Fighting the Greenwashing. What to Expect from the New Green Claims Directive?

The Green Claims Directive imposes both minimum norms for how companies substantiate, communicate, and verify their environmental claims to consumers in the EU, as well as measures to control the increasing number of environmental labels and to ensure the reliability of existing labels. Designated national authorities will have full powers to implement and monitor the compliance with the new provisions, as well as full powers to investigate and sanction infringements. 

I. Context

As part of the European Green Deal, the Commission has committed to ensure that consumers are empowered to make informed choices and play an active role in the ecological transition. This commitment implies that the Commission must tackle the practice of greenwashing so that consumers may receive reliable, comparable, and verifiable information to enable them to make more sustainable decisions.

The Commission’s Impact Assessment found that:

• 3% of the studied environmental claims provide vague, misleading, or unfounded information on the environmental characteristics of products,
• authorities had difficulties identifying whether the claim covered the whole product or only one of its components (50%), whether it referred to the company or only certain products (36%) and which stage in the lifecycle of the product it covered (75%),
• 37% of the claims included vague statements (such as “green”, “nature’s friend”) likely to deceive consumers,
• for 27% of the sustainability labels examined, the standards/criteria which the label is meant to guarantee were not available online,
• 16% of the sustainability labels did not disclose their conformity assessment method,
• only 17% of the sustainability labels indicated a dispute settlement or appeal mechanism with regards to the accuracy of the information certified by the label,
• only 35% of the sustainability labels analysed required specific metrics or data to substantiate their compliance with the criteria.

As acknowledged by the Commission in its Impact Assessment, the drivers behind the issue of greenwashing are (i) the insufficient incentives for manufacturers and sellers to provide reliable information about the environmental sustainability of their products and (ii) the lack of precision of the EU legal framework to fight greenwashing by defining the information that consumers should receive about the environmental sustainability of the products and ensuring enforcement of the legal provisions.

The Green Claims Directive therefore aims to fill the existing legislative gap, complementing the Unfair Commercial Practices Directive. The directive will only concern the claims that are not currently covered by other EU rules and, therefore, will not apply to particular sectors or product categories (i.e., the EU Ecolabel, energy efficiency label, or organic farming label, which are already regulated by more specific rules).

II. Key provisions

The objectives of the new directive are:

1. to increase the level of environmental protection and to accelerate the green transition of the EU economy,
2. to protect consumers from greenwashing and to enable them to make informed purchasing decisions, and
3. to improve the legal certainty as regards environmental claims and the level playing fields on the internal market, and to boost the competitiveness of economic operators that make efforts to increase the environmental sustainability of their products and activities.

Entities covered by the Directive

While regulating environmental claims and labels is expected to eliminate misleading or false claims and to ensure proper enforcement, it will amount to an additional cost on traders wishing to make such claims. As smaller companies are expected to be more affected than others, the directive exempted microenterprises (fewer than 10 employees and annual turnover of up to EUR 2 million) from the obligations regarding the substantiation and communication of environmental claims. However, if these smaller companies intend to receive an environmental label, they must comply with all requirements of the directive.

Requirements on substantiation and communication of environmental claims

The directive imposes that all claims must be explicit and must be based on an assessment that meets the selected minimum criteria to prevent claims from being misleading.

This assessment covers the obligation to rely on recognised scientific evidence and state of the art technical knowledge, the obligation to demonstrate whether the claim is accurate for the whole product or only for parts of it, for the whole life cycle or only for certain stages, for all the trader’s activities or only a part of them, or the obligation to demonstrate that the claim is not equivalent to requirements imposed by law. The directive also regulates comparative claims, imposing that comparisons are made on consistent equivalent data and information.

Only the claims that are assessed in accordance with the substantiation requirements laid down in the directive may be communicated to consumers. In addition, the communication must be accompanied by the substantiation information and, where relevant, the communication must also include information on how consumers may appropriately use the product in order to decrease environmental impacts.

