Unsubstantiated green claims will no longer wash

It is not always easy for businesses to know where the line is drawn between environmental claims and greenwashing. The recently published European Commission’s proposal for a Green Claims Directive will bring clarity to this issue. This article provides an overview of the key elements of the proposal and considers what businesses need to think about in preparation for compliance.

In line with an increased focus on ESG issues across all industries, businesses continue to highlight the positive environmental aspects of their products and services to meet the demands of the socially conscious consumer.^[1] At times, these marketing practices can go too far and overstate the positive environmental impact of their products. Such embellished claims are often the subject of consumer backlash and are now the focus of specific legislative attention at EU level.

However, it is not always easy for businesses to know where the line is drawn between environmental claims and greenwashing. The recently published European Commission’s proposal for a directive on the substantiation and communication of explicit environmental claims (the proposal or the Green Claims Directive) will bring clarity to this issue.^[2]

In this briefing, we look at the key elements of the proposal and consider what businesses need to think about in preparation for compliance.^[3]

Background

The proposal forms part of the EU’s New Consumer Agenda^[4] and Circular Economy Action Plan^[5] which aim to reform consumer law across the EU, increase sustainable production of goods and services and empower European consumers to play an active role in the green and digital transition. The aim of the proposal is to ensure that environmental claims are reliable and accurate. Once enacted, the Green Claims Directive will create harmonised standards on substantiation of environmental claims and environmental advertising across the EU.

What exactly is an “environmental claim”?

The proposal defines ‘an environmental claim’ as “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”.

Importantly, it is envisaged that the Green Claims Directive will only apply to voluntary claims made by businesses to consumers, and not to mandatory disclosures or labelling requirements under separate EU laws.

The Green Claims Directive will also regulate environmental labelling schemes to ensure that they are transparent and reliable and will restrict the development of new schemes.

Substantiation

Under the proposal, Member States will be required to ensure that minimum requirements for substantiation and communication are respected by businesses when making environmental claims. Claims must be substantiated with scientific evidence identifying the relevant environmental impacts and any trade-offs between them. Claims regarding the environmental impact of a product along the life-cycle or climate related claims will be subject to more stringent requirements. The accuracy of any explicit environmental claims will need to be reviewed at least once every five years from the date of the substantiating study. The information relied upon as part of the environmental assessment available to consumers in a physical form or via a weblink, QR code or equivalent.

The proposal also contains specific rules about comparative environmental claims. It is envisaged that businesses will need to ensure that such comparisons are based on equivalent scientific information and they will be prohibited from only highlighting the positive environmental impact of their product. Overall, these rules will make it more difficult for companies to claim a competitive green advantage.

It is proposed that there will be some exemptions for small business - in particular, the substantiation requirements do not apply to businesses with fewer than ten employees and annual turnover of less than €2m unless they choose to participate in approved environmental labelling schemes.

Enforcement

Under the Green Claims Directive, national regulators will be responsible for setting up verification and enforcement processes to be performed by independent and accredited verifiers. The proposal envisages that member states may designate the same regulator as for the Unfair Commercial Practices Directive^[6] (UCPD) which in Ireland is the Competition and Consumer Protection Commission (CCPC).

The proposal envisages that national regulators will be equipped to instigate investigations, impose sanctions and pursue judicial proceedings against those in breach of the Green Claims Directive - powers which the CCPC already has in respect of other consumer protection legislation. Other specifically envisaged powers include issuing "corrective requests" requiring businesses to correct or cease their environmental claim or within 30 days.

In terms of the broader consumer law landscape, the proposal has been published in tandem with a proposal for a Directive on empowering consumers for the green transition (the empowering consumers proposal)^[7] which proposes amendments that will sit alongside the UCPD and the Consumer Rights Directive.^[8] In particular, the empowering consumers proposal expands the list of product characteristics about which a trader cannot mislead consumers is expanded to cover the environmental or social impact and adds certain types of misleading environmental claims to the so-called blacklist. It is also envisaged that “qualified entities”, such as consumer organisations, will be able to bring legal actions to protect the collective interests of consumers under the Representative Actions Directive.^[9]

Current regime

As discussed in our previous article, in Ireland environmental claims are currently subject to the Code of Standards for Advertising and Marketing Communications in Ireland and the Consumer Protection Act 2007 (which implements the UCPD) which are policed by the ASAI and the CCPC respectively. While the ASAI’s powers are limited to publication of adverse decisions, the CCPC wields broad powers ranging from the issuing of compliance notices to criminal sanctions. It is anticipated that once enacted, the proposal will further empower the CCPC to review compliance in relation to environmental claims as part of their regular checks, own investigations and in response to complaints.

In recent years, both bodies have shown increased form in upholding complaints relating to environmental claims and have committed to future cooperation to ensure effective enforcement in this area. As a member of the EU Consumer Protection Cooperation Network,^[10] the CCPC previously participated in a coordinated ‘sweep’ targeting greenwashing claims by various business sectors. The CCPC is also part of a working group of the International Consumer Protection Enforcement Network (ICPEN) on misleading environmental claims which aims to ensure better compliance and enforcement outcomes on misleading environmental claims^[11]. We expect that such EU-wide regulatory cooperation and coordinated actions will be deployed to enforce the Green Claims Directive once enacted and implemented.

Timeline and getting prepared

The proposal will proceed through the EU legislative process in the ordinary course which may run to September 2024. In the meantime, businesses seeking to promote the environmental features or sustainability improvements of their products should follow best practice of ensuring all environmental claims are clear, specific and adequately substantiated. This will reduce the compliance gap for the Green Claims Directive once enacted.^[12]

We will monitor the progress of the proposal’s legislative journey and update you with any important developments as they occur.

For further information on this topic please contact one of our Advertising and Marketing team, Katie O’Connor, Denise Daly Byrne, Mairéad O’Brien or Rebecca O’Brien.