Everything you need to know about the EU’s Green Claims Directive

The EU has signed off on the Green Claims Directive this week, mandating companies to ensure that their environmental claims are accurate and easy to understand.  Here, we outline what you need to know.

Everything you need to know about the EU’s Green Claims Directive

The European Commission first proposed the Green Claim Directive in March 2022. A landmark legislation package for anyone working in or interested in corporate sustainability, the Directive has been created in a bid to end greenwashing.

MEPs voted overwhelmingly in favour of passing the directive in January 2024. Now, in March 2024, the Directive has recieved formal and final sign-off.

Here, edie outlines everything we know so far, in the form of answers to frequently asked questions on the Directive.

Why is this Directive necessary?

Amid rising consumer demand for more sustainable options and more transparency over the impacts of their purchasing decisions, many businesses have felt compelled to talk up the environmental benefits of their products and services in recent years. But the majority of businesses are not able to produce credible data to back up their green claims.

The EU estimates that three-quarters of products sold within the bloc currently carry a green claim and has heard evidence that more than half of them are vague or misleading.

Another issue are claims that may be widely understood by corporate sustainability professionals, but frequently misinterpreted by consumers. Recent research found that most consumers are not confident in their understanding of terms such as ‘carbon offsetting, and ‘the circular economy’.

EU lawmakers are concerned about consumers being misled, potentially paying more for products or services on ‘sustainability’ grounds that are unfounded. There are also risks to businesses which are putting in the hard work to become more sustainable – they can be undercut by competitors doing none of this work but making bolder claims.

The Directive exists to put an end to greenwashing in consumer-facing claims.

Which claims face a ban?

The  scope of the Directive is broad. It will impact all industries offering goods and services using a business-to-consumer model and only the smallest firms will be exempt. It will also cover any claims about a company or product’s environmental credentials made in all manner of formats, from advertising, to on-pack messaging, to social media posts.

The Directive will not apply to mandatory claims made through specified formats, such as energy efficiency labelling on certain goods, or fuel economy and emissions tables for vehicles.

However, all claims made voluntarily will all be covered by the Directive’s scope. Businesses will not be able to make vague claims like ‘eco-friendly’ or ‘greener’ without a more thorough explanation, backed up with good data and readily available to the average viewer.

There is an outright ban on products labelled as ‘climate-neutral’, ‘carbon-neutral’, ‘net-zero’ or similar whereby the business is using carbon offsetting. This is due to low levels of consumer understanding of the offsetting process and the controversies facing carbon credit markets at present.

Claims relating to waste management are also in the firing line. Businesses using ‘recycled’ to describe products not containing 100% recycled content will need to label the percentage, for example. Brands using ‘compostable’ or ‘biodegradable’ will need to make clear whether the products or packaging can be managed at home or need to be sent to a specialist waste management facility.

Claims relating to one product or service, or a small selection, must not be conflated to a business’s entire offering. Similarly, claims relating to one part of the product lifecycle must not be used to overstate the benefits of other parts of the lifecycle.

In a nutshell, the same claim could be made by two businesses and one could face a penalty while the other would not. It will all come down to supporting data and how the claim is presented.

How will the directive impact certification labels?

The proliferation of eco-labeling has contributed to consumer confusion, the EU has stated. There are more than 100 sustainability labels in use across the bloc relating to product energy efficiency, business energy efficiency and clean energy procurement. A further 230+ exist for other environmental topics.

The Directive will result in a temporary ban on the creation of new ecolabelling schemes.

Existing schemes that do not use third-party verification practices will be mandated to do so through the EU’s preferred course (more on this below). This will cost scheme operators, who may choose to pass these costs onto their clients.

How will claims be verified?

According to texts adopted by the European Parliament on 14 February 2024, claims will have to be assessed by accredited verifiers within 30 days. It is unclear at this stage whether the verifying body or bodies will sit centrally in the EU or whether member states will need to establish their own.

MEPs have asked the European Commission to draw up a list of simpler claims that could benefit from more rapid verification.

It is understood that businesses will need to pay to have claims verified. Some certification bodies will also need to seek additional verification (see above).

What are the potential implications of non-compliance?

The European Parliament confirmed in February 2024 that companies flouting directive rules will face significant fines. Fines are set to be of “at least 4% of their annual turnover”. Businesses also risk confiscation of revenues.

Punishments will need to be implemented by national authorities. It is anticipated that most nations will expand the remit of their existing consumer law bodies.

Policymakers are also warning that businesses may lose public procurement opportunities and suffer reputational damage if they make unsubstantiated or misleading green claims.

When will the Directive start taking effect?

From the signing off of the Directive on 12 March 2024, EU Member States will have 12-18 months to transpose it into their national legislation frameworks, at which point it enters into full force.

European elections take place in June 2024. It is reasonable to anticipate that the Directive will, therefore, apply from early 2026, provided that it passes smoothly. An exact date is yet to be confirmed.

From this date, a one-year delay will be enacted for small companies. Firms classed as ‘micro-businesses’ by the EU, for having fewer than 10 staff members and annual turnovers under €2m,  will be completely exempt.

Does the Directive apply in the UK?

The Brexit process was complete by the time the Directive was floated and, as such, will not apply to goods and services offered in the UK.

Nonetheless, many British firms sell into one or more EU markets and will therefore need to prepare accordingly. The Directive is all about where things are sold rather than where they are made or sent from.

While the UK is not exploring a legally binding ban on greenwashing on consumer-facing claims, the Competition and Markets Authority (CMA) has issued a ‘Green Claims Code’ outlining how businesses can comply with existing consumer protection laws when communicating environmental sustainability. It also has the power to investigate and punish firms flouting these rules and has undertaken two sector-specific investigations to date, into fashion and fast-moving consumer goods (FMCG).

The CMA’s Green Claims Code can be found in full here.

How can businesses prepare for compliance?

There is a real chance that businesses will respond reactively to the impending directive, with a risk of brands greenhushing – communicating very little, if anything, about their environmental efforts, programmes and impacts.This happened amid the UK CMA’s investigation into fashion brands; online retailer ASOS removed its ‘responsible edit’ ahead of time.

Greenhushing may be seen as a less risky and more affordable route for SMEs in particular. But the Directive does not exist to ban all claims – only those which are likely to mislead.

Businesses would do well to implement an environmental claims management framework to assess all existing claims and all proposals for claims to be made in the future. Such a framework could test factors such as whether the claim is evidence-based, whether it is widely understood by the general public, and so on.

In tandem, they will likely need to assess current practices for collecting, storing, interpreting and communicating lifecycle data and information on third-party certification and labelling schemes. Where gaps or potential risks remain lie opportunities to improve processes, technologies and skillsets.

On the topic of skillsets, businesses are at risk of greenwashing due to disconnects between skills and knowledge levels between teams. What a sustainability professional may understand as poor practice may get signed off by marketing or packaging design. But jargon that sustainability experts use daily may not be the best approach and benefit from sense-checking through consumer research. Different functions will need to work together to build skills and implement sleek processes for collaboration.

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