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Can marketing your company as “green” put it at risk?

A new type of marketing threat:

Today’s webcast

  Introductions   Green v. greenwashing   Compliance framework (existing and trends)   Enforcement and litigation   Potential considerations

Jack Holleran, Principal Ernst & Young LLP Corporate Compliance Practice leader

Today’s speakers

Brian Gilbert, Executive Director Ernst & Young LLP Environment and Sustainability Practice leader

Green is everywhere

A.  Advertising (print and media) B.  Product claims

  General and specific   Building design (e.g., LEED)

C.  External reporting   Corporate sustainability reports   Financial reports

D.  Corporate communications   Press releases   Recruiting brochures

Companies are now incorporating “green” into:

Is there too much green?   More businesses are claiming that their company, facilities

or products are green   Many claims are considered “corporate speech” or

considered marketing “puffery”   As consumers begin relying on these claims, some are

considered “commercial speech" or unsubstantiated   This has led to a rise in consumer backlash (loss of trust) and

increases in enforcement and litigation

Green v. greenwashing  The overuse of “green” has given rise to

claims by environmentalists and regulators of “greenwashing”

 Greenwashing is a pejorative term that describes the practice of misleading an organization’s stakeholders with unsubstantiated or irrelevant claims of environmental performance

Allegations of greenwashing are common

  Saab: “Grrrrrren” campaign http://www.accc.gov.au/content/index.phtml/itemId/808355/fromItemId/142

  Lexus: “High performance. Low emissions. Zero guilt” http://www.cap.org.uk/asa/adjudications/Public/TF_ADJ_42574.htm

  Shell: “Don’t throw anything away” http://www.foeeurope.org/corporates/greenwash/shell/index.html

How widespread is the issue?   TerraChoice Environmental Marketing Inc. surveyed six big

box stores and identified 1,018 products with 1,753 green claims(1). TerraChoice indicated that only one of those products did not make claims that were demonstrably false or that risked misleading their intended audiences

  The National Law Journal, September 19, 2008, “More 'Green' False Advertising Claims Will Be Brought, Lawyers Predict”, Vesna Jaksic(2)

(1)  Source: Nov 2007 survey, http://www.terrachoice.com/Home/Six%20Sins%20of%20Greenwashing/The%20Six%20Sins (2)  Source: http://www.law.com/jsp/article.jsp?id=1202424650682

Polling question #1

A.  Unfamiliar - What is greenwashing again? B.  Somewhat familiar - We periodically monitor the

requirements and trends in the US C.  Familiar - We have systems and controls in place to make

sure we are in compliance globally D.  Very familiar - Our green advertising and/or external

communication has been subject to litigation and/or other actions

How familiar are you with greenwashing and the associated regulatory and voluntary compliance standards?

Compliance framework - legal

Federal Trade Commission (FTC) Act 15 U.S.C. Section 45 (Section 5(a))

  “Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful”

Compliance framework - regulatory Code of Federal Regulations Title 16: Commercial Practices PART 260 - GUIDES FOR THE USE OF ENVIRONMENTAL MARKETING CLAIMS

  Represent interpretations by the FTC for guiding conformity with legal requirements specific to environmental advertising and marketing practices

  They provide the basis for voluntary compliance. However, conduct inconsistent with these guides may result in corrective action if the FTC believes the behavior is unlawful by statute

Compliance framework - regulatory FTC Guides (Green Guides)

  Explain how consumers are likely to interpret environmental marketing claims

  Provide guidance on specific claims (e.g., biodegradable) and general claims

  For general claims, the FTC requires substantiation for all reasonable interpretations of an ad (which sometimes requires research to determine how consumers will interpret an ad)

Compliance framework - regulatory

  Substantiation: Requires a reasonable basis for claims, which may require competent and reliable scientific evidence

  Specificity: Should specify whether it refers to the product, the packaging, or a component

  Environmental seals of approval: Should be accompanied by information that explains the basis for the award

FTC Guides

  Carbon Offsets and Renewable Energy Certificates (January 8, 2008)   Green Packaging Claims (April 30, 2008)   Green Building & Textiles (July 15, 2008)

Because of the rapid increase in green advertising claims, the FTC accelerated its review for updating the guides. While originally scheduled to begin in 2009, The FTC started in January 2008. It focused on the following three areas:

FTC Guides - Trend Compliance framework - regulatory

Compliance framework - legal

15 U.S.C. Section 43(a) states that anyone who uses any word, term, name, or any false designation of origin, false or misleading description or representation of fact, which:

  (A) is likely to cause confusion or a mistake, or to deceive ….., or   (B) in commercial advertising or promotion, misrepresents the nature,

characteristics, qualities, or geographic origin of their or another person's goods, services, or activities, shall be liable in a civil action by any person who believes they have is or are likely to have been damaged by such act

Lanham Act

Compliance framework - regulatory

  EPA worked with the FTC to develop the guides   EPA also regulates the advertising claims and labeling of

certain products through the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)

Environmental Protection Agency

40 CFR 156.10(a)(5), provides guidance on labeling statements, including avoiding terms/phrases such as:

  Safety claims such as "safe" and "harmless" with or without the qualifying phrase such as "when used as directed”

