Summary

On March 22, 2023, the European Commission took a definitive step towards regulating green claims by proposing a new directive aimed at ensuring the credibility of such claims across the EU. Under this proposed directive, companies would be obliged to substantiate any voluntary green claims made about their products or services in business-to-consumer interactions. 

But what does this mean for companies, consumers, and the collective European dream of a greener economy? Let’s unpack the story.

The Wake-Up Call

EU’s decision to take a firmer stance on green claims was informed by a study conducted in 2020 claiming that:

• 42% of green claims in the EU were exaggerated, false, or deceptive, possibly violating EU commercial practices
• 59% of environmental claims were vague or misleading, with 37% being unsubstantiated
• The proliferation of eco-labels, with about 230 ecolabels and 100 private green energy labels, raised concerns over the veracity of their assertions

Consumers were navigating a maze of claims, many vague or misleading. This was the alarm bell that prompted the EU to take action.

A Study Conducted By European Commission in 2020

The Plot Thickens: Introduction of Green Claims Directive 

In February 2021, the EU Commission published the proposal for a Green Claims Directive, which aims to establish common rules for environmental claims and labeling on products in the EU. EU’s objectives with this directive are sharply defined:

• make green claims reliable, comparable and verifiable across the EU
• protect consumers from greenwashing 
• contribute to creating a circular and green EU economy by enabling consumers to make informed purchasing decisions
• help establish a level playing field when it comes to environmental performance of products

Key Aspects

As of October 2023, the key features of this directive include:

Scope of Application: The directive specifically addresses voluntary green claims made to consumers by businesses, excluding:

• B2B interactions
• Sectors with their own environmental claim rules 
• Micro SMEs with fewer than 10 employees or €2 million turnover

Non-EU traders will need to comply with the Green Claims Directive requirements if they make environmental claims to EU consumers. 

Future Performance Claims: If a claim involves future environmental improvements, it must come with a detailed plan and timeline for achieving these goals 

Third Party Verification: Explicit environmental claims which will need to be independently verified by a third party assessment body 

Evidence-Based Claims: Claims must be supported by widely recognized scientific methods, peer-reviewed evidence, and life cycle assessments, adhering to established standards (e.g., ISO 14064, GHG Protocol)

Recognition of Environmental Labels: The Commission will maintain and publish a list of officially recognized environmental labels that will be permitted for use in the EU market

Regulations on Labelling:  Labels that use a rating or score to indicate a product or company’s overall environmental impact are prohibited unless issued under an EU-approved environmental labelling scheme

International Labelling Schemes: New public environmental labelling schemes from third countries intended for the EU market must receive Commission approval

Claims Governed 

The Green Claims Directive casts a wide net, capturing any voluntary claim that implies a product or service has a positive, reduced, or neutral (carbon neutral) impact on the environment.

A slew of commonly used expressions have now been prohibited from casual use, including ‘carbon-neutral,’ ‘climate-neutral,’ ‘environmentally friendly,’ ‘eco-friendly,’ ‘natural,’ ‘biodegradable,’ and ‘energy-efficient,’ unless they can be substantiated with solid evidence. They now require proof beyond mere reproach.

It’s important to note that the directive does not cover claims and labels that are already governed by other EU laws.

Use of Offsetting 

Amidst a sea of negative speculations, the directive emerges with a nuanced approach to carbon offsetting, aiming to refine rather than reject its role in sustainability strategies.

It sends out a clear message: offsets are a part of the solution but not the sole answer to climate challenges

Here are the primary concerns the directive addresses:

• Discouraging Offset-Only Approaches: Companies are expected to focus primarily on reducing their emissions internally. Reliance on offsets should not be a substitute for in-house emission reductions
• Ensuring Carbon Credit Integrity: High-quality carbon credits backed by reliable verification methods should be used
• Mandatory Disclosure: Companies will be required to provide detailed disclosures about the nature of the offsets, the projects they support, their actual environmental benefits and how much of their environmental claims are achieved through in-house emission reductions versus purchased carbon offsets

Penalties for Non-Compliance

• Fines up to 4% of annual turnover in the Member States where the infringement occurred
• Seizure of revenues from non-compliant transactions
• Exclusion from public procurement and funding for up to one year

What’s in It for Companies?

According to the European Commission, the cost of substantiating claims will range from €500–€8,000 for claims relating to a product’s environmental footprint to €54,000 for claims relating to a company’s environmental footprint.

So why should companies bear the cost of meeting tough green regulations? 

It’s simple: being green is good for business.

A study by KPMG reveals that a solid two-thirds of UK shoppers seek out eco-friendly products, and more than half will turn their backs on a brand caught bending the truth about their green credentials. 

Almost 20% have already walked away from brands over greenwashing fears. It’s clear that being caught making false eco-claims can hit companies where it hurts—losing customers, business, and trust.

The Timeline: From Proposal to Enforcement

The EU will legislate the proposal into law in 2024, followed by a period until 2026 for Member States to integrate it into national law, with full enforcement across the EU starting after 2026.

Green Claims Directive Implementation Timeline

Timely Actions for Businesses

The timeline outlined by the EU provides a phased approach to adoption and enforcement, giving companies a clear runway to align their practices with the new regulations. Start preparing now to stay ahead of the curve.

• Begin assessing current environmental claims and marketing practices against the new standards
• Engage with compliance experts and verifiers to understand the implications for your business
• Start planning for changes in marketing, labelling, and the substantiation of green claims
• Enforce the necessary changes within the organisation before the deadline
• Be prepared to demonstrate improvements in environmental performance with clear, time-bound milestones
• Communicate transparently with customers and stakeholders about how your business is adapting to the directive
• Focus on emissions reduction within the supply chain and operations beyond offsetting

In Conclusion: A Greener Narrative

EU’s Green Claims Directive is more than a set of rules—it’s the script for a new narrative in the European market, one where truth in sustainability dialogue isn’t just expected, it’s mandated. For companies and consumers alike, this directive could mark the end of the greenwashing era and the beginning of an authentic, transparent journey toward sustainability.

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