The European Union (EU) takes a decisive step toward in enhancing transparency and curbing greenwashing through the Green Claims Directive, the intricacies and impacts of this legislative move are explored, offering insights into the evolving landscape of environmental claims in the marketplace.

THIS ARTICLE IS WRITTEN BY GIDION LONT AND LINN LÖFLING, GIDION ([email protected]) AND LINN ([email protected]) HAVE A STRONG FOCUS ON ESG AND BUSINESS INTELLIGENCE WITHIN RSM NETHERLANDS BUSINESS CONSULTING SERVICES.  

Over the past decade, there has been a remarkable surge in products and services with claims of sustainability and health benefits. However, a substantial portion of these assertions often lacks substantiation, is exaggerated, or even entirely fabricated – a practice widely known as 'greenwashing'. This tactic involves presenting products or services with dubious environmental credentials as eco-friendly, and in some cases, omitting information to create a false perception of sustainability.

Greenwashing; more widespread than you might think

The magnitude of overstated green claims is striking. A study conducted by the European Commission revealed that over half of the green claims made in the European Union (EU) were either vague or misleading. Furthermore, 40% of these claims lacked supporting evidence, and half of the green labels displayed weak or entirely absent verification . This predicament leaves consumers uncertain about the authenticity of the sustainable products they are purchasing, often at a premium price. 

In a bid to counteract greenwashing and bolster consumer trust, the EU has put transparency at the forefront. This commitment led to the adoption of the Green Claims Directive in March 2023. The directive mandates companies to provide well-founded and dependable sustainability information for their products, effectively curbing greenwashing and ensuring that consumers gain transparent insights into the sustainability profiles of their purchases.

The focus of the Green Claims Directive

The Green Claims Directive revolves around two primary types of claims. Firstly, it covers explicit green claims made by businesses that imply a positive environmental impact, the absence of negative impact, or a reduction in negative impact. This category includes claims such as 'environmentally friendly', 'green', 'packaging of recycled plastic', and 'cruelty-free'. The directive necessitates that companies conduct an assessment that fulfil ten requirements to substantiate their green claims. The assessment should be based on widely recognized scientific evidence, demonstrate the significance of the green claim from a life-cycle perspective, and consider relevant environmental aspects. Additionally, claims must be supported and verified by an independent accredited verifier before they are used.

Secondly, the directive addresses voluntary labelling schemes. These schemes have been marred by inconsistent criteria and a vast array of over 230 sustainability labels, leading to confusion and scepticism. To address this, the proposal introduces measures to restrict the creation of new labels and lays out various criteria that labels must adhere to. Aggregated scores, which were employed to mask poor performance in one category with strong performance in another, will no longer be permitted. For example, some labels combined various of a product’s impact categories, such as emissions, recyclability and animal safety, into one aggregate score. Labels will be expected to be transparent, verified by a third party, and subject to regular reviews.

The Green Claims Directive applies to all companies in the EU, with the exception of micro-enterprises boasting less than ten employees and a balance sheet total below €2 million. While the official implementation date for the Green Claims Directive in national law remains undisclosed, the process typically spans 18-24 months. Therefore, companies must be prepared to adhere to the directive's requirements by March 2025 at the latest.

Business implications of the Green Claims Directive 

We expect that the directive will have four main effects on businesses: 

  • Companies will grapple with administrative obligations as they navigate the compliance process, involving identification, assessment, and verification of claims by independent entities.
  • Failure to meet the requirements could lead to investigations, revenue confiscation, and fines – the EU has set a minimum fine of 4% of annual revenue.
  • Companies that falsely market their products as 'green' will likely face scrutiny and repercussions from customers and non-governmental organizations, tarnishing their sustainable reputation and potentially resulting in decreased sales.
  • The directive seeks to level the playing field for genuinely sustainable products, allowing consumers to confidently select products aligning with their expectations. This will boost the competitiveness of authentic sustainable options and encourage businesses to develop appealing sustainable alternatives.

The EU's endorsement of the Green Claims Directive marks a significant stride towards combatting greenwashing and amplifying transparency in environmental sustainability assertions. For companies asserting green claims, early substantiation is advisable, offering not only compliance but also insights into avenues for enhancing a product's sustainability performance.