Tougher EU Rules On Green Claims Coming Down The Tracks – What To Expect

This blog post was co-authored by Tegan Johnson, Solicitor Apprentice, London and was was originally published on Compliance & Risks 'In Practice Series' blog, January 2024.

On 22 March 2023, the EU revealed its proposal for a Directive on the substantiation and communication of explicit environmental claims, more commonly known as the Green Claims Directive. The EU Commission advanced its proposal in a bid to address allegedly widespread practices of greenwashing within the EU. The EU Commission did so on the basis that in recent years it had witnessed a proliferation of advertising claims made about products along the lines of eco-friendly, carbon-neutral or uses natural packaging, seen to tap into the consumers’ growing concerns for the environment. When the EU Commission investigated the environmental claims being made by businesses in 2020 it found that 53% of such claims were vague, misleading or unfounded, and 43% were unsubstantiated. These results of its investigation consolidated its intention to act and clamp down on such practices, as it’s doing now in this new legislation.

Greenwashing occurs when companies mislead consumers or give a false impression regarding the environmental impacts or benefits of a product or service. This could take the form of misleading labelling, a lack of transparency, “cherry-picked” data or uncertified labels. It may also involve focusing on a single green claim while failing to address other more substantial environmental impacts. In a world where there is an abundance of green claims it can be difficult for consumers to know which ones are reliable and trustworthy. Further, unchecked greenwashing can undermine businesses that are genuine in their efforts to be sustainable. The proposed directive seeks to address this issue, while at the same time protecting consumers and the environment. Additionally, it will bring harmonisation across the EU as to how green claims are to be made.

This recent proposal is part of a wider EU initiative that has been ongoing for many years, aimed at empowering consumers to contribute to the green transition (to make Europe climate neutral by 2050) by allowing them to make decisions based on reliable and transparent environmental information. Indeed, the proposal complements the March 2022 proposal for a directive empowering consumers for the green transition, amending Directive 2011/83/EU on consumer rights and Directive 2005/29/EC on unfair business-to-consumer commercial practices. This earlier proposal aims to tackle unfair commercial practices aiming to mislead consumers away from sustainable consumption by prohibiting generic environmental claims and establishing a number of requirements on environmental claims. The Green Claims Directive complements this proposal, but provides more specific rules on environmental claims, namely substantiation, communication and verification.

The legal framework

Claims In Scope	The directive proposes detailed rules which will apply to voluntary ‘explicit environmental claims’ made in business-to-consumer commercial practices about products or traders. The EU Commission, in its Q&A on the proposal, stated that it targets green claims made by businesses that either state or imply a positive environmental impact, a less damaging environmental impact, no impact or an improved impact over time. However, it should be noted that the proposed directive will apply to claims and environmental labelling schemes not regulated by other EU rules. Where specific EU provisions already apply, these rules will prevail. Examples would include Regulation (EC) No 66/2010 (EU Ecolabel) and Regulation (EU) 2018/848 (organic products).
Entities In Scope	The proposal is applicable to businesses making explicit business-to-consumer environmental claims within the EU voluntarily and therefore to companies in all sectors selling goods and services. Of note, the proposal will also apply to non-EU businesses if they make environmental claims to EU consumers. It should be noted microenterprises (companies with fewer than 10 employees and an annual turnover not exceeding €2 million) will be largely exempt from the proposal, although they may voluntarily operate under the Directive if they choose to do so.
Obligations of Economic Operators:	Substantiation: Under the proposed directive, businesses will be required to substantiate their voluntary explicit environmental claims. To this end, Article 3 requires traders to undertake an assessment to substantiate such claims meeting a number of requirements: Stating if the claim concerns the whole product, part of the product or certain aspects of the product. Basing the claim on widely recognised scientific evidence, using accurate information and relevant international standards. Demonstrating that the environmental impacts, aspects or performance that are subject to the claim are significant from a life-cycle perspective. Taking into account all the significant environmental aspects and impacts to assess the environmental. Demonstrating that the claim is not equivalent to the requirements imposed by law. Providing information whether the product or company subject to the claim performs significantly better than in common practice. Checking that a positive achievement has no harmful impacts on things such as climate change; resource consumption and circularity. Reporting greenhouse gas offsets in a transparent way. Including primary information (e.g., directly measured by the company). Including secondary information where no primary information is available. Article 4 sets out rules in respect of the substantiation of comparative explicit environmental claims. It is worth noting that a single method of assessment is not prescribed under the proposal. Communication: Article 5 lays out requirements in respect of communication of explicit environmental claims. In particular, information on the product or the trader that is subject to the green claim and on the substantiation must be made available together with the claim in a physical form or in the form of a weblink, QR code or equivalent. Article 5 also sets out additional informational requirements, such as where the claim is related to a final product and the use phase is among the most relevant life-cycle stages of that product there shall be a duty to provide information on how the consumers should use the product in order to achieve the expected environmental performance of that product. Verification: Before a business can make green claims about its products or services, the claims will need to be independently verified by a national third-party verifier accredited by EU Member States. Member States should allocate independent third-party bodies to review any environmental claims and labels, and issue certificates of compliance accordingly.
Environmental Labels/Labelling Schemes:	An environmental label is defined as a sustainability label covering only or predominantly environmental aspects of a product, a process or a trader. Article 7 stipulates that environmental labels must fulfil the requirements set out in Articles 3 to 6 on substantiation and communication of claims and are subject to verification in accordance with Article 10. The draft directive also covers environmental labelling schemes defined as a certification scheme which certifies that a product, a process or a trader complies with the requirements for an environmental label. Requirements for such schemes are set out in Article 8 and include: Information about its ownership and decision-making bodies is transparent. Information about its objectives and the requirements and procedures to monitor compliance are transparent. The requirements are scientifically robust and relevant from a societal perspective. A complaint and dispute resolution mechanism is in place. Procedures are set out for dealing with non-compliance and for the withdrawal of the label in the event of non-compliance with the scheme’s requirements. Additionally, to combat the proliferation of labels, the directive prohibits the creation of new environmental labelling schemes, unless established under EU law.

