News: Canada Passes Anti-Greenwashing Law; Research Studies Productivity Lags at Private Companies
New Canadian Law Targets Greenwashing
Productivity Lags at Private Companies Without Employee Sense of Ownership
Canada passes a law to discourage greenwashing...Research finds family-owned businesses less productive unless ownership is shared.
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New Canadian Law Targets Greenwashing
Canada has enacted amendments to its Competition Act to discourage greenwashing—making unsubstantiated claims about ESG (environmental, social, governance) in business. Organizations are now required to substantiate any such claims with data or internationally accepted methodologies or metrics.
Now outlawed are any public claims about “a product’s benefits for protecting or restoring the environment or mitigating the environmental, social and ecological causes or effects of climate change that is not based on an adequate and proper test.” The amendments require businesses to substantiate any related claims.
Part of the Deceptive Marketing Practices section of the country’s Competition act, violations can carry fines of $10 million or more, or up to 3% of a company’s revenues.
According to a recent article in the New York Times, almost every major oil company in Canada removed sustainability reporting from their web sites shortly after the law passed.
According to a recent article in the e-newsletter of the Promotional Products Association International, “This has the potential to be very impactful for our industry, as it applies to any company operating in or shipping to Canada,” says Elizabeth Wimbush, PPAI’s Director of Sustainability and Responsibility. She adds that governments around the world are beginning to more closely monitor the ways in which businesses claim to be helping the environment with their sustainability practices.
The burden of proof, she notes, “lies on the person making the representation” to prove the act is not being violated. In other words, as soon as a company makes a public claim about the way its practices are environmentally responsible, that company must be able to prove such claims with evidence to avoid facing penalty under the law.”
This shift means promo companies doing business in Canada need to be absolutely certain their claims can be backed up by more than just good intentions, the article adds.
“When in doubt, measure it out,” advises Wimbush. “Any impact claims you make should be backed by verified data. Rely on your supply chain partners to validate claims like recycled content, reduced carbon footprints or social impact metrics.”
Such policing of environmental claims is becoming a trend, and it could be a matter of “if” not “when” the US moves toward adopting similar policies for businesses to adhere to, the article advices.
“We’ll likely see similar guidelines when the FTC Green Guides are updated here in the U.S., but in the meantime, this is a great general standard to use as a baseline when it comes to any sustainability claims.”
Helping organizations address greenwashing is becoming a business. ERM, a London-based advisory firm, recent published an article on how to detect and combat greenwashing.
Productivity Lags at Private Companies Without Employee Sense of Ownership
“Ownership, Control, and Productivity: Family Firms in Comparative Perspective” recently published in the Journal of Management, finds that productivity lags at privately held companies unless the owners take steps to create a sense of ownership or management control.
The authors are: Ruth V. Aguilera, Darla and Frederick Brodsky Trustee Professor in Global Business, Northeastern University; Rafel Crespi-Cladera, Full Professor at the Department of Business Economics’ Alfredo Martín-Oliver, Full Professor, and Bartolomé Pascual-Fuster, Senior Lecturer, at Universitat de les Illes Balears.
This study indicates that privately held companies lag public firms in productivity unless their owners cede some management control and/or ownership to employees.
Based on an extensive analysis of European firms, the study finds that “family-owned businesses tend to prioritize labor over capital in their production processes when compared with nonfamily firms. Moreover, the distinctive decisions regarding the production process lead to consistently lower levels of productivity in family firms. However, the researchers say they also uncover that when family firms share with non–family members management and ownership control, they are less labor intensive and achieve higher productivity and productivity growth. This suggests that certain ownership and control structures can help family firms overcome the productivity gap with nonfamily firms.”
This academic study analyzes how giving employees ownership of assets can increase the efficiency of a business or economy. Known as property rights theory (PRT), the concept explores how giving stakeholders ownership of assets can increase the efficiency of an economy.
The authors “use ownership, governance, and financial data from Orbis for firms in the five largest European economies (France, Germany, Italy, Spain, and the United Kingdom) from 2009 to 2019. Our sample initially includes approximately 12.5 million observations from 2.16 million firms, covering a significant portion of these countries’ firm populations.” The study includes extensive tables explaining their methodology, including this chart.
The authors explain, “While the property right theory has gained prominence in contemporary literature, there is a notable lack of empirical research into its relevance. This study delves into the implications of the property right theory concerning family-owned businesses and their impact on productivity. Specifically, we explore how family firms’ characteristics affect the benefits and hazards derived from the rights to utilize, appropriate, and transfer firm resources, influencing the production process and, more specifically, the levels and growth of a firm’s productivity. Overall, our findings support the ideas from recent developments in property rights theory, considering the unique characteristics of family-owned businesses.”
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