By: Devika Kewalramani and Richard J. Sobelsohn
(Devika Kewalramani is a partner and co-chair of Moses & Singer LLP’s Legal Ethics & Law Firm Practice group. Richard J. Sobelsohn is an attorney in Moses & Singer’s Real Estate practice and is a LEED® Accredited Professional. Moses & Singer is a full service law firm in New York City.)
Look at these labels: "Eco-Friendly," "Organic," "Natural" and "Green." Do they say what they mean and mean what they say?
WHAT IS "GREENWASHING"?
"Greenwashing" is a novel word that merges the concepts of "green" (environmentally sound), and "whitewashing" (to gloss over wrongdoing), to describe the deceptive use of green marketing that promotes a misleading perception that a company's policies, practices, products or services are environmentally friendly. "Greenwashing" officially became part of the English language in 1999 with its entry into the Oxford English Dictionary. It defines the term as "disinformation disseminated by an organization so as to present an environmentally responsible public image." The term is generally used when an organization expends more time and resources marketing their “greenness” than actually adopting procedures that are environmentally beneficial. It includes the practice of misleading customers regarding the environmental advantages of a specific product or service through deceptive advertising and unsubstantiated claims.
REGULATION OF "GREEN" CLAIMS
The growing global trend in greenwashing claims and the rising demand for tighter government oversight has led many countries around the world to consider, develop and implement appropriate regulatory measures to combat or at least curb this phenomenon. While some countries use the International Standard on Environmental Claims ISO 14001, others such as Canada, Australia and England have developed their own set of guidelines. The challenge facing regulators today is how to protect consumers by monitoring and enforcing green marketing claims without creating consumer confusion from multiple environmental claims on a product or service label. What complicates the problem further is that "greenwashing" does not have the same meaning everywhere. In addition, what companies may think green means and what consumers understand it to mean may be entirely different.
1. United States
The Federal Trade Commission (FTC) is the U.S. governmental agency responsible for enforcing federal consumer protection laws that prevent fraud, deception, and unfair trade practices under Section 5 of the FTC Act.1 The FTC has the power to prosecute false or misleading advertising claims, including environmental or "green" marketing claims.
In October 2010, the FTC issued proposed revisions to its Part 260 - Guides for the Use of Environmental Marketing Claims,2 popularly known as the "Green Guides." These were first issued in 1992 and last updated in 1998. The FTC’s latest proposals are aimed at bringing the Guides into the 21st century and to respond to the realities of the modern marketplace. They are designed to provide guidance on how companies can avoid misleading consumers when marketing the "greenness" of products or services.
The updated Guides are instructive on the proper use of general environmental benefit claims, "recyclable" claims and claims that a product is "ozone friendly" or "non-toxic." They propose new guidelines for certain claims that were not covered by the old Guides, such as "renewable energy," "renewable materials" and carbon offsets.
Ultimately, what impact the not-yet-adopted Green Guides update may have will largely depend on the individual organization making green claims. At the very least, the Guides would offer greater benefits for developing environmentally responsible products or services. Stricter guidelines coupled with greater consumer scrutiny will engender a tougher environment for false environmental claims.
In any event, in the short term, businesses should take a closer look at their marketing or advertising materials to determine whether any environmental benefit claims they make satisfy the FTC’s new substantiation and specificity standards, and if not, what qualifications should apply.
2. Other Countries
Countries such as Australia, Canada, France, Norway and the United Kingdom are among those that are taking pro-active steps to tackle greenwashing claims through a variety of regulatory, legislative and enforcement efforts.
Many impose serious penalties on companies for falsely advertising their products or services or using vague or misleading environmental claims. Such penalties could include requiring the guilty organization to pay for all expenses incurred while setting the record straight regarding their product’s actual environmental impact.
Some countries have developed procedures to investigate a potentially bogus claim based on public complaints regarding dubious marketing practices. Others have adopted green guidelines that warn businesses that substantiating green claims is not only good practice but it’s the law.
