The European Commission has presented its long-awaited proposal for a Directive on substantiating environmental claims on March 22, 2023 which is intended to apply to all voluntary green claims covering not only texts, but also pictorial, graphic or symbolic representations on labels, in brand, company or product names. As a follow-up from our last article on the leaked draft Green Claims Directive, this article provides an update by referring to the changes from the draft and the Commission’s proposal to amend Unfair Commercial Practice Directive which was adopted by the European Parliament on 11 May 2023. In addition, this article discusses the initiatives in tackling green claims in the UK which are different from how the EU plans to regulate them under its proposals.
Significant changes between leaked draft and the officially published Proposal
Probably the most striking difference between the draft which was leaked in January 2023 and the European Commission ("Commission")’s official proposal for a Directive on substantiation and communication of explicit environmental claims ("Green Claims Directive") that was published on 22 March 2023 ("Proposal") is that the Commission has turned away from the Product Environmental Footprint (PEF) / Organisation Environmental Footprint (OEF) methodology. The Commission has listened to numerous voices from the industry and science which feared that this methodology was not suitable for every product category in capturing the significant effects that a product may have on the environment. The Proposal therefore only prescribes more general requirements for an assessment to substantiate the claims regarding the impact that a product, product category, brand or trader has on the environment ("Green Claims" or "environmental claims" as defined in the Proposal on empowering consumers for the green transition amending Directive 2005/29/EC concerning unfair business-to-consumer practices, see below) without being tied down to a specific methodology.
It should also be noted that the sanctions for breaching the new requirements in the Proposal have been extended and specified: the Commission wants the national competent authorities to have the power to impose fines depriving the economic benefits derived from an infringement, to confiscate the revenues gained and to exclude non-compliant companies from public procurement processes and their access to public funding, including tendering procedures, grants and concessions, for up to 12 months.
Substantiation of Green Claims
The Proposal lays down specific requirements for making Green Claims. Green Claims will be subject to review by independent verifiers, who will issue a certificate of conformity after evaluating compliance with the requirements in Article 3 to 7 of the Proposal including in particular the underlying scientific or other available technical information on the products’ sustainability.
According to the Proposal, Green Claims must include information about which part (whole product, part or aspects) of the product is the subject of the corresponding claim, how significant this is in the consideration of the entire life cycle of the product, or what effect the improvement of the environmental performance has on other areas in the product’s life cycle. This information, along with the certificate of conformity, will have to be made available to consumers at the point of sale. In order to save the packaging, which is already full of information from a further visual overload, the Commission is opening up the possibility of making the information available alternatively via a web link or a QR code. Companies will also have to keep track of scientific developments: if new knowledge is gained about the significant environmental impact of a product or if the state of research changes, this may result in the obligation to reassess the claim and resubmit it to the verifier.
Environmental labelling schemes
The Proposal also aims to combat the increasing proliferation of environmental labeling schemes that are introduced by the Member States and the private sector.
Once the Directive comes into force, the authorities of the Member States will no longer be allowed to introduce new labeling systems. A new approval of private environmental labeling schemes would only be given if they can demonstrate a particular added value compared to the existing national, regional or EU schemes, such as a focus on specific environmental aspects or a specific product group. All pre-existing schemes may continue to operate, insofar as they meet the requirements of the Directive which include various transparency, monitoring and content requirements.
Complaint-handling, access to justice and enforcement
One the one hand the Proposal foresees that persons and/or organisations with a legitimate interest may submit “substantiated” complaints to the national authorities in case they suspect that a trader has failed to comply with its requirements and that the same persons and/or organisations shall have access to a court or other independent body to have the decision, acts or failure to acts of the competent authority.
On the other hand, by adding the Proposal to Annex I of the Representative Actions Directive, the Proposal foresees that consumer organisations or other qualified entities will be able to bring legal actions to protect the collective interests of consumers.
When it comes to enforcement, the Proposal foresees that the competent authorities are to be provided with the power to access relevant information related to an infringement, require access to relevant information to establish if there has been an infringement, start investigations or proceedings, require traders to adopt remedies and take action to end an infringement, and adopt injunctive relief where appropriate and to impose penalties. In this regard, a breach of the Proposal's provisions can (under current draft) be punished under national law with a fine that is not less than 4% of the company's annual turnover in the relevant Member State(s). In addition, profits made with non-compliant claims will be subject to confiscation and the authorities will have the power to exclude non-compliant companies from public procurement procedures and public subsidies as described above.
