Some of the concerns raised by opponents – which include the Government of Alberta and even a former commissioner of competition – are legitimate. Ironically, though, opponents have made several misleading comments about this measure, itself aimed precisely at combating misinformation.

One of opponents’ chief complaints is that requiring companies to substantiate their green claims using “internationally recognized methodology” introduces unreasonable uncertainty, potentially stifling green claims and cleantech investments.

As with any new law, case law and guidelines will gradually clarify the scope of the requirements. The Competition Bureau has already issued interim guidance and plans to issue more. It’s true that the bureau’s guidance, which is not legally binding, won’t provide total certainty. However, this is only an argument for the government to issue regulations laying out which substantiation methods companies should use, as in the European Union.

In the meantime, companies may look at the dozens of international standards that are already commonly used as the backbone of sustainability disclosures, such as those of the Greenhouse Gas Protocol and the Science Based Targets initiative. For technologies so cutting-edge that they lack dedicated standards, generic substantiation methodologies, such as ISO 14063:2020, should be considered, and companies should be transparent about any limitations of new tech.

In fact, rather than preventing honest businesses from making claims, these new rules will help them stand out. Consumers and investors are currently flooded with environmental claims – and they are learning not to trust any of them. By reducing the number of speculative and misleading claims, the provisions will allow true industry leaders to shine through.

Other jurisdictions, including the United States, the United Kingdom, France and Australia, also have substantiation requirements for environmental claims, with guidance available to help businesses comply. If foreign companies can meet their requirements, Canadian firms can too.

Some concerns have also been raised about the size of the maximum penalties under these rules, which can be up to 3% of a company’s annual worldwide gross revenue. However, maximum penalties, which are imposed only in the most egregious cases, are not representative of the risks raised by the amendments. In fact, the Competition Act prevents the Competition Tribunal from imposing penalties on firms that make sufficient efforts to comply with the law.

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Challenging the amendments on the basis of freedom of expression is unlikely to be successful. Their purpose is to increase the public’s access to truthful information about companies’ efforts to combat the climate and ecological crises of our time. In addition, the new requirements have a limited impact on companies’ freedom of expression, because they restrict only claims that are not backed by evidence. Moreover, past constitutional challenges of similar substantiation provisions indicate that they can withstand constitutional scrutiny.

The amendments are also unlikely to spark a wave of frivolous greenwashing suits by non-governmental organizations and environmental activists. Past experience under provincial deceptive-marketing laws shows this has not been an issue. In addition, the potentially high costs on NGOs if they lose a case will deter baseless lawsuits. Just last year, the Competition Bureau was required to pay $13 million in legal costs after its failed challenge of the Rogers/Shaw merger. Furthermore, the Competition Tribunal has the authority to dismiss cases that are not in the public interest, providing a safeguard against frivolous claims.

Finally, the amendments were not rushed through without public debate, as has been claimed. Greenwashing was widely discussed during a public consultation on the reform of the Competition Act undertaken in the winter of 2023. Greenwashing was also widely debated in committee in the House of Commons and the Senate, where several stakeholders including the Competition Bureau noted the importance of ensuring that claims about businesses and their activities – such as net-zero targets – be subject to the new substantiation requirements.

The ongoing scaremongering campaign is unwarranted and risks turning into a self-fulfilling prophecy, leading companies to overestimate the legal risks associated with the changes and effectively chill green claims. Yes, the amendments could be improved, but companies that do their homework and make good-faith efforts to ground their claims in scientific principles will be largely unaffected. In fact, they are likely to benefit from the end of cheap green talk.

Iris Fairley-Beam is an independent legal researcher. Julien O. Beaulieu is a lecturer in law at the University of Sherbrooke and a researcher with the Quebec Environmental Law Centre.

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This is not the first time that freedom of speech has been raised to sidestep legal responsibilities related to climate change. In 2019, ExxonMobil used free speech as a defence to dismiss a “deceptive advertising” suit related to climate change. Since then, fossil fuel companies have repeatedly returned to that same argument to rebuff similar lawsuits.