Provisions on environmental labels and labelling schemes

Environmental labels – a subset of environmental claims – may take the form of a trust mark, quality mark or equivalent setting apart and promoting a product/process or business with reference to its environmental aspects. It may, also, be based on environmental labelling schemes which certify that a product/process or business meets the requirements set up by the scheme and monitor compliance. The Commission is concerned by the increasing number of labels characterized by various governance models.

Consequently, the directive imposes requirements for environmental labelling schemes such as:

• the obligation to ensure that the underlying criteria are developed by experts,
• the obligation to be transparent on ownership, decision-making body and objectives, or
• the obligation to establish a complaint and resolution mechanism.

In addition, the new directive aims to ban labels based on self-certification and limit the proliferation of these labels which are not meeting minimum transparency and credibility requirements. Instead, the directive focuses on increasing the take-up of existing public schemes and on developing EU level labelling requirements for the single market.  The creation of new private schemes may be possible where they provide added value and must be approved by Member States, and establishing new public schemes at the national or regional level should be prohibited. New public schemes are intended to be developed at the EU level only.

Ex-ante verification of environmental claims and labelling schemes

Member States must ensure the verification of compliance with the requirements set out in the directive (i.e., the provisions on substantiation of explicit environmental claims, on environmental labels and on environmental labelling schemes). Accordingly, an officially accredited body (the “Verifier” - a third-party conformity assessment body accredited in accordance with Regulation (EC) No 765/2008) will carry out this ex-ante verification of claims submitted by the company wishing to use it.

The Verifier, according to article 11 of the directive, must be an independent body, with no conflicts of interest, must hold the highest degree of professional integrity, must have the required expertise, equipment, and infrastructure to carry out the verifications.

The verification would result in a certificate of conformity, which will be recognised across the EU and will allow companies to use the claim in a commercial communication to consumers across the internal market. The certificate will not be challenged by the competent authorities in other Member States.

Powers of the designated competent authorities

The competent authorities will have full powers to monitor, inspect and enforce measures in order to ensure compliance with the provisions of the directive. These powers include unlimited access to any relevant documents, data or information, the conclusion of investigations and the power to impose penalties.

Member States must lay down the rules on effective, proportionate, and dissuasive penalties applicable to infringements of national provisions adopted pursuant to the directive. The necessary penalties and measures will include fines, confiscation of products/revenues and temporary suspension of the company’s activity. While Member States are generally free to establish the appropriate amounts of the fine, it is relevant to note the linked-turnover fines in accordance with Article 21 of Regulation (EU) 2017/2394 (i.e., for widespread infringement or the widespread infringement with a Union dimension), the maximum amount of such fines being at least 4% of the trader’s annual turnover in the Member State or Member States concerned.

III. Practical implications

The Green Claims Directive is expected to bring both positive and negative implications.

The provisions are expected to generate a positive impact on consumer trust, improving the reliability of the information provided to consumers and, therefore, having a positive impact on the decision making of consumers.

The impact on the level playing field is also expected to be positive as it will prevent unfair practices and will encourage the economic operators that make efforts to increase the environmental sustainability of their products and activities.

On the other hand, the new provision will entail significant compliance costs for businesses. This will mean that the consumers may have to pay a higher price for the final product. On a case-by-case basis, the compliance costs may determine some businesses to renounce their efforts of being more environmentally sustainable, as they may not afford to market their efforts. From this point of view, the new directive may have a negative impact on competition on the EU market.

Enforcement costs are expected for the competent public authorities.

IV. Next steps

The proposal was open for feedback. All feedback received will be summarised by the European Commission and presented to the European Parliament and Council.

Once adopted, Member States must transpose the new directive into their national legal systems within 18 months after the directive enters into force and apply it within 24 months from the date of entering into force.

By Amalia Musat, Counsel, and Roxana Pascu, Junior Associate, DLA Piper