The FTC's Green Guide Updates: What Companies Need to Know

6 minute read | March.01.2023

What’s Happening?

  • The U.S. Federal Trade Commission (FTC) has requested comment on whether to retain, modify or rescind the Green Guides, which were originally issued in 1992 and last revised in 2012. Comments are due April 24, 2023.

What Are The Green Guides?

  • The Green Guides help companies determine whether marketing statements about the environmental benefits of goods and services would be misleading to consumers. For example:

    • The Green Guides counsel against making unqualified environmental benefit claims (e.g., the unqualified use of the brand name “eco-friendly”) due to the unlikelihood of being able to provide competent and reliable scientific evidence to back up the claims.
    • The Green Guides advise that qualified claims (e.g., “Our packaging creates less waste than the leading brand”) should be substantiated (e.g., with evidence calculating and comparing the waste contributions of the packaging), and not otherwise deceptive.
    • The Green Guides provide guidance on reasonable consumers’ interpretation of specific terms, such as compostable, degradable, ‘free of’, non-toxic, recyclable, and advice on how to substantiate the use of such terms in marketing claims.
    • The Green Guides also address claims about carbon offsets, advising that companies avoid claims about offsets that are legally required; use reliable scientific and accounting methods to protect against double-counting and other measurement errors; and use additional caution for offsets more than two years out.

Why It Matters

  • The Revised Green Guides Are Likely To Set Additional Guideposts For Climate Change/Carbon Reduction, ESG And Sustainability Claims

    • The FTC has asked whether it should revise its carbon offset guidance and add additional specific guidance on claims about climate change.
    • The FTC is soliciting comment on consumers’ interpretation of widely used (and previously unaddressed) terms such as:

      • Net Zero
      • Carbon Neutral
      • Low Carbon
      • Carbon Negative
      • Sustainable
      • Organic
    • The FTC has also asked if should add guidance on energy use and efficiency.
  • The FTC’s Request For Comment May Signal Areas Of Future Enforcement Activity

    • Examples Of Past Enforcement:Under Section 5 of the FTC Act, the FTC can bring actions for deceptive green marketing claims.
    • Past recent actions involving green claims include:

      • Kohl's and Walmart paid a combined fine of $5.5 million in 2022 based on statements that rayon textiles made from bamboo they sold were “free of harmful chemicals, using clean, non-toxic materials,” while, according to the FTC, “in reality converting bamboo into rayon requires the use of toxic chemicals and results in hazardous pollutants.”
      • Volkswagen and Porsche spent $9.5 billion repaying car owners under FTC orders based on misleading claims that cars were low-emission and environmentally friendly.
      • Light bulb manufacturers that allegedly exaggerated the energy efficiency of its LED light bulbs paid $21 million in FTC-ordered fines.
    • Possible Expansion Of FTC Enforcement Authority: The FTC has asked the public to comment on whether it should consider a rulemaking under the FTC Act related to deceptive or unfair environmental claims.The difference between “guides” – which are used as interpretive guidance as to what the FTC considers to be “unfair and deceptive” under Section 5 of the FTC Act -and formal rulemaking is significant as the FTC lacks general civil penalty authority under Section 5 of the FTC Act.However, if the FTC issues a formal rule, then it is entitled to seek civil penalties of up to $50,120 “per violation” (i.e. each disseminated advertisement or view of a marketing material containing a deceptive claim).
    • Possible Increased FTC Focus On ESG Statements In Antitrust Enforcement:In November 2022, the FTC issued a Policy Statement that signaled an expanded view of regulation of “unfair methods of competition” under Section 5 of the FTC Act.In a December 2022 statement announcing the regulatory review of the Green Guides, FTC Chair Lina Khan noted that, in addition to providing guidance on deceptive advertising, the Green Guides “clarify the boundaries for fair, legal competition” and that deceptive environmental claims put rivals at a “competitive disadvantage” and harm consumers. The sprinkling of antitrust speak in the Green Guides statement could be an omen of new areas of future enforcement activity, including, targeting conduct that “violates the spirit of the antitrust laws.”
  • The Green Guides May Inform The SEC’s Review Of ESG, Climate Change And Other Environmental Disclosures:

  • The Green Guides May Be Used In Private Litigation Alleging Greenwashing

    • 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.

      • For example, courts may extrapolate from examples in the Green Guides to evaluate green claims that aren’t covered (e.g., a “reef friendly” claim is similar to general terms like “eco-friendly” and cannot be dismissed as ‘mere puffery’ because it may create a consumer expectation that a product does not damage reefs.)
    • Correspondingly, adhering to the guidelines may provide a safe harbor from liability.For example, California provides a defense to certain claims of deceptive advertisingfor companies that follow the Green Guides.

Top 7 Things Companies Should Do:

  1. Consider submitting written comments to the FTC in areas of interest by April 24, 2023.
  2. Review the existing Green Guides and other legally binding requirements (and, where relevant, trade group best practices) and ensure that statements made in sustainability reports, SEC filings, ESG reporting and marketing materials follow established guidance.
  3. Review the areas of focus in the FTC’s request for comments and determine whether any potential gaps or issues exist relating to the company’s green claims, including the ability to substantiate them, and address any gaps or issues promptly.
  4. Be specific in green claims and avoid broad statements that are not substantiated by objective scientific evidence.
  5. Collect and maintain the Company’s backup for green claims.
  6. When making green claims, consider disclosing supporting evidence, especially in areas known to be of heightened concern to consumers and regulators.

Review past litigation and government enforcement activity relating to specific company statements 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.