Green Claims and the Green Transition – what do they mean for your business?

With a range of new and proposed EU legislation to govern environmental claims and so-called ‘greenwashing’ on the horizon, it can be challenging for businesses to understand their obligations and how the various upcoming new rules – many of which are quite prescriptive – will apply in practice. In this article, we demystify two of the proposed new directives, the Green Claims Directive (GCD) and Green Transition Directive (GTD) (together, the Directives) to provide you with a better understanding of how these new directives will affect your business practices when it comes to making environmental claims about your products and services.

Background

Existing legal frameworks on consumer protection in Member States address environmental claims to a limited extent. This is primarily under the Unfair Commercial Practices Directive (as implemented in Ireland by the Consumer Protection Act 2007 (as amended)) which prohibits “misleading commercial practices".[1] The GCD and GTD are intended to tackle, more specifically, unsubstantiated and misleading environmental claims and labelling. The GTD is already in force at EU level and awaiting transposition by Member States by 27 March 2026. The GCD is following swiftly behind, to be voted on by the European Parliament in Q3 2024. Once introduced the Directives will impact all sectors, primarily at business-to-consumer level, with exemptions provided under the GCD for "micro-enterprises".

The Directives form part of the framework for the European Commission’s New Consumer Agenda and Circular Economy Action Plan. Together, they establish a policy framework underpinning an EU “green transition” by transforming how we consume goods in a more sustainable direction and to address growing "greenwashing" concerns. Alongside the tiered entry of new rules on corporate sustainability reporting, businesses should aim to prepare early for compliance, particularly in areas of marketing and advertising strategy and product design and labelling. Commitments recently provided by Zalando following CPC Network engagement likely offer a preview of how stringently these rules will apply, with a focus on sustainability claims and the use of “misleading environmental icons”. With the potential for significant fines as introduced by the Omnibus Directive and consumer class actions under the Collective Redress Directive (as well as potential for adverse publicity), businesses will need to consider these new rules carefully to ensure compliance.

Green Claims Directive

Overview

  • The aim of the GCD is to create a harmonised framework and ensure that consumers receive reliable and verifiable environmental information on products.
  • The GCD introduces minimum requirements to substantiate claims. Scientific evidence will be required to support environmental claims and there is a prohibition on only highlighting positive environmental impacts.
  • In particular, the GCD targets explicit environmental claims made by businesses to consumers, about the environmental impacts, aspects or performance of a product or the trader itself.
  • This includes a proposed ban on the use of terms such as “eco” and “green”, and climate-related terms such as “climate neutral”, “carbon neutral” and “biodegradable”, without evidence to support the legitimacy of such claims.
  • The GCD also proposes criteria for environmental labelling schemes i.e. certification schemes which certify that a product, process or trader complies with the requirements for an environmental label. New schemes will require advance approval, and new third county schemes will require European Commission approval before being used in the EU market.
  • The GCD will apply to explicit environmental claims and labelling, and the substantiation of these claims and labels on a business-to-consumer level.

B2B or B2C?

  • The GCD applies to explicit environmental claims made by traders about products or traders in business-to-consumer commercial practices.

What businesses are in scope?

  • All businesses making voluntary green claims in the EU market; including SMEs, and international or third country businesses except those with fewer than ten employees and annual turnover of less than €2m, unless they choose to participate in approved environmental labelling schemes.
  • The GCD does not aim to change any existing sectoral rules - i.e. it will only apply to voluntary environmental claims which are unregulated by any other EU legislation. Examples of existing regulated areas include organic farming labelling, CE marking for energy-related products, and the marketing of construction products.

Consequences of breach?

Timing?

  • The proposal for the GCD was adopted by the Euroepean Commission on 22 March 2023, and the final text is expected to be adopted by late 2024.
  • Progress on the GCD will continue after the European Parliament elections in June 2024, with the text not expected to enter into force before the end of 2024. Once this occurs, Member States will have to locally legislate for the GCD by mid to end of 2026, with the measures to come into effect by 2027.

Green Transition Directive

Overview

  • The GTD affects commercial practices at all stages of a consumer transaction, with a primary focus on implementing rules for making environmental claims, and banning unaccredited sustainability labels. The changes have been introduced as amendments to two pillar pieces of EU consumer law, the UCPD and the Consumer Rights Directive (the CRD).
  • The following definition of environmental claims applies “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”.
  • The terms “environmental or social impact”, “durability”, and “reparability” have been added to the list of product characteristics about which a trader should not deceive a consumer under the UCPD.
  • Environmental claims related to future environmental performance without clear, objective and verifiable commitments and targets, and an independent monitoring system, are to be considered ‘misleading commercial practices’ under the UCPD if they cause or are likely to cause the average consumer to take a transactional decision that they would not have otherwise taken.
  • The list of commercial practices which are always considered unfair (i.e. ‘prohibited commercial practices’) is now extended to encompass the following practices associated with greenwashing:
    • displaying a sustainability label which is not based on a certification scheme or not established by public authorities
    • making a generic environmental claim without being able to demonstrate recognised excellent environmental performance relevant to the claim
    • making an environmental claim about an entire product when it actually concerns a certain aspect of the product
    • making claims that a product has a reduced, neutral or positive impact on the environment in terms of greenhouse gas emissions, based on offsetting
    • presenting legally required features as a distinctive feature of the trader’s offer
    • carrying out certain practices in relation to the planned obsolescence of goods

B2B or B2C?

  • The GTD applies to voluntary environmental claims, sustainability labels, and misleading and unfair commercial practices at a business-to-consumer level.

What businesses are in scope?

  • All businesses in the EU market offering products for sale to consumers, including non-EU based businesses.
  • The GTD specifies that the UCPD and the CRD should continue to function as a ‘safety net’, ensuring a high level of consumer protection in all sectors by complementing sector and product-specific EU law that prevail in case of conflict.

Consequences of breach?

  • As the GTD amends the UCPD and CRD, the enforcement regimes already in place for infringements under local implementing legislation will apply.
  • In Ireland, the CCPC as regulator is responsible for addressing non-compliance, and enforcement provisions are set out in the Consumer Protection Act 2007 (as amended), and the Consumer Rights Act 2022. This means that the usual CCPC enforcement powers will be available to enforce the provisions of the GTD powers to seek undertakings, issue compliance notices, apply to the Court for prohibition orders, issue fixed payment notices, and bring civil or criminal proceedings (the specific powers available depend on the relevant breach/scenario).
  • There is also potential exposure to fines of 4% of the trader's annual turnover in the Member State(s) concerned (or a fine of €2m where turnover cannot be calculated) for breaches which involve 'widespread infringements' in more than one Member State. 
  • As with the GCD, the UCPD is also in scope for collective redress (i.e. consumer class actions) under the Representative Actions Directive.

Timing?

  • The final text was signed on 28 February 2024 and published in the Official Journal of the EU on 6 March 2024.
  • Member States must have adopted and published implementing legislation by 27 March 2026, with measures taking effect from 27 September 2026.

For more information in relation to this topic, please contact Denise Daly Byrne, Mairead O’Brien and Katie O’Connor on ALG’s Consumer and Advertising Law team.

Date published: 27 March 2024

[1] For information on the current regime for regulation of environmental claims in Ireland, please see our previous article here.