The European Commission (the “Commission”) published its proposal for the Green Claims Directive (the “Proposal”, also known as the Green Claims Directive) on 23 March 2023. The Proposal contains new rules to prevent companies from making misleading claims about the environmental and sustainability impact of their products. The Commission’s aim in publishing the proposal is to combat greenwashing.
A study by the Commission has shown that currently 53% of the environmental claims and labels investigated are still too vague or misleading and that over 40% of environmental claims and labels are insufficiently substantiated. Moreover, according to the Commission, consumer trust in environmental claims and labels is “extremely” low.
Combating greenwashing is high on the agenda of consumer regulators. In July, for instance, the Netherlands Authority for Consumers and Markets (“ACM”) published a new version of its Guidelines on Sustainability Claims. These guidelines contain five rules of thumb (tools) for companies when using sustainability claims. More information on ACM’s supervision of sustainability claims can be found here and here. Misleading environmental claims are also increasingly being restricted in the UK and France.
By means of its Proposal, the Commission now wishes to regulate the use of environmental claims at a European level as well. The main measures are (i) the introduction of stricter criteria for the manner in which companies must substantiate environmental claims; (ii) the countering of the proliferation of environmental labels by introducing stricter rules; and (iii) the introduction of an independent verification system. The five most important questions for companies regarding the Proposal are answered in this blog.
- Does the Proposal apply to my company?
In principle, the Proposal applies to all companies that operate on the European consumer market (B2C). The Proposal therefore also applies to companies that are based outside the EU but that use environmental claims targeting consumers within the EU.
To prevent the Proposal from disproportionately impacting small businesses, so-called ‘microenterprises’ are exempt from all the obligations under the Proposal. Microenterprises are enterprises with fewer than 10 employees and a maximum annual turnover of €2 million. Although microenterprises are not covered by the Proposal, when using environmental claims and labels they must nevertheless comply with the obligations under the Unfair Commercial Practices Directive, under which misleading sustainability claims may also be prohibited. More information on that directive can be found in this blog.
- To what type of environmental claims does the Proposal apply?
The new rules apply to all “explicit environmental claims made by traders about products or traders in business-to-consumer commercial practices.” The following points are relevant here:
- The Proposal applies only to products and traders of products, therefore not to services. Since the Proposal relates to a directive, it cannot be ruled out that Member States may extend the scope of regulation of environmental claims to include services. That was the case, for instance, when the amended Price Indication Directive was implemented (see this blog in this context).
- Environmental claims are defined as a voluntary message (in any form) in the context of a commercial communication, suggesting that (i) a product or trader has a positive impact on the environment; (ii) a product or trader is less harmful to the environment than other similar products; or (iii) the impact of a product or trader on the environment has improved over time.
- The Proposal applies only to ‘voluntary environmental claims’; it does not apply to mandatory claims that are subject to specific regulation, such as the EU Ecolabel or the energy efficiency label.
- A distinction must furthermore be made between ‘explicit environmental claims’ and ‘comparative environmental claims’. An explicit environmental claim is a claim in text form or a claim included in a sustainability label or logo. A comparative environmental claim states or implies that a product or a trader performs better or worse than other comparable products or traders. Additional rules for comparative environmental claims are set out in Article 4 of the Proposal (see below).
It is important to note that the term ‘sustainability claim’ as used by ACM in its Guidelines on Sustainability Claims covers more than ‘environmental claims’ alone. An environmental claim is one specific type of sustainability claim; other examples are social claims and durability claims.
- What conditions for environmental claims follow from the Proposal?
First, the Proposal provides that environmental claims and labels must be substantiated by (scientific) evidence. This should prevent companies from making vague or misleading environmental claims that they cannot or can barely substantiate, such as ‘ocean-friendly sunscreen’, ‘CO2-neutral delivery’ or ‘environmentally conscious packaging’.
The following conditions, among others, apply to that scientific substantiation:
- It must be clear whether the claim relates to the product as a whole or to part of the product.
- The claim must be based on generally recognised scientific evidence, use accurate standards and take account of international standards.
- Companies must demonstrate that the stated environmental impact is ‘significant’ from the perspective of the entire life cycle of the product in question (from raw material purchase to end of life).
- It must be clear that the claim goes beyond the statutory requirements that apply to the products or sector in question (non-statutory).
