The Green Claims Directive proposal: the EU arms up against greenwashing

In this perspective, companies would face tougher and challenging rules when making any environmental claim. Compliance with the minimum requirements triptyque is required: substantiate, verify, and communicate. Those standards shall apply whether the claim is about comparing, is isolated or consists in a labelling scheme.
 

According to the Commission’s words, substantiating amounts to demonstrate the environmental claim’s truthfulness by providing a number of information. Each specific aspect (e.g., durability, reusability, or reparability) shall be based on an assessment relying on “recognized scientific evidence”. The company must justify how the claim goes beyond what is required under environmental law, as well as performing better than usual similar products or entities. Claims relying on carbon offsets have been particularly scrutinised due to their keen nature to overestimation and greenwashing practice. Besides warning against their use, the Commission sets particular rules when substantiation relies on carbon offsets. This includes to dissociate offsets used by the company and offsets substantiating the claim, as well as specify the share of total emissions that are addressed through offsetting.
 

Other methodological aspects to substantiate the claim are also tackled by the Commission which prohibits the use of any aggregated indicator of environmental impacts that would not be established in the EU law. This must be very impactful, especially on the label market as such practice is highly misleading, drowning environmental adverse impacts within the final positive aggregated score. Besides, the Commission adopts a Do No Significant Harm (DNSH)[10] approach and requires identifying if the claimed green effect is not at the same time worsening another environmental impact. Finally, the EC reminds that claims’ substantiation shall be tackled from a lifecycle perspective, and even include (where relevant) a time-bound commitment for improvements when it relates to future environmental performance. At least, this is coherent with the mandatory review and update of the claim’s substantiation fixed at every 5 years.
 

Indeed, the claim or labelling scheme shall be ex-ante verified and certified by independent national accredited bodies[11], through the issuance of a certification of conformity. The verification process must be carried out each time the environmental claim’s substantiation is reviewed. Where the certificate of conformity allows the claim to be communicated, any substantiation requirement such as the underlying studies or calculations used, as well as the delivered certificate, will have to be disclosed before the claim is being used towards consumers. The burden will especially lie in the fact that “every claim “, which corresponds to any piece of environmental credit, should undertake the provided substantiation and verification process. Exhaustive required information shall be made publicly available (physically on in the form of a weblink), but the Commission asks for the businesses to additionally make an understandable and easily accessible summary of these to make it digestible and understandable.
 

Though the Green Claim Directive comes to prevent greenwashing practices, it has set a penalty regime in case of breach. Penalties inflicted to companies would be imposed by the designated Member States’ competent authority and can take the form of fines, confiscation revenues but also of temporary exclusion from public procurement for a maximum period of 12 months. This is heavy. Thus, to consider the appropriate sanction, Member States must take several criteria into account such as the duration and the economic benefits derived from the infringement, as well as its intentional or negligent character. As held in the numerous debates on greenwashing[12], intentionality remains a key component to qualify deception, and therefore may worsen the penalty. But it remains challenging to demonstrate. As each Member States would appoint its own competent authority, the proposal mentions the penalties shall be harmonised through the EU, when it is the same trader and the same infringement.

In addition to this common set of requirements, some very specific environmental claims are asked additional substantiation efforts in order to comply. The Green Claim Directive provides guidance for establishing fair benchmark when using comparative environmental claims. Explicitly assessed against another product or trader, the information and data used for their environmental assessment, as well as the coverage of environmental impacts, aspects or performances must be equivalent.
 

As for new environmental labelling schemes, the Green Directive proposal draws the lessons on the proliferation of ecolabelling schemes. Indeed, the above-mentioned Commission study showed that there were at the time 232 (or more) active ecolabels in the EU. The assessment also found that almost half of them had weak or no verification and certification aspects, added to the heterogeneity in methodologies used to demonstrate their environmental credit. Therefore, following the proposal on empowering consumers, the Green Claims Directive Proposal is banning labels based on self-certification i.e., not based on a certification scheme, nor established by public authorities. The environmental labelling scheme must notably have been developed by experts that can ensure their scientific robustness and comprise a complaint and dispute resolution mechanism in place.
 

The new rule is that now Member States must set up a procedure for the approval of new environmental labelling schemes based on the above-mentioned substantiating and verifying minimum requirements. To avoid further proliferation of ecolabels, new regional or national labelling schemes become prohibited on the one hand and shall only be established under the EU law. However, provided that already existing public labels meet all Directive’s requirements, they might continue to be awarded. On the other hand, the issuance of new labels established by private operators will be required to bring added value in its environmental ambition, notably comprising environmental aspects, impacts or performance to comply – and exist. The new labels’ rationale must be assessed against what already exists in the EU and at national scale.

Businesses will be bearing the cost of substantiation and communication of their claims. In fact, the Commission precises that according to “the nature and complexity of the claim, the related substantiation cost can vary significantly” also depending on the number of claims the company is willing to revendicate. This will have an automatic accountability effect for businesses, whether it is about the nature of the chosen claim or even about making a claim at all. Anyway, already existing green claims that would not meet these minimum criteria will have to be removed – though we do not know by whom, further requiring adjustments to the product (the Commission gives the example of a sticker covering the claim) until all these products have been sold. Such decision could thereby significantly increase incurred reputational risks. Accompanied with an increase in businesses’ administrative burden, this should result in an overall reduced appetite in bearing such claims which obviously is the Commission’s foreseen effect. We might nevertheless see the “green hushing” phenomenon – the fact of hiding what you do “green” fearing to being accused of greenwashing – whether grow significantly or being drowned in a broader knock-on effect.
 

However, as the associated additional costs could disproportionally penalize small-scaled companies, the Commission excludes microenterprises (i.e., fewer than 10 employees and with annual turnover not exceeding €2 million) from the scope of application of the proposal, unless they request the third-party verification with the aim of receiving a certificate of conformity  as outlined by the Directive.
 

Ultimately, the directive should have a positive impact on already “virtuous” practices and companies which will be valued. We can anticipate a driving effect for more environmental-friendly activities’ reliability even outside the EU as non-EU environmental labelling schemes or claims directed towards European consumers must comply.
 

Looking at the foreseen effects on claims’ quality and products’ environmental performance, the Commission has set indicators for “monitoring progress and achievements”. For instance, environmental performance of products and organizations’ improvement should be assessed by keeping track on the evolution of benchmark values or even evolution of consumption footprint in the EU. As a safety net for all sectors where environmental claims or labels are unregulated at EU level, the intended impacts should somehow ultimately affect consumers’ behavior that the Directive also seeks to monitor through the level on consumer trust in these markets.

The Green Claims Directive therefore paves the way for a framework to fight against greenwashing, released within a context of increased supervision to tighten the definition of what is “green” or not[13]. It should be cross-sectoral structuring, and financial products, though not covered, are facing similar issues related to green claims. The EU mobilization to fight against greenwashing is definitely underway. We ignore the likelihood of this proposal to be politically adopted. Furthermore, is this text only usable? the constraining nature of the Green Claims Directive proposal lives the door open for lively debates in the EU until its adoption (no date has been communicated yet); for now, the public consultation has just open for a few weeks – until the 19 May 2023. It is besides expected that together with the review of the Unfair Commercial Practices Directive they may be transposed jointly by the Member States (i.e., within the two years following the Green Claims Directive adoption). The Commission has additionally mentioned that it should adopt delegated acts to enhance implementation and provide details regarding claim’s verification and certification.