Social Impact – WRD LLP

Author: Anna Okorokov

Starting June 20, 2025, Canada is giving its citizens a new tool to fight greenwashing. Private individuals and organizations will be able to challenge misleading environmental claims before the Competition Tribunal (the “Tribunal“) and Canadian federal court. In 2024, Canada amended its Competition Act (the “Act”) to include greenwashing provisions.

Previously, only the Competition Bureau of Canada (the “Bureau“) could prosecute for violations of the Act. June 20^th will mark a pivotal shift with new private enforcement mechanisms.

What’s Changing?

There are two specific provisions companies must pay attention to, both of which are currently in force in Section 74.01(1) of the Act. The first applies to product specific claims and prohibits representations which:

“(b.1) makes a representation to the public in the form of a statement, warranty or guarantee of a product’s benefits for protecting or restoring the environment or mitigating the environmental, social and ecological causes or effects of climate change that is not based on an adequate and proper test, the proof of which lies on the person making the representation;“

The second provision applies to businesses and their activities, prohibiting representations which:

“(b.2) makes a representation to the public with respect to the benefits of a business or business activity for protecting or restoring the environment or mitigating the environmental and ecological causes or effects of climate change that is not based on adequate and proper substantiation in accordance with internationally recognized methodology, the proof of which lies on the person making the representation;“

Important terms to note in the above include:

Adequate and proper test
Internationally recognized methodologies

In December 2024, the Bureau released draft guidance which addresses both terms and how they will be interpreted in the context of environmental claims. The guidance clarifies that the enforcement of the provisions will be in respect of marketing and promotional representations. With respect to the “adequate and proper testing” requirement, it will be looked at in a context specific method, with reference to the existing body of case law. The guidance provides that the test must be ““fit, apt, suitable or as required by the circumstances”.

With respect to the “international recognized methodology”, the Bureau will consider this satisfied if the methodology is recognized in two or more countries. However, the substantiation under the methodology must be adequate and proper. The Act currently allows for limited private rights of action before the Tribunal, as set out in Section 103.1. What’s changing is, effective June 20, 2025, section 103.1 will be expanded to allow a private person to file an application under the expanded anti-greenwashing provisions in Section 74.1. It is crucial to note that the private right of action will be subject to a significant constraint – leave to file the application must be first granted by the Tribunal. Previously, private access was limited to provisions involving refusal to deal, price maintenance exclusive dealing, tied selling and marketing restriction, and abuse of dominance.

What Does This Mean for Businesses?

It is the responsibility of the entity that made those representations to prove that the representations were made in compliance with the Act. Put plainly, if a business is going to make environmental claims, it must have the evidence to back up that claim.

Corporations must now ensure that any environmental claims—whether in advertising, product labeling, or sustainability reports—are substantiated with evidence derived from adequate and proper testing, utilizing internationally recognized methodologies.

Penalties

The Tribunal may impose significant administrative monetary penalties for violations.

For Corporations: The greater of $10 million (increasing to $15 million for subsequent orders) or three times the value of the benefit derived from the deceptive conduct, or 3% of the corporation’s annual worldwide gross revenues.
For Individuals: The greater of $750,000 (increasing to $1 million for subsequent orders) or three times the value of the benefit derived from the deceptive conduct.

In addition:

An Order to cease the impugned conduct
Payment of restitution to affected persons
An Order to publish a corrective notice

These penalties underscore the importance of transparency and accuracy in environmental representations.

Preparing for the Change

To mitigate risk and ensure compliance, companies should:

Review and substantiate environmental claims: Ensure all environmental representations are backed by evidence.
Implement internal controls: Establish robust processes for verifying environmental claims and maintaining documentation to support them.
Monitor public communications: Regularly audit marketing materials, product labels, and sustainability reports to ensure consistency and accuracy in environmental messaging.
Engage with legal counsel: Consult with legal experts to assess current practices and develop strategies to align with the new legal requirements.

Conclusion

The amendments to the Competition Act represent a significant shift in Canada’s approach to greenwashing, empowering private parties to take action against misleading environmental claims. Businesses must proactively review and substantiate their environmental representations to mitigate legal risks and maintain consumer trust. The time to act is now—ensure your marketing materials, reports and other publications do not make unsubstantiated claims.

