Canada: Environmental, Social And Governance Risks For Agriculture And Food Businesses In Canada

Environmental, social and governance (ESG) considerations are becoming increasingly important to businesses in Canada. ESG-based regulatory investigations and litigation have been steadily on the rise and that trend is expected to continue.¹ Recent surveys disclose that of more than 430 general counsels and in-house litigators, 28% stated that their ESG dispute disclosure increased during 2022.² Food is the "new oil," and agribusinesses should expect, and prepare for, heightened ESG scrutiny of their operations.

From the agrifood business perspective, one of the most prevalent risks for ESG-based claims is "greenwashing." These risks are described below along with some other ESG-related considerations for the agriculture and food businesses in Canada.

"Greenwashing" – ESG-related disclosures and representations

i. "Greenwashing" – What is it and what are the risks?

Litigation based on "greenwashing" allegations is currently prominent across a wide variety of industries. Greenwashing refers to allegations of providing publicly misleading information regarding a corporation's environmental or sustainability practices and impacts. This can arise in advertising, product labelling, securities law disclosures or via any other public disclosure. Recently, there has been a plethora of international food production companies that have been the subject of litigation in the U.S. for alleged misleading advertising of their ESG practices.³ Canadian agrifood businesses should expect similar allegations of greenwashing arising from regulatory and other public disclosures as ESG-related reporting continues to become mandated by Canadian securities regulators.⁴ The push toward sustainability and green practices, as well as decarbonization supported by numerous global and regional non-governmental organizations⁵ demonstrates the increased scrutiny of ESG-related disclosures specific to the agriculture andagrifood businesses. In addition, there have been recent instances where large players in the food supply chain have been pressured by shareholders to make ESG-related claims and promises.⁶ These promises will have broad impacts on upstream suppliers, requiring greater ESG awareness and action going forward.

ii. The Canadian Competition Bureau and greenwashing

Regulators are also scrutinizing ESG-related representations for greenwashing. In addition to proposals and enforcement initiatives from securities regulators, the Canadian Competition Bureau has recently opened several investigations related to consumer complaints of greenwashing. A Competition Bureau investigation recently found Keurig's pod recycling claims to be false and misleading, resulting in a CA$3.9 million settlement and the commencement of a consumer protection class action in the Federal Court.⁷ It has also recently opened an inquiry into the Canadian Gas Association's claims that natural gas is "clean."⁸

iii. Recent greenwashing litigation

a. Usler v. Vital Farms, Inc.

Given these trends, agrifood businesses in Canada are at risk of becoming a significant target for greenwashing claims in the years ahead. Usler v. Vital Farms, Inc., (Usler) is an example in the U.S. of what greenwashing litigation could look like for agrifood businesses in Canada. A class action was advanced against Vital Farms, an egg producer, and three of its officers, alleging that company claims of "ethical" and "humane" operations and of "certified humane" and "pasture raised" products were false and misleading.⁹ The claim was sponsored by an activist animal rights organization and brought on behalf of a consumer class. The plaintiffs alleged that these advertisings, as well as its Securities and Exchange Commission filings, misled them to pay higher prices for products which they believed were ethically and humanely farmed.

Vital Farms applied to dismiss all claims on the basis that its representations were true, as Humane Farm Animal Care (HFAC), a non-government organization, had certified its operations as humane and its products pasture raised. Alternatively, it argued the statements were vague and subjective thus not actionable.