- It must be clear that the product in question performs ‘significantly better’ in terms of environmental impact than what is customary in the sector.
- A claim must distinguish between compensation for greenhouse gas emissions, actual reduction of greenhouse gas emissions or emission removal.
A number of specific conditions furthermore apply to comparative environmental claims. For instance, equivalent information must be used to assess environmental impacts, aspects or performance of the products. A comparison must furthermore use data that have been generated or obtained in an equivalent manner. Moreover, comparative environmental claims may not relate to a product of a trader that is no longer in business or of a trader whose products are no longer being sold. The information (the scientific evidence) on which a claim is based must in addition be traceable by consumers via a weblink, QR code or similar method.
Second, the Proposal aims to curb the increasing number of eco labels and logos. It is estimated that there are currently around 200 different eco labels in the EU. The Proposal provides for a ban on new national or regional labels or logos from public authorities and private individuals. New labels and logos from public bodies outside the EU will have to be pre-approved by the Commission, The Commission will grant approval only if it can be demonstrated that the eco label adds value to the EU market in terms of environmental friendliness or environmental impact.
New private labels or logos may be approved by national authorities. The following conditions then apply:
- Environmental labels must be transparent about their objectives and procedures that have been put in place to monitor compliance.
- Environmental labels must have a complaint and dispute resolution mechanism.
- Conditions for participation in an environmental label or logo may not have the effect of excluding SMEs.
Third, it follows from the Proposal that Member States must establish a verification system for substantiating and communicating explicit environmental claims and labels. This verification must be carried out by officially accredited verifiers. It is not yet known who will be designated as official verifiers in the Netherlands. Verifiers will be accredited in line with the conditions set out in Regulation (EU) 2019/1020. Additional conditions that verifiers must meet are set out in Article 11 of the Proposal.
After successful verification, a certificate of conformity will be issued to the relevant company or logo. This certificate will be recognised by all EU Member States. It is not yet known whether the manufacturer or the retailer will be responsible for the verification.
- What will happen if I do not comply with these conditions?
The Proposal pays a great deal of attention to monitoring, enforcement and sanctioning. Member States will have to designate competent authorities that are responsible for the enforcement. Member States will furthermore have to establish a sanctions regime. It is not yet known who will be designated as the supervisory authority in the Netherlands. As ACM in the Netherlands is currently already in charge of supervising sustainability claims, it is likely that ACM will assume this role.
Hefty financial penalties will be imposed for breaching the obligations set out in the Proposal. Companies that breach the rules are risking a fine of up to (at least) 4% of their annual turnover.
Companies furthermore run the risk of confiscation of their revenues derived from a transaction in which a misleading environmental claim or label has been used. A trader that has breached the Proposal’s obligations may furthermore be excluded from public procurement procedures and from access to public funding, grants and concessions for a period of up to 12 months.
- As from when will the measures in the Proposal potentially take effect?
The European Parliament and the Council will consider the Proposal in the coming months. Both the European Parliament and the Council have now adopted a version of the text. These amendments are currently being negotiated. The Proposal will not enter into force until it is approved by both the European Parliament and the Council. That is expected to take place at the end of 2023 or in the course of 2024. Member States will have 18 months after its entry into force to transpose the new legislation into their national consumer law. After that period, it may take up to six months before the new legislation will actually take effect at a national level.
On 3 May 2023, the Council published its views (negotiating mandate) on the Proposal. One notable Council proposal is a blanket ban on generic environmental claims (such as ‘environmentally friendly’, ‘green’ and ‘climate neutral’).
The Proposal has (of course) not yet been incorporated into the revised version of ACM’s Guidelines on Sustainability Claims, but ACM has indicated in a webinar that the entry into force and implementation of the Proposal may lead to new amendments to the Guidelines.
Conclusion
The aim of the Commission and its ambitious Proposal is clear: to further curb greenwashing. Although there is currently uncertainty about the exact obligations that will eventually apply to companies, companies are well advised to prepare for the fact that their environmental claims and the substantiation of those claims will be analysed much more critically. At the same time, a clear trend can be identified of increased scrutiny of environmental claims and labels by authorities.
But companies may also benefit from stricter rules against greenwashing, because companies that make a genuine effort on environmental and sustainability issues will be better able to distinguish themselves and will suffer less from unfair competition.
To be continued!
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