 

The Regulatory Trend

This C2P Regulatory Trend Chart shows a relatively proportional increase in both global Circular Economy and Consumer Protection legislation highlighting that the approaches taken in both these areas by the EU while drafting the Green Claims Directive reflect that of the growing regulatory sphere.

The Consequences For Non-Conformity

There are multiple provisions in the Directive covering enforcement of the new rules, which will take place at the Member State level. Article 13 foresees that Member States will be required to allocate competent authorities to be responsible for enforcement. They will then have to establish a penalty regime and ensure access to a court or other independent body competent to review the procedural and substantive legality of the competent authority’s decisions. Additionally, these authorities will have full inspection powers; they will be able to access information and to instigate investigations if required.

Penalties will take regard of the nature and severity of the infringement and may include charges of up to 4% of the business’ annual turnover, confiscation revenues gained by the trader from a transaction with the concerned products and up to 12 months exclusion from the public procurement processes and access to public funding.

What Does This Mean For Businesses?

Although, the road towards integrating the Directive into national law will be long, particularly given the need for penalties specific to each Member States separately as well as the proposed rules on substantiation and verification of green claims and the substantial penalties associated with non-compliance will likely encourage businesses not to exaggerate or mislead with their environmental product claims and labelling, thereby protecting consumers and the environment. Traders should begin thinking thoroughly about substantiating claims with recognised evidence and be clear about what exactly it is they are representing. 

The feedback period closed on 21 July 2023 and the draft green claims directive is currently going through the ordinary legislative process. The proposal is expected to enter into force in 2024.

Checklist To Improve Compliance

1. Assess the scope of the proposed directive to determine whether it will apply to your business practices. 
2. Consider undertaking an internal review of explicit environmental claims made by your company and implement a strategy, if required, to ensure such claims meet the requirements of the law.
3. In particular, review all voluntary explicit environmental claims used in business-to-consumer commercial practices and ensure they are transparent, reliable and trustworthy.
4. Ensure any green claims made by your business are supported with evidence. 
5. Consider preparing a physical form or creating a website or QR code containing the details of the claim and substantiation and information on the product or trader. 
6. Consider how you would prepare for and implement independent verification. 
7. Keep up to date with legislative developments such as when the proposal becomes law and applies in member states. Monitor future amendments and updates in the area, particularly, potential future delegated acts providing for more granular requirements.

Read other items in Commercial Brief - March 2024