Proposal on Empowering Consumers: amendments to the Unfair Commercial Practices Directive
The Commission’s other Proposal on empowering consumers for the green transition ("Proposal Empowering Consumers") sets out the amendments to the Unfair Commercial Practices Directive (UCPD) and the Consumer Rights Directive (CRD). The European Parliament (EP) approved on 11 May 2023 the text which includes some changes from the Commission’s draft which was published on 30 March 2023 and the Council formed its mandates on 15 May 2023 ahead of the institutional negotiations.
The amendments to UCPD introduce additional grounds on which misleading actions can be committed such as a product’s environmental or social impact or aspects, durability and reparability, and making an environmental claim relating to future environmental performance without clear, objective and verifiable commitments and targets. The requirement for such a claim to be also supported by a realistic implementation plan, which is verified by an independent third party expert or an independent monitoring system, is suggested by the EP and the Council therefore some form of verified implementation plan might also be required (for an environmental claim relating to future environmental performance to be made without committing a misleading action) in the final text. The “black list” of banned practices will be extended to include for example the use of a sustainability label that is not based on a certification scheme or not established by public authorities. Generic environmental claims that advertise the mere sustainability or environmental friendliness without evidence of “recognised excellent environmental performance” will also be prohibited. There are other practices that the EP has proposed to add to the black list therefore might be included in the final text such as making an environmental claim which cannot be substantiated in accordance with legal requirements or claiming, based on carbon offsetting, that a product has a neutral, reduced or positive greenhouse gas emissions’ impact on the environment. The revised UCPD as amended by the Consumer Empowering Proposal defines “environmental claims” as meaning any message or representation which is not mandatory under Union law or national law, including text, pictorial, graphic or symbolic representation, in any form, including labels, brand names, company names or product names, in the context of a commercial communication, which states or implies that a product or trader has a positive or no impact on the environment or is less damaging to the environment than other productsor traders, respectively, or has improved their impact over time.
Together, the two proposed Directives are intended to create a uniform consumer protection system in the area of environmental claims and sustainability labels.
As a result, companies will need to prepare for both regulatory and civil or other sanctions by substantiating their sustainability claims in the way required under the Proposal and keep those claims under review.
UK – on-going initiatives and future outlook
There is currently no legislative proposal in the UK to regulate environmental claims in the ways contemplated in these two EU proposals. However, whilst the detailed requirements such as the requirement for third-party verification are unique to the Proposal, many elements such as the need to substantiate environmental claims or the claims to be specific so as not to be misleading are already found in the guidance issued by the Competition and Markets Authority (CMA). The UK self-regulatory code also includes requirements on environmental claims that are made as part of advertisements and other marketing communications. The principles and the rules set out in these documents are separate from the legal requirements in the relevant legislation however compliance with these documents is expected in practice where applicable when making claims as part of marketing or promotional activities.
The legislation which transposed UCPD in the UK is expected to be replaced with the new rules set out in the Digital Markets, Competition and Consumers Bill (Bill) which was laid before the Parliament on 25 April 2023. There is nothing in the new rules which are specific to environmental claims and the extension of the ‘black list’ unfair commercial practices in future following a consultation is also not expected to include anything specific to environmental or sustainable claims unlike the Proposal Empowering Consumer.
The direction of travel in the UK is therefore likely to be different from the EU’s approach of establishing a new regulatory framework for Green Claims however businesses should be mindful of on-going investigations into ‘greenwashing’. The CMA has been looking into eco-friendly and sustainability claims made about fashion products since January 2022. The scope of their investigation has been expanded to household essential products since January 2023 to see whether businesses are complying with UK consumer law when they make environmental claims about their products for example the use of vague and broad statements, making claims without evidence or misleading claims about the recyclability of a product. Major reforms on consumer law enforcement and the introduction of monetary penalties also form part of the Bill and should be noted as the potential additional implications for making a misleading claim to UK consumers (see The UK’s new consumer law enforcement regime - DMCC Bill Deep Dive Part 2 - Hogan Lovells Engage).
The Proposal as well as the Proposal on Empowering Consumers (proposed amendments to UCPD)are going through the EU legislative procedure. Once adopted, the Member States will likely to have 18 months to transpose the Directives into national law for the new rules to apply 24 months after the Directives comes into force.
Since the Proposal is still vague in many respects and delegated acts that may be adopted by the Commission to supplement the requirements for substantiation of Green Claims have not been published, it may be difficult for companies to develop a marketing strategy for the use of Green Claims and labels at this stage. However, companies are advised to closely follow the upcoming new rules and start aligning (where possible) their green marketing strategy with the Proposal's new requirements for any environmental claim which states or implies that a product or a trader has a positive or no impact on the environment than others or has improved their impact over time.