The United States District Court for the Western District of Texas (the "Court") refused to dismiss the claims. It found that the use of the terms "certified humane" and "pasture-raised," despite HFAC certifying the eggs as such, could still be misleading as HFAC's definition of those terms may be different than what consumers understood them to be. The Court also rejected Vital Farms' argument that the use of "humane" to describe its mission and practices could not be actionable due to being subjective and aspirational. Pointing to the use of "humane" in various statutes, the Court held that the term may be capable of objective definition and that even aspirational statements like "ethical" must have a basis in fact. As such, these types of seemingly innocuous statements could still be considered false and misleading.

b. Further greenwashing claims

Similar claims against agricultural businesses alleging public misrepresentations about products and practices have proliferated. In 2019, consumers filed a class action alleging that advertising of "free-range eggs" was false.¹⁰ In 2022, a major restaurant chain was the subject of a class action lawsuit alleging that it violated consumer protection laws through false claims of using pork and chicken products that were billed as "humanely raised."¹¹ This comes in addition to recent litigation claims against a large international fast food chain surrounding its claims that its signature burger is "safe" and "sustainable."

The existence and persistence of these types of claims demonstrates the heightened risk of exposure of the agrifood business to greenwashing claims and complaints based on public statements. One strategic response for the food industry and elsewhere has been to rely on third-party ESG certification of products and practices as satisfying ESG standards. However, Usler illustrates that neither these certifications nor the use of seemingly subjective or aspirational wording, and reliance on third parties alone are enough to defeat claims of greenwashing. Usler is an example of how the consumer reaction to, understanding of, or perception of ESG-related statements can influence their character and treatment in the context of a greenwashing claim.

Other potential ESG claims in agribusiness

In addition to public disclosures, operational activities, including labour practices, animal care practices and the use of agricultural chemicals such as fertilizers, pesticides and herbicides are fertile ground for litigation against agrifood businesses.

i. Fertilizer and other chemical inputs

For example, the use of agricultural chemicals is a particularly prominent risk going forward. There is an evident activist movement to "de-carbonize" food by restricting the use of fossil fuel derived fertilizers.¹² These substances are governed by a combination of federal and provincial legislation and regulatory regimes. These statutes aim to establish compliance with governing regulations, and to ensure operations cause no direct risk of harm to human, animal or plant life.¹³ Increased regulation of production, carbon taxes and end product labelling protocols are all tools that may be used to advance this agenda.

In addition, activists are increasingly seeking to utilize these regimes to restrict the use of other agricultural chemicals. A recent example is the December 2022, activist-led challenge to Health Canada's re-approval of glyphosate (herbicide) for use in Canada.¹⁴ Given the emissions and/or other environmental impacts that may be associated with the use of agricultural chemicals, producers and major users may be exposed to climate charge claims similar to those brought against oil and gas industry participants in Canada¹⁵ and elsewhere.¹⁶

ii. GMO foods

Genetically modified crops and organisms have also come under pressure from activist groups. In a recent Saskatchewan Court of Appeal case,¹⁷ a group of organic grain farmers from Saskatchewan commenced a class action claiming that it had become impossible to produce "organic" canola due to cross-contamination from genetically modified canola seeds. The Saskatchewan Court of Appeal ultimately dismissed the claim due to the lack of an objectively identifiable class. Activists have also challenged, on ecological grounds, a federal government approval of the production and export of genetically modified salmon eggs under the Canadian Environmental Protection Act.¹⁸

Takeaways

Meeting ESG standards can be part of an effective strategy to help generate investment and revenue in the agribusiness sector. However, awareness of the evolving risks that may be associated with public disclosures regarding ESG practices and the increasing level of scrutiny being given to those disclosures is critical. Regulatory and other public ESG disclosures can risk allegations of greenwashing with significant financial and reputational connotations.

Agribusiness seems to be entering an era where public scrutiny of ESG practices and disclosures will be significantly increased. In this environment, agribusinesses should ensure that they are aware of how ESG-related practices might impact risks of litigation and regulatory action, and take active steps to mitigate such risks. Forward-looking strategies to mitigate the attendant risks should be carefully considered.

Footnotes

1. Tim Quinson, "A Class-Action Wave Is Coming for ESG Claims" (January 25, 2023), online: Bloomberg [https://www.bloomberg.com/news/articles/2023-01-25/class-action-wave-is-coming-for-esg-claims-green-insight].

