European Commission publishes proposal for a Green Claims Directive to combat greenwashing

On 22 March 2023, the European Commission published a proposal for a Directive on the substantiation and communication of environmental claims (“Draft Green Claims Directive” or “proposal”). The proposal is accompanied by a press release and Q&A. The proposal, which forms part of the EU’s wider Green Deal, is Part 3 of the EU’s Circular Economy Package (see our previous blog posts here and here for Part 1 and Part 2).

The purpose of the Draft Green Claims Directive is to help combat greenwashing by setting minimum criteria that companies making claims to consumers in the EU about the environmental benefits and performance of their products or services need to meet, as well as minimum criteria for environmental labelling schemes. It’s about how green claims are substantiated and communicated, as well as controlling the proliferation of environmental labels. The ultimate aim of the proposal is to ensure consumers are provided with environmental information that is reliable, comparable and verifiable.

The proposal will now need to be debated by the European Parliament and Council before it can be adopted in final form so the current draft wording will likely change.

The green claims proposal was published on the same day as a proposal for a Directive on the right to repair, which forms part of the wider Circular Economy Package (see our blog post).

The proposal in a nutshell

• The proposal applies to “green claims”, as defined in the Proposal for a Consumer Empowerment Directive (published in March 2022), which refers to “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 products or traders, respectively, or has improved their impact over time”. If adopted as proposed, the new rules would thus exclusively cover voluntary claims in the context of B2C transactions taking place in the European Union.
• Hence, the proposal on green claims affects EU-based companies, but businesses that are based outside the EU and make voluntary environmental claims directed at EU consumers would also have to comply with the requirements in the Directive.
• Any such green claim needs to be substantiated in accordance with a minimum set of criteria in the proposal and the claim would need to be independently verified by an accredited verifier in advance. So for example, green claims such as “packaging made with 30% recycled plastic”, “carbon compensated ride” or “ocean-friendly sunscreen” would need to be substantiated with scientific evidence, any comparisons must be fair, and aggregate scoring of a product’s overall environmental impact would not be permitted. The claim would need to be checked by an independent verifier against the requirements in the Directive who would issue a certificate of conformity which would be recognised across the EU.
• The Draft Green Claims Directive does not prescribe a single type of methodology (such as the Product Environmental Footprint method) to be used for substantiating green claims. However, to complement the requirements on substantiation for certain types of claims, the Directive gives the Commission the power to adopt delegated acts at a later stage.
• The Draft Directive would not apply if there are more specific rules in place about particular types of green claims - such as the EU Ecolabel, organic farming label, etc.
• Also, the Directive would also not apply to microenterprises (i.e. with fewer than 10 employees and an annual turnover not exceeding EUR 2 million).
• The Directive also excludes most financial services: “…this Directive shall not apply to sustainability information involving messages or representations that may be either mandatory or voluntary pursuant to the Union or national rules for financial services, such as rules relating to banking, credit, insurance and re-insurance, occupational or personal pensions, securities, investment funds, investment firms, payment, portfolio management and investment advice, including the services listed in Annex I to Directive 2013/36 75 of the European Parliament and of the Council, as well as settlement and clearing activities and advisory, intermediation and other auxiliary financial services, including standards or certification schemes relating to such financial services” (see Recital 10).
• The Draft Green Claims Directive also sets minimum rules for any new environmental labelling schemes. New private labelling schemes would only be allowed if they can show higher environmental ambition than existing ones and are pre-approved by the relevant national authorities. The background to this is that there are more than 200 environmental labels currently in use and more than 50% of environmental claims are vague, misleading or unfounded and 40% are unsubstantiated – which, according to the Commission, is leading to consumer confusion and mistrust, as well as being unfair to those companies that are making genuine efforts to improve their environmental performance.
• The Commission recognises that climate-related claims (such as “climate neutral”, “carbon neutral”, etc) based on the use of carbon offsets or carbon credits are particularly confusing and so the Draft Directive requires companies to report separately any greenhouse gas emission offsets used, specify whether those offsets relate to emission reductions or removals, specify the share of total emissions that are addressed through offsetting, and the methodology used (to ensure that all offsets relied upon are of high quality and accounted for correctly and transparently). The Draft Directive does not ban the use of carbon offsets, although it does say that companies should prioritise the reduction of emissions in their own organisation or value chain instead of relying on carbon offsets.

