What is greenwashing and why is it problematic?
The practice of greenwashing, marketing or advertising claiming inaccurately that a product or business has a positive or neutral environmental impact, has become a growing issue in the EU. According to a 2020 study by the European Commission (the Commission), over 50% of the examined environmental claims in B2B or B2C advertising or marketing were found to be vague, misleading and even completely unfounded. In a sweep made by the Consumer Protection Cooperation Network (CPC) the same year, it was found that almost 60% of the traders did not provide sufficient information to enable the consumer to judge the accuracy of an environmental claim.
Combined with low consumer trust, greenwashing is a real challenge for the implementation of the European Green Deal, which is a set of policy initiatives with the overall goal of making the EU climate neutral by 2050. The role of consumer behaviour to make the EU climate neutral is critical. Hence, greenwashing goes against the objectives of the European Green Deal to empower consumers to play an active role in the ecological transition and make better and informed decisions.
What is the Green Claims Directive?
To tackle the growing greenwashing problem, on 22 March, the Commission released a proposal for a directive on the substantiation and communication of explicit environmental claims (the “Green Claims Directive”). This directive is set to complement already existing EU legislation on consumer protection.
The purpose of the Green Claims directive is to remedy two key issues that impact the consumer’s opportunities to make well-informed, environmentally conscious decisions:
- The practice of traders making unclear or not substantiated environmental claims, i.e. greenwashing, and
- Sustainability labels that lack transparency and credibility
The directive proposal introduces minimum requirements regarding the substantiation and communication of voluntary, explicit environmental claims. Explicit environmental claims are defined as environmental claims in text or contained in a sustainability label. Said claims are also proposed to be subject to third party verification prior to being communicated to consumers. The directive will be applicable for all traders in the EU that are making explicit environmental claims about products or businesses in B2C practices, except microentities (businesses with an annual turnover of less than 2m Euros).
Some of the regulatory requirements set out in the directive are as follows:
- Substantiating explicit environmental claims: Explicit environmental claims must be verified in accordance with the minimum requirements laid down in the proposal. For instance, all kinds of claims must rely on recognized scientific evidence and use accurate information. Additionally, claims regarding environmental performance in relation to market standards, its significance during the product lifecycle etc. must also be substantiated. All requirements will also apply where two products or businesses are compared to each other.
- Communication of an explicit environmental claim to the public: Traders must fulfill certain requirements when communicating an explicit environmental claim. Besides the claim being verified, information on the product or trader which is subject to the claim shall be made available with a weblink, QR code or anything similar. This includes, for example, information on environmental aspects covered by the claim, international standards and information on underlying studies or calculations used to measure climate impact.
- Minimum requirements for environmental labelling schemes: Specific requirements are set out for environmental labelling schemes, which is voluntary certification of the sustainability or environmental impact of a product or business. Such schemes must provide information relating to the operations, requirements, compliance procedures, the scientific accuracy etc. of the labelling scheme. Some of this information must be accessible for free, be understandable and sufficiently detailed. Environmental labelling schemes will also be regularly reviewed and verified by a third party.
- Verification and enforcement processes: The member states will have to set up verification and enforcement processes, performed by independent verifiers, to evaluate compliance with the provisions of the directive. Those verifiers will have to be independent and not act in any way that may entail a conflict of interest.
As the Green Claims Directive has been formally proposed by the Commission, the European Parliament and council will now consider the adoption of the directive. After the directive has entered into force, the member states have 18 months to implement its provisions.
What can business do to ensure compliance?
Lack of compliance with the new rules brings a risk to reputation and your customers’ good will. Given there will be independent verifiers, business cannot treat the requirements posed as a paper tiger. Taking all of this into consideration, it is recommended that businesses take the following steps to ensure compliance:
- Review current marketing and advertising materials and any that is planned.
- Verify what explicit environmental claims are being made.
- Substantiate those claims by gathering and mapping information throughout the supply chain.
- Make sure that trade secrets are not exposed. Trade secrets do not have to be disclosed under the provisions of the directive.
- Review and verify any environmental labelling scheme used, as well as other third-party sources used when making an environmental claim.
Compliance will allow businesses to take full advantage of the opportunities of being a market leader in a more sustainability driven marketplace.