• Under the auspices of Norway's Marketing Control Act, the Norwegian Consumer Ombudsman has authority to issue warnings to automobile manufacturers who falsely advertise their cars as "green" or "environmentally friendly," "natural" or "clean." 3
• Canada’s Competition Bureau in collaboration with the Canadian Standards Association discourages businesses from making "vague claims" regarding the environmental impact of their products. Claims must be backed up by "readily available data."4
• Australia’s Competition and Consumer Act of 2010 provides for punishment of companies that use misleading environmental claims. 5 Organizations that are found guilty under the act could face up to $1.1 million in fines and must pay for all expenses incurred while setting the record straight regarding their product’s actual environmental impact. Australia’s published guide, "Green Marketing and Trade Practices Act," warns businesses that substantiating green claims is not only good practice but it’s the law, and cautions against attempts to mislead or deceive consumers which can carry serious penalties.
• Section 49 of the British Code of Advertising, Sales Promotion and Direct Marketing specifically focuses on environmental claims. England’s guidance on advertising green claims directs companies on how to avoid misleading environmental claims. England’s Advertising Standards Authority can proactively investigate a potentially bogus claim based on public complaints regarding dubious marketing practices.6
• France has taken a slightly different approach. Building on the work of the "Bureau de Verification de la Publicité," which became a moral but not legal arbiter on green claims in 1998, French authorities launched the "Charte d’engagement et d’objectifs pour une publicité eco-responsible."7 Led by a jury of advertising professionals, the Charte enables the authorities to impose fines and enforce the withdrawal of environmentally misleading campaigns.
Greenwashing is not only about false claims regarding environmentally friendly products or services where customers fail to receive the benefit of the bargain by not getting the green product or service they expected.
There may be a domino effect triggered by greenwashing.
1. Greenwashed Products
Let's suppose a property owner called "Jade" is "greening" her building with a retrofit of the systems, lighting and materials she incorporates into the property. To do so, the products she will use to change the color of her property will have to be environmentally friendly, not only in name, but also in content. A product guaranteed by its manufacturer to have low volatile organic compounds, or VOCs, must in fact have low VOCs. The purpose of this is to prevent adverse health effects on those working near the product as products containing high levels of VOCs emit gasses that have been shown to result in people becoming sick.8
So, how does the domino effect relate to greenwashing?
• Going for Gold
Jade wants her existing building to receive a LEED9 Gold certification from the USGBC.10 She carries out the retrofit of the building and applies for the certification. Jade includes in her application reference to the materials used in her retrofit, namely those with low VOCs.
The benefit of incorporating low-VOC products is not only that her building's occupants will be healthier, but that she will receive points toward the coveted LEED Gold certification.11
One of the reasons Jade has her eye on "Gold" is to attract more credit-worthy tenants in her building and with them, higher rents.
Against counsel's advice, Jade advertises that her building has applied for LEED Gold certification and signs a lease with a major tenant who has a corporate mandate to rent space only in LEED Gold facilities.12
• No Silver Lining
Now thirty days prior to the expected date of receiving the LEED Gold certification, Jade discovers that the so-called low VOC products she paid for and installed are anything but low. Jade has been "greenwashed" and taken to the cleaners (so to speak) because of her impending problems with her new major tenant (i.e., the domino effect).
The lease signed with that major tenant gives it the right to terminate its lease if the LEED Gold certification is not delivered on the commencement date of its lease. When the USGBC unexpectedly delivers a LEED Silver certification, the tenant (who, incidentally, signed a 15-year lease) terminates its lease. The bank that lent money to Jade for her retrofit based on this lease, provided for it to be an event by default if LEED Gold or LEED Platinum certification is not awarded to Jade's building.
Upon notice that the building is only LEED Silver certified, the lender declares a default and requires Jade to immediately repay her loan in full. Jade, of course, cannot, as she put her last cent into the retrofit (above-and-beyond what the bank lent to her for the renovation). Without the major tenant in place paying rent, she has no expected material income on the basis of which another lender might offer financing to her to pay off her outstanding construction loan.
• Tip of the Iceberg
The lender commences a foreclosure action and Jade loses her property. All this is due to greenwashing.
And this is only the beginning of her problems, because LEED certification adds an additional element to the consequential damages Jade may face. For instance, the failure to deliver LEED Gold certification could result in the major tenant asserting its own damages against Jade.
Let's assume that the reason is the major tenant, when deciding to rent in Jade's building, was looking at a comparable building across the street which was also LEED Gold certified. Since Jade's retrofit was newer and the amenities in Jade's building were more appealing to the tenant, it did not sign a lease with the across-the-street landlord. The rent for that building was comparable to that in Jade's building.
