we're talking about representations that are out there in the public domain, and the people who work at the Competition Bureau are consumers of product, it's equally possible that the Competition Bureau will come across something on their own and find there to be a concern.

So could be complaints. Could be that the Competition Bureau is monitoring certain industries or just comes across a particular representation that they wonder whether it's accurate. So I think that's important to note, that once you've got a representation out there in the public domain, anyone may raise a concern about it, or the Competition Bureau may come across it on their own.

JOHN VALLEY: So the Bureau either receives a complaint, or a series of complaints, or decides on its own to take up a matter that may be a misleading green claim or greenwashing. What happens next? What does that engagement by the Bureau look like?

SHULI RODAL: So typically, the Competition Bureau will begin with a preliminary investigation, which basically means a reach-out to the party that made the representation indicating that the Competition Bureau has looking into potential concerns and asking for information or having an informal discussion on a voluntary basis. And this is really for the Competition Bureau to decide whether there's something worth looking into.

If the Competition Bureau decides there is something worth looking into, they may proceed to a formal inquiry, which then entitles the Bureau to use the enforcement mechanisms under the Competition Act to gather information, which includes obtaining a court order for the production of documents or production of responses to questions orally or in writing. And this is a court order that must be complied with and can be quite extensive. So I think when you're into that scope of investigation, the Competition Bureau really is looking to see whether bringing a case would be likely to be successful and whether it's something that's worth it for the Competition Bureau to take on.

The Competition Bureau, if they decide to, can also challenge the practice in court on a civil basis or refer the criminal prosecution to the public prosecution agency. This all takes a very long time. And as a practical matter, very few cases are fully litigated. It's expensive. It takes a really long time. Most cases in this area have been resolved consensually through what's called a consent agreement. And in order to resolve a case-- so the Competition Bureau has usually insisted on penalties, which can be in the millions of dollars. And there would also typically be compliance obligations, sometimes obligations to send a corrective notice, if that is appropriate in connection with a misrepresentation.

So just by way of example, Keurig agreed to pay a $3 million penalty and donate $800,000 to a Canadian charitable organization focused on environmental causes. They also paid the Bureau's costs of the investigation of $85,000. And then on a kind of behavioral side of things, they agreed to change the claims made on the packaging of the K-Cup pods to publish corrective notices about the recyclability of the product on websites, social media, local, and national news media, and on packaging of machines, and via email to subscribers.

And as we typically see in these agreements, they also agreed to enhance the corporate compliance program to promote compliance with the deceptive marketing practices of the Competition Act going forward. So I think is a good representative case of what these settlements might look like.

JOHN VALLEY: So even in a consent agreement scenario, the consequences and the costs can be quite significant, it seems. And certainly, it seems to be the case from the Keurig example.

SHULI RODAL: That's right.

JOHN VALLEY: Earlier, you mentioned the Bureau weighing whether or not to proceed with an investigation. Is it the case that the Bureau is more interested or concerned with the packaging of a product or with media advertising? In other words, what does the Bureau weigh in making its decision?

SHULI RODAL: Yeah, I don't think the Bureau has a view that what's on the product itself versus what's made as a representation in the advertising of the product. I don't think they really think one is worse or better than the other. I think the Bureau is looking at the overall impression as well as whether it's reaching the public. So for example, in the Keurig case, the Bureau noted that the recyclable claims were made on the website via social media, on text, on logos, on the pods themselves, on packaging. So anywhere representation is made I think is open for potential compliance concerns.

JOHN VALLEY: Given the increase in the number of green claims we’re seeing, I'm sure many companies are starting to be concerned about what's out there and maybe some of the statements they've made in the past. How would companies typically respond to an investigation or otherwise defend against allegations made by the Bureau of deceptive marketing? What should they be thinking, generally speaking, if they want to steer clear of or at least be able to rebut some of those allegations related to deceptive marketing practices?

SHULI RODAL: So I think any representation that's made-- so essentially, anything that's added to packaging, any text and email advertising, or social media advertising, regular media advertising, I think a critical lens needs to be applied to make sure that, first of all, is it creating an impression relating to environmental benefits of any kind?

And if the answer is yes, even indirectly or suggestively, I think the question is, are the claims accurate? Are they extremely vague, suggesting something that you could never really prove? Like, good for the environment, what does that actually mean?

Is there an exaggerated statement, or is it sort of sound and reasonable? Is it specific? If there's a claim made on the efficacy of the product and its performance, has there been proper testing that is scientifically sound, not designed to achieve a specific result? I mean, these are all things that it's important to think about at the stage of making the representation because these are the things that a company will need to establish at the point or in the event of questions arising about the representation that was made.

And I would say it's also really important to be forthright. So don't rely on small print or disclaimers that try to massage the message or take back the impression that's given. Generally, the case law is pretty clear that if you have a small print or disclaimer that expands on what you've already said, that's fine. But you cannot use a small print or disclaimer to negate an impression that's been given. That will be considered, I think, an insufficient disclosure to overcome a potential misleading representation.

JOHN VALLEY: Okay that all make sense, although I imagine it is much more challenging and nuanced in practice. Shuli, is Keurig an example of things to come do you think? Should companies expect increased enforcement on green claims? And finally, does the Bureau typically go after the big fish only or is it  broader net that they are trying to cast?

SHULI RODAL: Well, that's a really good question. I mean, I think, first of all, this is an area very much on the competition Bureau's radar. And we have seen action taken in this area.

I think it's also useful to note that this is really about protecting consumers from being deceived. This is the way the Competition Bureau sees it. And that is very high on their agenda. Is protecting consumers.

So environmental matters and consumer protection coming together-- I think, we would all agree that these are things that the Competition Bureau is very interested in. The full scale of things the Competition Bureau looks at are not in the public domain. But I think it's fair to say, from those who practice in this area, that this is not just about making a big splash in the headlines. Because this is about consumer protection, the Bureau goes after representations that it finds to be concerning.

And there are many small fish that are investigated in this area. So certainly, a company that is not high-profile should not be feeling that this is not going to be something of interest to the Competition Bureau. In fact, it would surprise people to see some of the cases that the Bureau looks at and how small the companies are and what they're doing. But I think it's part of the competition Bureau's mandate to protect consumers, especially, when it comes to purchasing products.

JOHN VALLEY: Thank you for that, Shuli. I imagine that many companies are trying to do the right thing or thinking that they're doing the right thing by highlighting what they perceive to be green attributes of their products but may not realize that process itself can actually be quite fraught. I think this has been really informative and really appreciate you taking the time. I hope and expect that we'll be able to talk more as things evolve over time as we see the Competition Bureau potentially take more action and provide hopefully a bit more guidance regarding green claims.

SHULI RODAL: Absolutely. Thank you very much for having me.