Submitted: The Two Sides Team June 21, 2012
Businesses and consumers eager to sell or buy environmentally friendly products should know that not every representation accurately conveys the “greenness” of the product. Learn more about how the government regulates environmental marketing claims to protect consumers from deception and confusion.June 2012
Does a picture of a green raindrop on a bottled-water label represent that the product is “environmentally superior” and endorsed by an environmental organization? Does the “Tested Green” symbol on a company’s website mean that the firm’s services are environmentally benign?
Environmentally themed marketing is now ubiquitous in every sector of the economy. Wisconsin is no exception, as firms of all sizes are eager to tout their products, packaging, and business practices as “green,” “eco-friendly,” and “sustainable,” among a legion of other environmental catchwords. This proliferation of green advertising has stirred concerns over greenwashing the use of vague or unsubstantiated environmental claims that may mislead consumers.
One green marketing firm examined more than 12,000 different green advertising claims and concluded that 95 percent were overly vague or unsupported. Other businesses, regulators, industry watchdogs, and consumers are all casting a more skeptical eye at green claims, and as a result, firms face potential greenwashing liability from a variety of directions. The term greenwashing has already entered the lexicon of the courts.
This article outlines the basic legal framework and enforcement mechanisms that apply to greenwashing claims and provides examples of recent greenwashing allegations, with an emphasis on Wisconsin law and cases.
Federal Trade Commission Guidelines
The most important source of guidance for environmental marketing in Wisconsin and elsewhere is the Federal Trade Commission’s (FTC’s) “Guides for the Use of Environmental Marketing Claims,” also known as the Green Guides. The FTC promulgated the Green Guides pursuant to its authority to enforce section 5 of the Federal Trade Commission Act (FTC Act), which generally prohibits, among other things, deceptive-advertising practices. The Green Guides are not legally binding, but they reflect the FTC’s approach to evaluating environmental marketing claims, and courts generally view them as persuasive authority. Accordingly, the Green Guides offer important guideposts to firms that make environmental claims. In late 2010, the FTC published proposed revisions to the Green Guides, but the revisions have not yet been finalized. Some of the topics covered by proposed revisions are discussed below.
General Standard for Environmental Claims. Under the proposed revisions, the touchstone standard for deceptive advertising remains the same: “[a] representation, omission, or practice is deceptive if it is likely to mislead consumers acting reasonably under the circumstances and is material to consumers’ decisions.” Applied to environmental claims, this standard means that advertisers must ensure their claims are “supported by a reasonable basis,” which “often requires competent and reliable scientific evidence.”
No “General Environmental Benefit” Claims. The proposed Green Guide revisions state that “[i]t is deceptive to misrepresent, directly or by implication, that a product, package, or service offers a general environmental benefit. “By general environmental benefit, the FTC means broad descriptions such as “eco-friendly” that appear by themselves without any explanation or limitation. The FTC supports its position with consumer perception studies, which found that most consumers interpreted unqualified green or eco-friendly claims as meaning the product had no negative environmental impact whatsoever. But because few products are completely free of adverse environmental effects, the FTC cautioned marketers not to make such unqualified, general claims. Instead, claims should be limited to a particular environmental benefit or include clear and prominent qualifications.
Third-party Certifications. The proposed revisions note that certifications and seals are considered endorsements, which are governed by the FTC’s separate Endorsement Guides. Among the requirements in the Endorsement Guides is that marketers must disclose material connections to the certifier. Moreover, third-party certification does not eliminate the need to have substantiation for all conveyed claims nor the need to include appropriate limitations and qualifications on claims of general environmental benefits. The Green Guides emphasize that unqualified environmental seals or certifications likely convey a general environmental benefit and should therefore be appropriately limited.
The proposed revisions offer several examples illustrating the FTC’s view of third-party certifications. In one example, a product advertisement contains a seal with the text “Certified by the Renewable Energy Association.” The product manufacturer is a dues-paying member of the Renewable Energy Association. The FTC advises that even if the association did in fact certify the product, the certification would be deceptive unless the manufacturer’s connection with the association is disclosed.
In another example, a product label includes a globe icon with the text “EarthSmart.” EarthSmart is a third-party organization with independent verification standards, and the product meets EarthSmart’s standards for reduced chemical emissions during product use. However, according to the Green Guides, the EarthSmart globe icon would convey a general environmental benefit and therefore would be deceptive unless accompanied by language describing the particular environmental attribute that has been substantiated, that is, lower chemical emissions during use.
