What the new European Green Claims Directive means for businesses

Article by Isabel J. Barreto

Image via Pixabay

Buying sustainable products is not always easy for consumers who come across opaque or vague descriptors such as “green” or “eco-friendly” without accompanying proof. In a 2023 global study, 28% of respondents identified unclear labeling as a main barrier to making sustainable purchases. Unfortunately, greenwashing (i.e., misleading customers into thinking a product is sustainable) is very much present in the consumer experience. In 2020, consumer protection authorities from 27 European countries conducted a screening of websites for greenwashing and found that 42% of the analyzed sustainability claims were exaggerated, false, or deceptive, while over half of these claims were unsubstantiated. This reality may change soon, as the European Union (EU) is on track to ban greenwashing practices.

The Green Claims Directive

On January 17, 2024, the European Parliament approved the new Directive on substantiation and communication of explicit environmental claims (or Green Claims Directive), reinforcing the commitment made within the context of the European Green Deal to empower consumers to make better-informed choices and contribute to the green transition. The directive aims to

• protect consumers from greenwashing by making environmental claims reliable and verifiable;

• address the problem of unreliable environmental labels;

• boost the competitiveness of businesses that offer sustainable products and have sustainable business practices; and

• accelerate the transition towards a circular and climate-neutral economy in the EU.

What does it mean for businesses?

Companies carrying out business-to-consumer commercial practices (including the communication, advertisement, marketing, promotion, and sale of products) in the EU will be subject to a set of minimum requirements when communicating and justifying voluntary environmental claims about their products. Businesses will not be allowed to use terms such as “eco-friendly”, “climate-neutral”, “natural”, or “sustainable” to describe their products without concrete evidence to support those claims.

To substantiate their explicit environmental claims, companies shall take measures including

• relying on recognized scientific evidence;

• demonstrating whether the claim applies to the entire product or only for parts of it (e.g., for the whole life cycle or only for certain stages);

• demonstrating that their claim about a product is not already required by law, as the Directive focuses on voluntary environmental claims;

• providing information on whether the product’s environmental performance is significantly better than common practice; and

• reporting greenhouse gas emissions offsets in a transparent way.

When communicating environmental claims to their customers through, for example, the promotion, advertisement, sale, and package of a product, companies shall

• substantiate all environmental claims in accordance with the Directive;

• if relevant to the claim made, include information on how consumers may appropriately use the product to decrease environmental impacts; and

• provide consumers with the necessary information to assess the accuracy of the claim, including

• information on the product or activities of the trader;

• aspects, impacts, or performance covered by the claim;

• studies and calculations supporting the claim; and

• how improvements that are subject to the claim are achieved.

The Green Claims Directive also bans environmental labels based on self-certification and sets new rules for labeling schemes. Companies who want an environmental label will be required to have their products verified and certified by an independent third party that is accredited under the regulation.

Notably, companies with fewer than 10 employees and less than 2 million euros in annual revenue will be exempt from the requirements of the Directive unless they wish to receive a certificate of conformity. The Directive also calls on Member States to offer financial, technical, and operational support to assist small and medium-sized businesses with meeting all requirements.

When does it enter into force?

On February 20, 2024, the Council of the EU approved the Directive, which means that the legislative act has now been adopted by the European Union. Member States will have 24 months to adopt it into national law. Furthermore, Member States will have to designate competent national authorities to enforce the Directive.

What happens if companies do not comply?

Designated national authorities will conduct regular checks and evaluations of explicit environmental claims. If a violation is detected, the trader will have 30 days to comply with the Directive’s labeling and claims requirements. Additionally, “qualified entities”, such as consumer organizations, will have standing to take legal action to protect the collective interests of consumers. Penalties for non-compliance include fines, confiscation of revenues gained with the respective product, and temporary exclusion from public procurement processes.