  The terms "natural“ or "naturally"   Statements that imply or suggest that the product can or will prevent

or control disease or offer health protection   Labeling as “Commercial” or “Institutional” size on products clearly

intended for consumer household use

Environmental Protection Agency Compliance framework - regulatory

Compliance framework - regulatory

  States: Various states have enacted laws and regulations pertaining to environmental marketing, e.g., California's Environmental Representations Law

  International: Counterparts to FTC (e.g., Australian Competition and Consumer Commission, UK Advertising Standards Authority)

Other

Compliance framework - voluntary

NARC's mission is to foster truth and accuracy in advertising through voluntary self-regulation. It focuses on three goals:

  minimize governmental involvement in advertising   maintain a level playing field for settling disputes   foster brand loyalty by increasing public trust

The National Advertising Review Board is the appeal division of this self-regulatory system

National Advertising Review Council (NARC)

Compliance framework - voluntary

Companies may be subject to additional requirements based on voluntary commitments, e.g.,

  The International Council on Mining and Metals’ (ICMM) goal is to build trust by demonstrating it contributes successfully to sustainable development

  ICMM has established a goal that phases in external assurance of sustainable reports

  Therefore, ICMM members commit to certain assurance requirements for external reporting

Trade Associations (Promissory Estoppel)

Polling question #2

A.  Less – I thought this area was more heavily regulated B.  About what I anticipated C.  More – Who makes this stuff up?

Are there more or less compliance requirements for environmental marketing than you anticipated?

Polling question #3

A.  Unknown B.  Not formally tracked C.  Marketing department D.  Environmental department E.  Legal department F.  Multiple groups G.  Other

Who has responsibility for tracking the requirements that pertain to environmental marketing at your company?

Green management and trust Matt Rose, Executive VP and General Manager of the public relations firm MWW Group, says that an indication of whether a company is serious about its green intention is where it has domiciled its efficiency and renewable managers and strategy. “If you want to be taken seriously don’t let your marketing department own ‘green,’” Rose said. “Like governance and corporate citizenship, environmental responsibility is best aligned with the C-suite thereby bridging operational lines and impacting corporate culture.”

http://www.ey.com/global/content.nsf/US/SGM_Cleantech_Matters

Enforcement - regulatory

  1990’s – Took action against advertisers or manufacturers that made environmental claims that were false, too broad or unsubstantiated

  2000’s – Not as active in enforcement. However, based on marketing trends the FTC is accelerating its review of the Green Guides originally scheduled for 2009. It has held 3 hearings since January 2008

Federal Trade Commission

Enforcement - voluntary

  NAD’s efforts have resulted in ~30 decisions involving a wide range of "green" claims

  Actions were brought through industry monitoring or specific competitor challenges

  NAD’s decisions provided guidance to companies making environmental claims and often required that the claims be modified or discontinued

  NAD typically supports specific claims that can be substantiated, but requires changes to broad claims including product effectiveness that are difficult to substantiate

National Advertising Division (NAD)

Enforcement - activists Activists and the internet Numerous activist groups have started websites where environmental claims are monitored. For example:

  http://www.goodguide.com   http://www.greenwashingindex.com   http://www.stopgreenwash.org

Litigation Noteworthy cases   Kivalina v. ExxonMobil Corporation, et al.,   Static Control Components Inc. v. Lexmark International

Inc.   Vermont Pure Holdings, Ltd. v. Nestle Waters North

America Inc.   Kasky v. Nike   Southern Builders v. Shaw Development

Polling question #4

A.  Tracking and understanding requirements B.  Controlling statements/claims from various groups within the company C.  Substantiating and documenting historic claims D.  Substantiating and documenting future claims E.  All areas

The greatest risk to your program in maintaining compliance with marketing requirements is:

Potential considerations

  Assess how environmental marketing requirements are tracked and who has responsibility. Identify potential gaps

  Inventory existing claims, reports, and certifications. Assess documentation that substantiates existing expressed and implied assertions

  Inventory and assess existing procedures and controls. Assess whether they would identify and eliminate gaps identified above. Improve as necessary

  Develop and/or improve monitoring program; assess the compliance program relative to leading practices

Assess/Inventory, Improve and Monitor

Potential considerations Update your compliance assessment

Improve and Monitor the Effectiveness of Compliance Processes and Controls Define and prioritize opportunities to:   Improve the effectiveness of

compliance processes and controls

  Enhance integration of compliance processes and controls into existing functions and processes

  Mitigate and monitor significant compliance risks

  Align and coordinate risk management processes and controls across the business

Compliance Risk Assessment Assess and prioritize key compliance risks to achieve business objectives

Compliance Performance Assessment Evaluate compliance infrastructure and processes for managing compliance risks

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Polling question #5

A.  Needs improvement B.  Average C.  Better than most

Based on today’s presentation, do you feel your program to reduce your firm’s risk posed by environmental marketing requirements is:

Questions and answers

Jack Holleran, Principal Ernst & Young LLP Corporate Compliance practice leader Washington, DC jack.holleran@ey.com (202) 327-5793

For more information:

Brian Gilbert, Executive Director Ernst & Young LLP Fraud Investigation & Dispute Services Environment and Sustainability practice leader Chicago, IL brian.gilbert@ey.com (312) 879-2464

Some helpful Ernst & Young websites:

  www.ey.com   www.ey.com/compliance   www.ey.com/us/fids/environment   www.ey.com/us/cleantech

For more information:

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