In 2020, an EU Commission Study found that 53% of environmental claims in the EU were found to be vague, misleading or unfounded, while 40% were unsubstantiated. With around 230 active ecolabels in Europe and 100 private green energy labels, there is a clear need for regulation
The countdown is truly on for businesses that are making green claims in European markets. On March 12, 2024, the European Parliament took a significant step towards creating a more sustainable marketplace by adopting the first reading position for the proposed EU Green Claims Directive. If approved by the new European Parliament after the upcoming elections, the Directive would oblige companies to submit evidence about their environmental claims before selling their products.
This directive aims to verify that environmental claims made in the EU are reliable, comparable, and verifiable, preventing misleading environmental claims and protecting consumers from greenwashing made by companies. Environmental claims will need to be verified by robust and independent internationally recognized and up-to-date scientific approaches to identifying and measuring their impacts and performance.
Key Requirements for Businesses
The Green Claims Directive will level the playing field for businesses by establishing a common standard for substantiating environmental claims. This is crucial because unsubstantiated claims can mislead consumers and create an unfair advantage for companies who prioritize marketing over genuine environmental efforts. The directive aims to prevent this by requiring all environmental claims to be verifiable. Companies found to be making misleading claims could face fines of up to 4% of their annual turnover. This creates a strong incentive for businesses to validate their claims are accurate and backed by evidence.
Here are some of the key highlights:
Substantiation of Claims:
- Companies must specify if claims concern whole products or parts
- Claims must be based on scientific evidence and international standards
- All environmental claims must consider lifecycle thinking at a fundamental level, but the depth of analysis varies:
- The directive does not prescribe a full lifecycle analysis for every type of claim
- Companies must consider whether the claimed environmental impacts are significant from a lifecycle perspective - Claims should relate to significant environmental aspects of products
Communication Rules
- Claims should not exaggerate or overstate environmental benefits
- Claim language should be simple, straightforward and easy to understand by consumers
- Claims must be substantiated before communication
- Information about product use must be provided when relevant
- Details about substantiation must be available in physical or digital form
Environmental Labeling
- New public national/regional environmental labeling schemes would be prohibited
- Rating systems based on aggregated environmental impact indicators would be banned
- New private schemes must be approved by Member States
- The Commission will publish an official list of recognized environmental labels
Third-party Verification Is Required Prior To Claims Being Put On The Market:
- Verification Requirement – a Pre-Approval Process: Companies have the obligation to submit environmental claims to be used in their product marketing for verification by independent third parties before they can be used in marketing materials.
- A simplified verification system will be available for less complex claims and products.
- The Commission will develop guidelines on widely recognized substantiation methods.
Ban on Product-Level Green Claims Based Solely on Offsetting:
- The directive prohibits product-level green claims that are based solely on offsetting or carbon neutrality. This means that companies cannot claim that a product is carbon neutral and environmentally friendly simply because they purchase carbon offsets to compensate for its emissions. Companies will need to demonstrate real reductions in their emissions to make green claims about their products.
- Companies can mention offsetting schemes only after reducing their emissions as much as possible.
The Green Claims Directive also address comparative environmental claims – those comparing the environmental impact or environmental performance of different products or traders (i.e. ads comparing two different goods), including if the two products are made by the same producer. It aims to verify that comparative environmental claims are clear and not misleading to consumers. When using comparative environmental claims, companies should take these points into account:
- Companies should demonstrate that they have used the same methods to compare relevant aspects of the products.
- Comparative claims will need to consider the entire life cycle of both products being compared, not just specific stages.
Who Will Be Affected?
These compliance requirements will have varying impacts across different business segments operating in or targeting the EU market. The directive takes a horizontal approach, applying to all traders making environmental claims in business-to-consumer commercial practices and will apply to:
- Most Businesses Operating in the EU: This includes everything from large multinationals to small and medium-sized enterprises (SMEs).
- Businesses Outside the EU Targeting EU Consumers
- SMEs: SMEs may be granted an additional year to adjust their practices.
- However, microenterprises (fewer than 10 employees, €2 million turnover) may be exempted.
Penalties for Non-Compliance
Companies who fail to comply with the Green Claims Directive are likely to face severe penalties, including:
- Exclusion from public procurement tenders
- Loss of revenue
- Fines of at least 4% of annual turnover
Implementation Timeline
The directive will be taken up after the European Parliament elections in June 2024. The EU institutions must reach agreement on the final text before it can be implemented into national law, which is expected to take effect in 2026-2027.
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Content is intended to provide general information only and does not constitute legal advice.
Information in this article is accurate as of Nov 2024.