Carbon Offsets. Carbon offsets are credits or certificates that purport to represent reductions in greenhouse gas (GHG) emissions. Examples of carbon-reduction projects include renewable-energy-generation and energy-efficiency programs that reduce the need for fossil fuel-based generation, as well as tree planting and other forestry projects that absorb greenhouse gases. Carbon-offset sellers promote sales to individual consumers and businesses who are interested in countering the GHG emissions related to their activities. For example, some sellers market to individuals who are interested in reducing carbon effects related to personal automobile and airplane travel. Businesses may acquire offsets to enhance the public perception of their products or services.
There is significant debate about appropriate methods for substantiating carbon-offset claims. The FTC noted this debate but declined to provide a definitive answer for carbon-offset-marketing purposes, opting instead to offer general guidelines. Under the FTC’s proposal, carbon-offset claims should 1) be based on competent and reliable methods that substantiate actual emissions reductions and avoid double counting, 2) not be based on emissions reductions already required by law, and 3) be based on offset projects that will be completed within two years (unless the actual project completion date is disclosed).
Renewable Energy. The proposed Green Guide revisions also address claims about the sale or use of renewable energy. Renewable energy refers to electricity from sources that are not subject to depletion. Examples include wind, solar, or hydro power. Renewable energy presents unique issues because electricity produced from renewable sources is physically indistinguishable from electricity produced from conventional sources. Accordingly, renewable energy is usually tracked via renewable energy credits (RECs). One REC typically represents one megawatt hour of electricity produced by a renewable source.
RECs may be purchased in both compliance markets and voluntary markets. REC compliance markets are established by state governments to ensure compliance with state renewable-portfolio standards. Many states, including Wisconsin, have adopted renewable-portfolio standards that define which energy sources qualify as renewable and require electricity providers to maintain specific sales percentages from renewable energy. Consumers or businesses can also acquire RECs in voluntary markets that lack governmental oversight and structure hence the need for clear definitions and marketing standards. Consumers and businesses can also purchase renewable power directly from public utilities that offer specific programs for renewable energy.
Under the FTC’s proposal, marketers should not make unqualified “made with renewable energy” claims unless virtually all the manufacturing process was powered with renewable energy or with conventional energy offset by RECs. For example, in the FTC’s view, if a clothing manufacturer represents that its clothes are “made with wind energy,” but only 50 percent of the manufacturing process is powered by wind, that claim would be deceptive.
In addition, the FTC advises that marketers should not make unqualified made-with-renewable-energy claims if any part of their product or process is powered by conventional fossil fuels; marketers should specify the source of the renewable energy (for example, wind or solar); and generators of renewable energy should not claim that they use their renewable energy if they also sell the RECs for that energy (that is, marketers should not double count).
Other Environmental Claims. The Green Guides address a variety of other specific environmental terms and should be consulted on those claims as well.
FTC Enforcement Actions
Since the Green Guides were first issued in 1992, the FTC has brought dozens of enforcement actions related to environmental marketing claims. The enforcement actions have focused on a wide range of alleged violations, including deceptive use of specific terms for which the FTC had issued guidance (for example, “biodegradable” and “compostable”), unsubstantiated claims of general environmental benefits (for example, “eco-friendly” and “environmentally safe”), and deceptive third-party certifications.
In a recent case, the FTC alleged that a company called Tested Green sold bogus environmental certifications to anyone who would pay a fee. Tested Green did no testing of any products or services, but it represented that the “Tested Green” certification was endorsed by the National Green Business Association and the National Government Contractors Association, which were not independent organizations but were owned and operated by Tested Green’s owner. Tested Green and its owner agreed to entry of an order prohibiting these practices. In another recent set of cases, the FTC settled enforcement actions against several window manufacturers that allegedly made deceptive energy-efficiency claims.
The next wave of enforcement actions may well include claims involving renewable energy and carbon offsets, which are addressed for the first time in the proposed Green Guides revisions.
Wisconsin Deceptive-Advertising and Unfair-Trade-Practice Laws
Environmental marketing claims are subject to Wisconsin’s deceptive-advertising and unfair-trade-practice statutes. Like section 5 of the FTC Act, these statutes generally prohibit unfair and deceptive commercial practices. Wisconsin courts have looked to FTC precedent and guidance in interpreting these statutes, so it is likely that they would view the Green Guides as persuasive authority in evaluating environmental marketing claims.
