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U.S. Federal Trade Commission likely to update Green Guides: what you need to know
18 August 2023

U.S. Federal Trade Commission likely to update Green Guides: what you need to know

5 minute read
Net zero Corporate climate action
South Pole Editorial Team South Pole

More than 10 years after the last update to its guidance to companies on making environmental marketing claims, America’s Federal Trade Commission (FTC) is taking a fresh look at its Green Guides.

This review comes as the percentage of Americans concerned about the environmental performance of the products and services they purchase grows, leading American consumers to shift their spending to products and services with reduced environmental impacts. Indeed, between 2018 and 2022, the compound annual growth rate (CAGR) of sales of products associated with environmental, social, and governance (ESG)-related claims in the U.S. outpaced the sales of products without these claims. Increasingly, trumpeting the improved environmental performance of products and services isn't just good for people and the planet – it's good for companies' bottom lines, too.

Consumers care about sustainability and back this up with their wallets (McKinsey, 2023)

Consumers care about sustainability and back this up with their wallets (McKinsey, 2023)

However, as companies increasingly tout the environmental performance of their goods and services, these environmental performance claims face greater scrutiny.

This is particularly evident in a recent South Pole report that found that many corporate climate commitments are still extremely flawed – out of more than 8,900 companies with net-zero and other climate action-related commitments, only a third backed their climate journey with science, which is the foundation for demonstrating a credible basis for true climate impact. It's against this backdrop that the FTC's December 2022 announcement came as a welcome development, when it put out a call for public comment on revisions to the Green Guides, which help companies avoid making environmental marketing claims that are unfair or deceptive under Section 5 of America's Federal Trade Commission Act.

The FTC first published the Green Guides in 1992, with the aim to help companies ensure that their claims about the environmental performance of the products and/or services are accurate and substantiated. Inaccurate, misleading, and/or unsubstantiated claims about products' and services' environmental performance can trigger FTC enforcement actions and/or civil penalties. For that reason, companies selling goods or services in the U.S. should ensure that any environmental claims associated with their goods or services align with the FTC's guidance.

As a reflection of civil-society groups', companies', and trade associations' intense interest in the topic, the FTC received nearly 60,000 comments on the Green Guides and potential revisions thereto; the agency is currently reviewing these comments. While it is unclear when the FTC will publish their revised version, or what this revised version will look like exactly, it is likely that the agency will update provisions in the Guides pertaining to companies' climate change-related claims (such as “net zero" and “climate neutral") and the claims underpinned, at least in part, by the retirement of carbon offsets. Claims deriving from the purchase of Renewable Energy Certificates are also potentially subject to update.

To keep from running afoul of the Green Guides, companies making environmental claims about their products or services offered for sale in the American market should avoid making broad, unqualified environmental claims, due to the difficulty of substantiating them. For example, rather than stating that a product is “better for the environment," a company should specify in what manner the product has an improved environmental performance relative to its counterparts (e.g., “by consuming 20% less electricity than the leading brand"). Moreover, companies should avoid highlighting minor, incidental improvements to the environmental performance of a good or service they sell, as, per the FTC, consumers typically understand environmental benefit claims to be significant in nature.

With regard to claims underpinned, at least in part, by carbon offset use, marketeers in the U.S. should ensure that they can furnish robust evidence of the underlying carbon projects' greenhouse gas emission reductions and/or greenhouse gas removals. They should also ensure that the carbon offsets used to make a claim of carbon neutrality are not double-counted and do not derive from any activity required by law or regulation. Offsets used to substantiate a carbon-neutral claim made in the U.S. should also derive from greenhouse gas emission reductions or removals that either have already occurred or will occur within two years of the claim being made.

The American government is not alone in regulating claims about environmental performance: the European Union, for example, recently proposed a Green Claims Directive with the intention to eliminate misleading environmental messaging across the bloc.

Indeed, traditional ways of talking about climate action are being challenged. This is understandable: claims about climate change's impacts and carbon neutrality have proven prone to misinterpretation, and recent years have seen heated public debate around voluntary corporate climate action and corporate climate claims, resulting in calls to find viable alternatives that are transparent, credible, and easy to understand. Responding to this industry-wide call to seek alignment on an alternative, South Pole launched a global stakeholder consultation earlier this year, which led to a new Paris Agreement-compatible corporate claim and associated label called “ Funding Climate Action." Tested on more than 130 companies, leading non-governmental organizations, policy experts, and more than 1,500 consumers, this new label enables companies to invest in verified mitigation contributions to cover their residual greenhouse gas emissions and declare genuine green credentials. The label provides companies with a clear pathway to scaling up climate action investment without being criticized for it.

In 2023, getting climate claims right is just as important as the climate action itself. Claiming ambition without clear disclosure is no longer possible – actions and words need to match the true scope and scale of the climate crisis. Authentic and credible communication around climate claims depends, ultimately, on transparency, accountability, and impact: companies must ensure that what they say is what they can actually achieve, whether that's in terms of reaching net-zero greenhouse gas emissions or any other bold climate action targets. Read South Pole's latest Mastering Climate Claims in 2023 Report for more tips and best practices.

Given the urgency of the climate crisis, companies have a key role to play in the transition to a climate-smart world. Fortunately, consumers are willing to pay more for products and services that have improved environmental impacts. Communicating these claims accurately and in a manner that complies with the law can be challenging, however. South Pole's experts can help companies make credible and accurate environmental performance claims that both engage their consumers and comply with the law.

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