Canadian Regulators Zero in on Greenwashing Claims

Authors: MLT Aikins ESG practice group

With mandatory ESG reporting coming soon to federally regulated financial institutions and public companies, regulators are already investigating claims of greenwashing at Canada’s largest bank.

Earlier this week, Canada’s Competition Bureau confirmed it was investigating a complaint that consumers were being misled about the bank’s climate performance. The complaint alleges the bank made “materially false” claims about its commitments to the Paris Agreement Goals and achieving net zero.

As pressure increases from regulators, Canadian companies should expect a significant increase in the scrutiny and potential liability that will attach to all forms of ESG disclosure, including sustainability reports and net-zero commitments.

Billions in Funding for the Oil and Gas Sector

According to the complaint, the bank is alleged to have undermined its stated commitment to the Paris Agreement targets by providing more than US$201 billion in financing and underwriting to fossil fuel companies from 2016 through 2021.

The complaint also alleges the bank failed to put forward a credible net-zero plan despite making a net-zero pledge in February 2021. In the three months after joining the Net-Zero Banking Alliance in October 2021, the bank provided $10.2 billion in funding to the oil and gas sector, according to the complaint, further undermining the bank’s stated environmental commitments.

The complaint also calls the bank’s commitment to provide $500 billion in sustainable financing into question, alleging that the bank’s definition of “sustainable financing” isn’t linked to greenhouse gas emissions. The complaint alleges that the bank categorized a $2-billion loan to Enbridge – a fossil fuel pipeline company – as sustainable, even though the loan enabled an increase in emissions.

Bank “Strongly Disagrees” with Allegations

The complaint calls on the Competition Bureau to levy a $10-million fine, to be distributed to the Environmental Damages Fund and Indigenous-led environmental organizations. The bank is also being asked to cease all public representations that it supports the Paris targets and remove claims about sustainable financing until the bank’s lending practices fall in line with its stated climate goals.

The bank denies any claims of greenwashing. In a statement to Canada’s National Observer, a spokesperson for the bank said it “strongly disagrees with the allegations in the complaint, and believes the complaint to be unfounded and not in line with Canada’s climate plan.”

Europe Continues Greenwashing Crackdown

As Canadian regulators begin investigating claims of greenwashing, the crackdown on greenwashing in Europe – where German police raided the offices of Deutsche Bank earlier this year and H&M was forced to backpedal on its sustainability claims – continues.

On October 19, the UK’s Advertising Standards Authority (ASA) ordered HSBC to remove bus stop ads in London and Bristol about the bank’s sustainability commitments. The ASA received 45 complaints claiming the ads misled consumers while HSBC continued to finance carbon-intensive industries.

In its ruling, the ASA noted that “HSBC was continuing to significantly finance investments in businesses and industries that emitted notable levels of carbon dioxide and other greenhouse gasses,” thereby omitting material information that misled consumers.

Misleading Claims Could Make You a Target

As we’ve discussed in previous blogs, companies that make false or misleading sustainability claims face mounting litigation and enforcement risks. We’re still more than a year away from mandatory ESG reporting in Canada, but regulators are already investigating greenwashing claims in the financial sector.

With enforcement activity on the rise and mandatory ESG disclosure fast approaching, now is the time to ensure your sustainability claims are up to snuff. The lawyers in the MLT Aikins ESG practice group have wide-ranging experience advising businesses in a variety of industries on their ESG strategies. Contact us to learn more.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.