In the week when the United Nations has released another climate report, the European Union has published statistics stating that 94% of Europeans say that protecting the environment is important to them personally, and 68% agree that their consumption habits adversely affect the environment in Europe and globally. Marketers are keen to tap into consumers' environmental awareness, but "green claims" don't always tell the whole story. A study published by the European Commission in 2020 found that 53.3% of the claims examined were vague, misleading or unfounded, and 40% were completely unsubstantiated.

The European Commission has therefore proposed a new Directive which aims to address greenwashing by tackling false environmental claims made towards consumers, and stopping the proliferation of public and private environmental labels. It will require green claims to be substantiated ahead of publication. Of course, prior substantiation is already required by the Green Claims Code issued by the UK's Competition and Markets Authority and by the Advertising Standards Authority's Advertising Codes - although those are guidance and self-regulatory codes respectively, rather than law.

The Commission's proposal covers explicit claims made voluntarily by businesses to consumers, which relate to the environmental impact, aspect, or performance of a product or the trader itself, and adopt a full "life-cycle" approach, from raw materials to end-of-life. It also addresses environmental labelling schemes, aimed at stopping the proliferation of public and private labels and ensuring transparency and robustness of labelling schemes.

Climate-related claims that are based on carbon offsets or carbon credits have been criticised as being unclear and ambiguous, and to mislead consumers. This includes environmental claims that products or entities are “climate neutral”, “carbon neutral”, “100% CO2 compensated”, or similar. The proposed law also contains provisions about claims relying on offsetting. The Commission wants organisations to focus on reducing emissions in their own organization or value chain. When climate-related claims are made, companies will be required to be transparent about what part of that claim concerns their own operations, and what part relies on buying offsets. The Directive also contains requirements about the integrity of the offsets themselves, as well as on their correct accounting.

Member States will be required 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:

  • Claims must be substantiated with scientific evidence that is widely recognised, identifying the relevant environmental impacts and any trade-offs between them.
  • If products or organisations are compared with other products and organisations, these comparisons must be fair and based on equivalent information and data.
  • Claims or labels that use aggregate scoring of the product's overall environmental impact on, for example, biodiversity, climate, water consumption, soil, etc, shall not be permitted, unless set in EU rules.
  • Environmental labelling schemes should be solid and reliable, and their proliferation must be controlled. EU level schemes should be encouraged; new public schemes, unless developed at EU level, will not be allowed, and new private schemes are only allowed if they can show higher environmental ambition than existing ones and get a pre-approval.
  • Environmental labels must be transparent, verified by a third party, and regularly reviewed.

How will this affect companies in the EU?

Companies will be required to ensure the reliability of their voluntary environmental claims, and communicate their claims in a transparent way. Their claims will need to be checked by an independent verifier against the requirements of the Directive. The verifier will then issue a certificate of compliance recognised across the EU.

The proposed Directive aims to give a competitive advantage to companies who make a genuine effort to develop environment-friendly products, services and organisational practices, and reduce their impact on the environment.

This is also expected to reduce the risk of legal fragmentation of the single market, saving costs for businesses that have their claims certified by an accredited verifier. The rules also aim to reduce costs for companies trading across borders inside the internal market and reinforce the credibility of industries outside the EU.

Microenterprises (fewer than 10 employees and less than €2 million turnover) are exempt from the obligations (although can choose to comply).

What will the proposal mean for businesses in the UK and other non-EU countries?

Businesses that are based outside the EU and make voluntary environmental claims directed at EU consumers will also be required to comply with the Directive. This aims to encourage global partners to contribute to the green transition, in particular businesses trading within the internal market.

A key impact on companies from outside the EU could be the ban on environmental labelling schemes developed by private operators in the EU or from external partners who operate on the EU market, unless they can prove to member states their added value for the EU market in terms of their environmental ambition or coverage of impacts. Such schemes will be subject to a notification and approval by the Commission.

Next steps

Following the ordinary legislative procedure, the Green Claims Directive will now be subject to the approval of the European Parliament and the Council.

The proposed Directive follows proposals last year for consumers will have a right to know how long a product is designed to last for and how, if at all, it can be repaired. In addition, the Commission proposed rules aim to strengthen consumer protection against untrustworthy or false environmental claims, banning ‘greenwashing' and practices misleading consumers about the durability of a product. Companies will have a lot to think about when making green claims!