In addition to the general prohibition on deceptive advertising and unfair trade practices, Wisconsin has specific standards for labeling of recycled, recyclable, and degradable products, as well as requirements for substantiating the energy savings created by certain products. In particular, a seller making an energy savings claim must have a reasonable and currently accepted scientific basis for the claim when the claim is made. Types of claims requiring substantiation include claims that a product increases fuel or electrical efficiency, reduces heat loss, or reduces expenditures for fuel or electricity. The statute provides that a seller is not liable if a seller relies in good faith on information supplied by the product manufacturer.
Private parties including consumers and competitors may bring suit to enforce Wisconsin’s deceptive-advertising and unfair-trade-practice statutes and may recover damages, costs, and attorney fees. One example of a greenwashing suit filed by a Wisconsin consumer is Petlack v. S.C. Johnson & Son Inc. The plaintiff in Petlack alleged that the label on S.C. Johnson’s Windex product contained a “Greenlist” logo, creating the false impression of a third-party environmental certification. The Greenlist logo was an S.C. Johnson creation; the label describes Greenlist as a “rating system that promotes the use of environmentally responsible ingredients” and directs consumers to S.C. Johnson’s website for more information.
The Wisconsin federal court never ruled on the substance of the plaintiff’s claims, but a California federal court ruled in an identical lawsuit filed by the same attorney that the plaintiff had stated a valid claim for deceptive advertising. The California court looked to the Green Guides for guidance, noting in particular the Guides’ hypothetical example of a globe icon with the text “Earth Smart,” which, in the FTC’s view, is likely to convey to consumers a general environmental benefit. The court viewed the Greenlist label as sufficiently similar to the globe example to allow the plaintiff to defeat a motion to dismiss. Both cases have since settled, with S.C. Johnson agreeing to remove the Greenlist logo on Windex products.
In contrast, in Hill v. Roll International Corp., a California state court granted a motion to dismiss a greenwashing suit based on California’s consumer-protection and unfair-competition laws. In Hill, the plaintiff filed a putative class action against the makers of Fiji bottled water, alleging that a green raindrop logo on the label was deceptive because it could be misinterpreted as a third-party environmental certification. The California Court of Appeals held that a “reasonable consumer” would not interpret the green drop as a third-party seal of approval and upheld the circuit court’s dismissal of the suit.
In addition to private remedies, Wisconsin’s deceptive-advertising and unfair-trade-practice statutes can be enforced by the state attorney general, district attorneys, and the Department of Agriculture, Trade and Consumer Protection. It does not appear that Wisconsin’s state agencies have recently pursued enforcement actions related to greenwashing, but examples from other states provide some insight into the nature of potential actions.
For example, California’s attorney general recently filed a lawsuit against three companies that claim their plastic bottles are “biodegradable” because they contain a microbial additive that helps break down the plastic. The complaint alleges that the claims are generally deceptive because the bottles do not biodegrade as claimed. The complaint also relies on a California statute that specifically prohibits applying the term “biodegradable” to beverage containers. The complaint further alleges that the defendants’ claim that the bottles are “recyclable” is misleading, because the microbial additive could contaminate recycling streams if mixed with conventional plastics.
Lanham Act Suits by Competitors
Under section 43(a) of the Lanham Act, business competitors may bring private enforcement actions for false or misleading advertising. One recent greenwashing suit under the Lanham Act is Hilex Poly Co. v. ChicoEco Inc., in which three large manufacturers of plastic bags sued ChicoBag, a maker of durable, reusable shopping bags. The plaintiffs took issue not with ChicoBag’s description of ChicoBag’s own products but with statements ChicoBag made on its website regarding the environmental harm caused by conventional plastic bags leading some commentators to dub the suit a “reverse greenwashing” case. The plaintiffs claimed that ChicoBag’s claims of environmental superiority were generally deceptive. They alleged that ChicoBag could not substantiate specific statements that reusable bags need only be used 11 times to have a lower environmental impact than disposable bags and that only one percent of plastic bags was recycled. Two plaintiffs eventually dismissed their claims, and ChicoBag settled with the third plaintiff. The settlement terms included mutual obligations related to marketing statements.
Marketers highlighting the environmental attributes of products or services with vague or unsubstantiated claims face potential liability from regulators, competitors, and consumers. To avoid such liability, environmental claims should be as specific as possible and be substantiated, ideally with scientific evidence demonstrating the claimed environmental benefit. Marketers should also thoroughly investigate and verify third-party certification.
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