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Focus: Greenwashers warned about legal risks

|Written By Arshy Mann

More than ever, it pays to be green as companies increasingly put out products that claim to be environmentally friendly in order to go after environmentally conscious consumers. But companies that engage in so-called greenwashing could be opening themselves up to lawsuits and regulatory action.

Greenwashing refers to false environmental claims made by companies or individuals.

Marc McAree, a partner at Willms & Shier Environmental Lawyers LLP, says greenwashing could be happening in “every single industry that advertises themselves as bringing to the market an environmentally friendly or eco-friendly product.”

In the United States, the Federal Trade Commission has become increasingly aggressive on clamping down on those sorts of false claims. Last year, the commission engaged in 14 enforcement actions, including against major U.S. companies like Amazon.com Inc., Sears, and Macy’s Inc. One of the actions ended with a $450,000 fine against a packaging company for falsely advertising its products as biodegradable.

In Canada, while the Competition Bureau has gone after greenwashing in the past, those efforts appear to have slowed down.

The Competition Bureau can go after greenwashing through the Competition Act, the Consumer Packaging and Labelling Act, and the Textile Labelling Act.

The Competition Act allows for a maximum civil penalty of $50,000 for an individual and $100,000 for a corporation, while the two labelling statutes give the Competition Bureau the right to engage in product seizures along with fines.

In 2007, the Competition Bureau persuaded Vancouver-based Lululemon Athletica Inc. to remove any claims of therapeutic benefit from its Vitasea line of clothing made from seaweed.

The next year, the Competition Bureau released a guide on environmental claims by industry and advertisers that outlined best practices for companies. The guide is voluntary, however.

After announcing in 2009 it was going after companies that make false energy-saving claims, the Competition Bureau targeted hot tub and spa retailers that wrongly claimed their products were eligible for Energy Star certification.

While it was able to persuade many retailers to remove the messaging voluntarily, two companies didn’t comply. But in 2011, the Competition Bureau took enforcement action against them, forcing them to comply and fining them $130,000.

However, while the U.S. trade commission has been steadily increasing actions on greenwashing, the Competition Bureau hasn’t publicly announced one for three years.

“I just haven’t seen any enforcement recently and a regulatory system has to have enforcement or it doesn’t work,” says environmental lawyer Dianne Saxe.

“The Competition Bureau could do more to add clarity, to insist on clear definitions, and to actually hold some people to it,” she adds.

McAree, meanwhile, notes regulatory action isn’t the only thing companies need to be aware of. “Certainly, there’s potential for class actions, there’s potential for individual actions,” he says.

“There’s the potential for those lawsuits to be framed in fraud, be it negligence in the context of the fraud or be it a criminal fraud.”

According to McAree, claims could also allege misrepresentation or breach of contract in the case of a supplier-manufacturer agreement where the supplier misrepresents certain inputs into its product.

“You better know what you’re putting out,” says McAree.

“You better have a true understanding of the environmental benefits and you better not mislead the public; otherwise, those individuals or corporations and directors and officers of those corporations could very well find themselves on the wrong end of either a regulatory pursuit or a civil action.”

Correction: Note that the penalties under the Competition Act for deceptive marketing increased in 2009 from the numbers reported in this story. The maximum amount for an individual is now $750,000 for a first offence while corporations face up to $10 million in administrative monetary penalties for a first non-criminal offence.

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