2. Ibid.

3. See e.g. Jason Halper, "Global Food Products Company Sued Over Single-Use Plastics" (January 18, 2023), online: JD Supra [https://www.jdsupra.com/legalnews/global-food-products-company-sued-over-8353012/].

4. Consultation – Climate-related Disclosure Update and CSA Notice and Request for Comment Proposed National Instrument 51 107 Disclosure of Climate-related Matters, OSC CSA Notice, (2021) 44 OSCB 8731; Allison Herren Lee "Statement of Review of Climate-Related Disclosure" (February 24, 2021), online: United States Securities and Exchange Commission [https://www.sec.gov/sec-response-climate-and-esg-risks-and-opportunities].

5. Matt Hulse, "Proposals for the Canadian Just Transition Act" (January 2023), online (pdf): EcoJustice[https://ecojustice.ca/wp-content/uploads/2023/02/2023-01-23-Proposals-for-the-Canadian-Just-Transition-Act-Final.pdf].

6. See e.g. Jennifer Skene, "P&G's Leadership Has Failed Investors on Forest Protection" (September 28, 2022), online: Natural Resources Defense Council [https://www.nrdc.org/bio/jennifer-skene/pgs-leadership-has-failed-investors-forest-protection].

7. The Editorial Board, "How the Competition Bureau found its muscle – and why that's good news for consumers" January 3,2023), online: The Globe and Mail [https://www.theglobeandmail.com/opinion/editorials/article-how-the-competition-bureau-found-its-muscle-and-why-thats-good-news/].

8. Barbara Shecter, "Competition Bureau opens probe of alleged 'greenwashing' by natural gas association" (November 10, 2022), online: Financial Post [https://financialpost.com/commodities/energy/oil-gas/competition-bureau-probe-alleged-greenwashing-canadian-gas-association].

9. Usler v Vital Farms Inc, 2022 WL 1491091 (Tex Dist Ct).

10. Brendan Pierson, "Pete & Gerry's settles class action over 'free range' egg claims" (May 28, 2020), online: Thomson Reuters, Westlaw News [https://www.reuters.com/article/products-eggs-idUSL1N2DA32F].

11. Deena Shanker, "Dos Toros Misleads Consumers on Animal Welfare, Lawsuit Says" (March 25, 2022), online: Bloomberg Business https://www.bloomberg.com/news/articles/2022-03-25/dos-toros-misleads-consumers-on-animal-welfare-lawsuit-says#xj4y7vzkg.

12. Olli Sheldrick, "Decarbonizing the Canadian Chemical and Fertilizer Industry" (March 2023), online (pdf): Clean Energy Canada https://cleanenergycanada.org/wp-content/uploads/2023/03/Whitepaper-Chemicalsandfertilizers-Final.pdf.

13. The Fertilizers Act, RSC 1985, c F-10, s. 3.1.

14. Eco.Justice, "Environmental and food groups take Health Canada to court over glyphosate product renewal" (January 24, 2023), online: EcoJustice [https://ecojustice.ca/file/genetically-modified-salmon-litigation/].

15. Brittany Roffel, "Vancouver city council passes motion to back climate lawsuit against big oil companies" (July 21, 2022), online: Canadian Broadcasting Corporation https://www.cbc.ca/news/canada/british-columbia/vancouver-council-motion-climate-change-oil-companies-1.6528285.

16. Katharine Gemmell and William Mathis, "Shell's board sued over lack of energy transition strategy in first lawsuit of its kind" (February 8, 2023), online: Financial Post [https://financialpost.com/commodities/energy/shell-board-sued-climate-change-risks-lawsuit#:~:text=Shell%20was%20ordered%20in%202021,just%20not%20feasible%2C%20Shell%20argues].

17. Hoffman v Monsanto Canada Inc, 2007 SKCA 47.

18. EcoJustice "Challenging the safety of genetically modified salmon" (January 20, 2014), online: EcoJustice https://ecojustice.ca/file/genetically-modified-salmon-litigation/.

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