The EU is clamping down on greenwashing – and it could have major implications for any organisation making voluntary green claims.
Proposals for a “Green Claims Directive” were published on 23 March 2023, and, subject to the approval of the European Parliament and the Council, they could be implemented as early as this year.
UK businesses aren’t exempt either; if your company trades in EU countries, you will need to comply with the new regulations, too.
Here’s our quick guide to the Green Claims Directive.
Green Claims Directive: The background
Companies operating in the EU often make voluntary environmental claims with little or no evidence and substantiation backing these claims. However, this can result in ‘greenwashing’ where products or processes are made to appear more environmentally friendly than they truly are. This is both misleading for customers and unfair to companies that are genuinely working to improve their environmental performance.
A European Commission study from 2020 found that 53.3% of the claims examined were vague, misleading or unfounded, and 40% were completely unsubstantiated.
What are the proposed new anti-greenwashing rules?
The proposal for a Directive on Green Claims will address greenwashing by tackling false environmental claims made towards consumers, and stopping the proliferation of public and private environmental labels.
The new rules establish a clear regime for environmental claims and labels. They aim to ensure that consumers receive trustworthy information about the environmental credentials of the products they buy.
What types of claims are covered by this proposal?
The proposed Directive targets “green claims” made by businesses that state or imply a positive environmental impact, lesser negative impact, no impact, or improvement over time for their products, services, or organisation. The proposal requires that these green claims are substantiated and this substantiation be verified before they are made. Examples of typical claims are:
The proposal covers explicit claims made voluntarily by businesses for consumers, which relate to the environmental impact, aspect, or performance of a product or the trader itself, and adopt a “life-cycle” approach, from raw materials to end-of-life.
The proposal also covers environmental labelling schemes
There are currently at least 230 different environmental labels in the EU and there is evidence that this leads to consumer confusion and distrust. To control the proliferation of such labels, new public labelling schemes will not be allowed, unless developed at EU level, and any new private schemes will need to show higher environmental ambition than existing ones and get a pre-approval to be allowed.
Environmental performance comparisons will be scrutinised
Organisations will also need to be careful about making comparisons about the environmental performance of their products, or themselves, compared with others on the market. Such comparisons will need to be based on equivalent information and data.
Offsetting claims will be targeted
Climate-related claims that are based on carbon offsets or carbon credits have been shown to be particularly prone to being unclear and ambiguous, and to mislead consumers. This relates notably to environmental claims that products or entities are “climate neutral”, “carbon neutral”, “100% CO2 compensated”, or similar. The Green claims proposal also tackles claims relying on offsetting.
Companies should focus on reducing emissions in their own organisation or value chain. When climate-related claims are made, companies must be transparent about what part of that claim concerns their own operations, and what part relies on buying offsets. There are also requirements on the integrity of the offsets themselves as well as on their correct accounting.
Micro businesses are exempt
To avoid a disproportionate impact of the requirements on smaller enterprises compared to larger ones, “microenterprises” (fewer than 10 employees and less than €2 million turnover) are exempt from the obligations of this proposal, unless they themselves wish to use the rules.
UK companies trading in the EU will need to comply
Businesses that are based outside the EU and make voluntary environmental claims directed at EU consumers will also have to respect the requirements set out in the proposed directive.
How will it work in practice?
Before companies communicate any of the covered types of ‘green claims’ to consumers, such claims will need to be independently verified and proven with scientific evidence. As part of the scientific analysis, companies will identify the environmental impacts that are actually relevant to their product, as well as identifying any possible trade-offs, to give a full and accurate picture.
If implemented, the proposed directive will require EU Member States to ensure that minimum requirements for substantiation and communication are respected by companies when they make voluntary green claims. Member States will be responsible for setting up verification and enforcement processes, to be performed by independent and accredited verifiers.
What will the fines be for non-compliance?
The proposed legislation says that the maximum fine should be dissuasive and be set at least at the level of 4% of the trader’s total annual turnover in the Member State or Member States concerned.
Revenues related to the product may also be confiscated, and there may be a temporary 12-month exclusion from public procurement processes and from access to public funding, including tendering procedures, grants, and concessions.
Are there any exceptions?
The proposed legislation excludes claims that are covered by existing EU rules, such as the EU Ecolabel or the organic food logo, because the current laws already ensure that these regulated claims are reliable. Claims which will be covered by upcoming EU regulatory rules, will be excluded for the same reason.
Will similar anti-greenwashing regulation be introduced in the UK?
In short, yes. A new digital markets, competition and consumer bill will be unveiled shortly, which will give the Competition and Markets Authority (CMA) greater power to clamp down on misleading environmental claims. Big companies face the threat of civil penalties of up to 10% of global turnover for breaches of consumer law. Individuals who breach these laws will face fines of up to £300,000. The CMA published a Green Claims Code in September 2021 and is already investigating the sustainability claims of major household brands.
The Financial Conduct Authority has also consulted on measures aimed at “clamping down on greenwashing”. It applies to investment products which are marketed as “green” or “sustainable”.
While UK and EU legislation is not yet set in stone, the direction of travel is clear. Companies will need to take a very close look at green claims made, however well intentioned, and ensure that they stand up to increasing scrutiny.
If you would like advice on your obligations, get in touch at email@example.com.