For more detailed guidance on compliance strategies and risk mitigation reach out to us at WRD LLP.

What is a Unanimous Shareholder Agreement?

Corporate statutes in Canada[1] provide that a corporation’s default position is to be managed entirely by its directors and officers. This situation can be reversed through the use of a unanimous shareholder agreement (“USA”), which restricts the power of the directors to manage the corporation and instead transfers additional authority to the shareholders. All of the shareholders must agree that they desire to enter into a USA.

Why is a USA useful?

A USA is particularly useful for a closely held start-up company to establish the rules for governing and managing the corporation. The USA will provide mechanisms for resolving deadlocks and govern any transfer of shares. Clarifying expectations between shareholders at the initial stages of organizing the company can be the best way for the corporation to avoid drawn out and expensive disputes in the future.

What are the drawbacks?

Shareholders may become subject to the liabilities normally assigned to directors and officers to the extent that the USA removes powers and responsibilities from the directors and gives it to the shareholders. Protection from liability for shareholders is an important factor in deciding to incorporate a business in the first place. Consequently, any loss of that protection should be carefully weighed.

Typical USA Contents

USAs typically address a number of key measures that are designed to ensure a fair outcome for all parties involved during the course of the corporation’s existence:

Dispute Resolution: Consideration can be given as to how deadlocks amongst shareholders can be resolved. The dispute resolution process may be limited to mediation or binding arbitration, which can be a less expensive alternative than seeking restitution through the courts. Shareholders may also wish to consider whether one of them should have a tie breaking vote or a veto over certain actions.

Unanimous Shareholder Approval: In the case where one shareholder owns the majority of shares, it is important to consider whether any issues exist that should not be decided by a simple majority vote. A USA can set out a class of material decisions which require supra-majority and/or unanimous shareholder approval to ensure that the majority stakeholder is not able to make unilateral decisions without first obtaining the consent of the other stakeholders involved.

Share Transfer: A USA typically contains a primary rule that no shares can be transferred without the receiver of the shares becoming a party to the USA. This primary rule can be supplemented with a number of additional mechanisms to promote liquidity of the shares:

Right of First Refusal: A shareholder who receives a bona fide offer from a third party to purchase his or her shares must first allow the existing shareholders the right to match such offer prior to selling to any third party. This mechanism allows the existing shareholders the option to prevent a third party purchaser from becoming a shareholder and exercising control over the corporation in the future.
Buy/Sell or “Shot Gun” Provision: This provision allows one shareholder to offer the other shareholders a price and establish the terms under which he or she is prepared to either purchase the other shareholder’s interests or sell his or her interest to the other shareholders. It is then up to the other shareholders to decide whether they wish to either buy the offered shares or sell their own shares on the same terms and conditions presented. This provision can be very useful in the event of a shareholder dispute where the relationship between the shareholders has broken down and one party wishes to exit.
“Piggyback” or “Tag-along” Provision. If a shareholder is able to sell shares to a third-party, a piggyback or tag-along allows the non-selling shareholders to include their shares in the agreement with the third-party buyer. In other words, a shareholder could tag along with the seller and exit the corporation.
“Drag-along” Provision. If a majority shareholder decides to sell its shares it can require the minority shareholders to sell their shares to the buyer as well. This allows a majority shareholder to exit the corporation without a minority shareholder blocking the sale.

Funding Considerations: A corporation requires access to capital both upon incorporation and during operation. A USA can prescribe how such capital can be obtained and ensure that each shareholder contributes the requisite amount in conjunction with his or her interest in the corporation or face a penalty for failure to do so. In the case of debt financing, a USA can prescribe how guarantees are to be signed and provide for the sharing of liability among shareholders.

There are several other matters that a USA can address depending on the needs of an organization. We are always happy to discuss how a USA may be of value to your corporation, and answer any question you may have.

Additional Reading:

[1] In particular, the Business Corporations Act (Ontario) and the Canada Business Corporations Act

Canada’s New Greenwashing Laws: What Businesses Need to Know Before June 20, 2025

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