Now with Jade unable to deliver a LEED Gold certification, the major tenant contacted the property owner across the street to see if the same space was still available. Although it was, rent was 150 percent higher than originally negotiated. Major tenant, forced to comply with its LEED Gold mandate, signs a new lease with the across-the-street landlord for the same 15-year term.
Major tenant's counsel reviewed the lease signed with Jade and although the termination option was given to major tenant, tenant's recourse for not receiving LEED Gold was not limited to just termination of the lease. The lease was silent as to any other tenant-related damages and Jade may face additional liability amounting to the difference between her rent to major tenant and that which tenant is paying the landlord across the street – all of this for 15 years!
This is just one of the consequential damages Jade could face for relying on the purported VOC products, losing LEED Gold certification, and being deprived of the major tenant's rent to help pay her debt service on a loan that has been called.
2. Greenwashed Services
Greenwashing is not limited only to products. The term could similarly relate to work done by greenwashing service providers. For example, Jade could have been able to deliver to the same major tenant the LEED Gold certification contracted for in the lease discussed above, relying on services provided by a green cleaning company (and the points derived from green cleaning).
Let's suppose that Jade believes that there was no concern about losing the LEED Gold certification for her building for any services performed therein. Jade is wrong.
The USGBC has the right to decertify or lower certification status if a building fails to comply with its LEED rating system requirements. Let's assume that although Jade's building is LEED Gold certified (partly due to the points derived from green cleaning), it is discovered that the green cleaner is using toxic chemicals, fails to train its staff on green cleaning practices and is, as a result, unable to report and certify that green cleaning is being performed in Jade's building.
USGBC is given notice of Jade's failure to maintain green cleaning (probably from the across-the-street landlord), and lowers her building's certification level from Gold to Silver. The major tenant has the same termination right if the building loses Gold certification and the major tenant terminates the lease.
One can only imagine the lender's reaction, the major tenant's damages (in attempting to find substitute LEED Gold premises, the expense of moving, and other related concerns), and of course Jade's predicament!
LABELS (DON'T?) LIE
Every day, businesses, individuals and governments are striving to fight the many tentacles of greenwashing, which are rapidly having a negative spiraling effect wherever there are products or services being offered on our planet. Ultimately, the bottom line is ethics: "going green" is all about doing the right thing.
1 15 U.S.C. § 45 (2009).
2 16 C.F.R. Part 260.
3 Act No. 2 of January 2009 relating to the Control of Marketing and Contract Terms and Conditions, etc.; The Consumer Ombudsman's Guidelines on the Use of Environmental and Ethical Claims in Marketing (Sept. 2009).
4 CAN/CSA – ISO 14021; Competition Act (R.S.C., 1985, c. C-34); Consumer Packaging and Labeling Act (R.S.C., 1985, c. C-38); Textile Labeling Act (R.S.C., 1985, c. T-10); Environmental Claims: A Guide for Industry and Advertisers (Draft Environmental Claims Guide) (2008).
5 This law superseded the Trade Practices Act of 1974; Act No. 51 of 1974 as amended.
6 The UK Code of Non-Broadcast Advertising, Sales Promotion and Direct Marketing (CAP Code) Sept. 2010 (12th Edition).
7 Charter of Eco-Responsible Commitment and Publicity Objectives.
8 See http://www.nrdc.org/enterprise/greeningadvisor/aq-low_voc.asp, which noted that "high concentrations of VOCs are known to cause a number of health problems, including eye and throat irritation, headaches, and damage to the liver and nervous system. In addition, some VOCs are thought to cause cancer."
9 Leadership in Energy & Environmental Design ("LEED") Rating systems which are products of the U.S. Green Building Council ("USGBC").
11 The LEED systems use a point structure for awarding certification levels: Certified: 40-49 points, Silver: 50-59, Gold: 60-79, Platinum: 80 and above.
12 Note that some organizations will not lease space unless that space has a minimum LEED certification level. See http://www.greenbiz.com/news/2010/11/03/gsa-requires-new-federal-buildings-achieve-leed-Silver-standard, where, for example, the General Services Administration ("GSA") requires LEED-Silver certification for new construction lease projects of 10,000 square feet or more.