Relationship with the proposal for a Directive empowering consumers for the green transition

The Draft Green Claims Directive complements the proposal for a Directive empowering consumers for the green transition that was included in Part 1 of the Circular Economy Package published in March 2022  (see our previous blog post).

That proposal seeks to amend the Unfair Commercial Practices Directive (UCPD), including by adding new practices to the existing list of prohibited unfair commercial practices (the “black list”) involving:

• making generic or vague environmental claims (e.g. “environmentally friendly”, “eco” or “green”) if there is no excellent environmental performance demonstrated;
• making an environmental claim about the entire product when it really concerns only a certain aspect of the product; and
• displaying a voluntary sustainability label which is not based on a third-party verification scheme or established by public authorities.

The Draft Green Claims Directive complements that proposal by setting specific rules on the substantiation, verification and communication of voluntary environmental claims and labelling schemes.

Penalties

The Draft Directive requires Member States to designate the appropriate competent authorities to enforce the requirements of the Directive.

It is up to Member States to lay down the rules on penalties but these must be effective, proportionate and dissuasive and when deciding on the type and level of penalties Member States should have regard to (among other things) the nature, gravity, extent and duration of the infringement.

The penalties should include fines that effectively deprive the company of the economic benefit derived from the using of misleading or unsubstantiated claims or non-compliant labelling schemes, confiscation of revenues gained from the non-complaint activity, and temporary exclusions for a maximum period of 12 months from public procurement processes and from access to public finding. The maximum amount of the penalty should be dissuasive and be set at least at the level of 4% of the company’s total annual turnover in the Member State.

Private enforcement

However, with national authorities already under enormous pressure and with limited resources, the private enforcement route may well turn out to be the more likely risk of enforcement under this proposal. As many (if not all) of these practices may constitute unfair competition, they could also be enforced by competitors and non-profit organisations (such as consumer organisations and climate NGOs), and potentially individuals, as least with respect to obtaining damages or injunctions.

The Q&A accompanying the Draft Green Claims Directive includes a question about whether consumers' representatives can bring collective actions against traders not respecting the new Directive, with the following answer: “In the Commission Green Claims proposal it is foreseen that, thanks to the Representative Actions Directive (EU) 2020/1828, ‘qualified entities’, such as consumer organisations, will be able to bring legal actions to protect the collective interests of consumers. This will apply, for instance, if a trader makes green claims (implicitly or explicitly) assuring that it complied with the minimum requirements for substantiation, but it is suspected that it was not the case.”

Criticism

The Commission has been accused of watering down the original proposal, with a number of environmental and consumer NGOs claiming that the rules are now too vague, in particular by not specifying a single methodology (for example, the Product Environmental Footprint method) that companies should use to substantiate their green claims and by not banning outright unproven carbon neutrality claims. Some had also hoped for a ban on the use of carbon offsets.

There is also concern that national authorities have been left to do most of the heavy lifting as it will be up to them to sort through a myriad of different methodologies and decide which are sufficiently robust.

However, notwithstanding the criticism, a number of consumer groups are still cautiously optimistic that the Draft Green Claims Directive is a step in right direction in the fight against greenwash.

Next steps

The proposal is still at the early stages of the EU legislative process and will now need to be negotiated by the European Council and Parliament under the “ordinary legislative procedure”, so the current draft wording will likely change.

Once the final text of the Directive has been published in the Official Journal of the European Union and entered into force, Member States will have 18 months to implement it into national law, with the measures applying 24 months from the date of entry into force.

If adopted, the Green Claims Directive Proposal will present new changes and challenges for businesses, including reviewing their existing green claims – so businesses are well advised to watch this space closely.