America’s Federal Trade Commission (FTC) is set to reveal updates to its ‘Green Guides’ that aim to boost the robustness of eco-claims.
The updates are expected to include changes to current disclosure frameworks; a range of new measures and guidance involving sustainability claims; the use of ‘green’ terms like ‘carbon neutral’; issues around carbon offsets; the expansion of enforcement authority and use of the Green Guides in private litigation.
The Federal Trade Commission (FTC) Green Guides help companies avoid making environmental marketing claims that are unfair or deceptive under Section 5 of the FTC Act. While the Green Guides themselves are not separately enforceable, the FTC considers them “administrative interpretations of the FTC Act as applied to environmental claims.”
The guidance they provide includes general principles that apply to all environmental marketing claims; how consumers are likely to interpret particular claims and how marketers can substantiate these claims; and how marketers can qualify their claims to avoid deceiving consumers.
The FTC now seeks to update the guides based on increasing consumer interest in buying environmentally friendly products.
The FTC has investigated whether it should revise its carbon offset guidance and add additional specific guidance on claims about climate change. It has sought comment on consumers’ interpretation of widely used terms such as net zero, carbon neutral and low carbon, and it is also considering adding guidance on energy use and efficiency.
Updates to the FTC’s Green Guides follow a series of high-profile ‘greenwashing’ legal actions that are expected to drive the FTC to expand its enforcement authority and activity.
In 2021, the US Securities and Exchange Commission (SEC) launched the Enforcement Task Force Focused on Climate and ESG, which has initiated enforcement against multiple companies on allegedly deficient disclosures in these areas under existing laws. Recent actions in the US involving bogus green claims include Kohl’s and Walmart fined a combined total of $5.5m in 2022; Volkswagen and Porsche forced to compensate car owners a total of $9.5bn; and light bulb manufacturers fined $21m.
In 2022, the SEC issued proposed climate change disclosure regulations and new regulations governing registered fund and advisor disclosures relating to ESG and greenhouse gas emissions and reporting. The SEC also issued draft regulations that would define as materially deceptive or misleading the use of “ESG” in a fund name unless ESG factors as a central factor in its investment decisions. FTC enforcement actions may also result in parallel SEC enforcement actions.
In private litigation, failing to follow the standards in the Green Guides may provide evidence for false advertising claims under state law including in cases where the language used in the claim is not directly addressed by the Green Guides.
To avoid claims of greenwashing, companies are advised to review the existing Green Guides and other legally binding requirements and industry best practices and ensure that statements made in sustainability reports, SEC filings, ESG reporting and marketing materials follow established guidance.
It is also worth reviewing the FTC’s recent requests for comments to check whether any gaps or issues exist relating to the company’s green claims, including the ability to substantiate them, and address any gaps or issues promptly.
Companies should be specific in green claims and avoid broad statements that are not substantiated by objective scientific evidence, and collect and maintain any evidence used to support green claims especially in areas known to be of heightened concern to consumers and regulators.
Past litigation and government enforcement activity relating to specific company statements should be reviewed with legal counsel to assess the potential for future greenwashing lawsuits and regulatory enforcement and consider the need to modify statements or collect supporting evidence.