Canada is approaching its own critical milestones on the road to more effective climate disclosure rules. Federal and provincial regulators are seeking to put an end to greenwashing and investor confusion by fostering common reporting practices across firms. These rules will provide specific guidance on how companies and financial institutions must communicate their exposure to risks arising from climate change, such as more frequent extreme weather events, and may require them to tally and reveal their greenhouse gas emissions.

In 2021, provincial securities regulators across Canada issued, in draft form, one of the world’s first climate disclosure rules for publicly traded companies. Last month, the regulators indicated that they would produce a revised draft following the publication of a climate disclosure standard by the Canadian Sustainability Standards Board. That standard – a domestic equivalent to the International Sustainability Standards Board’s global sustainability standards – is currently in the consultation phase.

Ottawa is also engaged. The federal government, in its 2023 fall economic statement, announced that it would develop climate disclosure rules for private companies. This measure would complement the climate disclosure rules recently imposed on banks, insurers and other federally regulated financial institutions by the Superintendent of Financial Institutions, an independent federal agency.

As this flurry of Canadian disclosure rules gets finalized, should we expect Canadian businesses to launch free speech lawsuits, mimicking their U.S. counterparts? So far, Canada has been relatively immune to the wave of anti-ESG litigation and policies that have emerged in the United States. However, Canada has a history of controversial public-policy lawsuits fighting transparency by raising the freedom-of-expression flag.

In the late 1980s, the tobacco industry successfully challenged the constitutionality of the federal government’s tobacco advertising regulations. In a 1995 ruling, the Supreme Court of Canada agreed with tobacco companies that Ottawa’s ad bans were overly broad and violated the companies’ freedom of expression. A second, more targeted version of the regulations was given the green light by the Supreme Court in 2007.

While environmental policies have thus far escaped freedom-of-expression lawsuits in Canada, stakeholders are already using other legal arguments in court to prevent and delay climate initiatives. For example, in the past few months, the Quebec cities of Boucherville and Prévost have been sued after respectively proposing a tax on large parking lots and a ban of natural gas in new buildings. Similarly, last fall, the Supreme Court ruled that the federal government’s environmental-impact-assessment regime is “largely unconstitutional,” after a request for review by the Alberta government.

So far, Canada has been relatively immune to the wave of anti-ESG litigation and policies that have emerged in the United States.

That being said, Canadian corporations espouse distinctive values and operate in a political culture that is different from that of their U.S. counterparts, and business groups challenging the legality of upcoming climate disclosure rules could face pushback from their members. In Canada, despite some disagreements regarding the final scope of the rules, there has been broad industry support for clear standards that would put an end to what has been referred to as an “alphabet soup” of ESG (for “environmental, social and governance”) disclosure and target-setting guidelines and organizations, like TCFD (the Task Force on Climate-Related Financial Disclosures), SBTi (the Science Based Targets initiative), IASB (the International Accounting Standards Board) and others.

The rules are also supported by the broader public. In a 2022 survey of Canadian retail investors, 75% expressed concerns regarding greenwashing, and 78% supported increased and stricter regulatory measures within the financial sector to combat it.

Most importantly, while companies in Canada have a constitutionally protected right to freedom of expression, this right is not absolute. The Supreme Court has allowed disclosure mandates where the government’s objectives are deemed to be legitimate and restrictions on freedom of expression are limited to what is necessary to achieve those objectives.

Canadian federal and provincial policy-makers should therefore resist any temptations to water down their climate disclosure proposals in anticipation of future legal challenges. Climate transparency is simply too important to threaten such crucial instruments in closing Canada’s $115-billion annual climate-financing gap.

Julien O. Beaulieu is a lecturer in law at the University of Sherbrooke and a researcher with the Quebec Environmental Law Centre. Iris Fairley-Beam is an independent legal researcher.

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