What is it?
On 23 March 2023, the European Commission published a new directive on green claims (Green Claims Directive). This bill states that companies must substantiate (green) environmental claims, with the aim of preventing unjustified claims about their environmental performance. Not surprisingly, the EU is drawing up rules against companies advertising ‘ocean-friendly sunscreen’, ‘sustainable packaging’ or ‘CO2-compensated delivery’. Travel company TUI was taken to task by the Advertising Code Committee in July 2023 because its ‘Fair Travel’ campaign violated the Sustainability Advertising Code on several counts.
The EU conducted its own investigation into companies’ (voluntary) environmental claims and found that there is quite a lot of ‘greenwashing’ among them:
- 53% of green claims are vague, misleading or contain unsubstantiated info;
- 40% claims contain no supporting evidence;
- Consumer confidence in green claims is extremely low.
In addition, there is a proliferation of eco-labels (more than 225!) resulting in an uneven playing field. By the way, no specific method is prescribed for substantiating environmental claims, more on that in a moment.
What exactly is a green claim?
A green claim means any message or representation, not required by applicable law, including text, images, graphic or symbolic representation, labels, brand names, company or product names, that states or implies a positive effect on the environment. A rather legal description but the conclusion is that the scope of the Green Claims Directive is broad.
What should the Green Claims Directive deliver?
As usually with European legislation, the goals of the Green Claims Directive are ambitious:
- Accelerate green transition to a circular, clean and climate-neutral economy in the EU;
- Prevent greenwashing;
- Reliable, comparable and verifiable environmental info on products;
- Reliable environmental claims;
- EU-wide level playing field for environmental claims;
- Competitive advantage for those companies that link correct claims to their product;
- Increase consumer confidence;
- Countering the proliferation of environmental labels.
What does the GRD directive require?
The directive requires that an environmental claim be supported by scientific evidence and that positive and negative effects are clearly described. Generic environmental claims (‘eco-friendly’, ‘green’, ‘ecologically sound’, etc.) are no longer allowed. A second requirement is that claims must be verified and certified by a third party. Every 5 years, the claim must be reassessed. Self-certified sustainability labels are prohibited. Thirdly, companies have an obligation to provide consumer information about the green claim (on the product or via a link or QR code) and they must set up a complaint and dispute mechanism. Finally, verification of the environmental claim must be carried out by an accredited body authorised to issue an EU-wide certificate of conformity.
Who does it apply to and what does it mean for companies?
The Green Claims Directive applies to all companies operating in the EU consumer market. Violation of the directive can lead to hefty fines of up to 4% of annual turnover. Companies can also be excluded from tender procedures and government subsidies. At least as big a risk for companies is the reputational damage if it turns out that a product or service promoted as ‘green’ does not meet the requirements of the GCD.
On the positive side, the GCD makes it easier for consumers to choose sustainable products. The EU estimates the total impact on consumer welfare at €6,080 – €9,520 million for the period 2025 – 2040. It should be noted, however, that the EU itself already states the positive effects of the directive are difficult to quantify.
Are there any other comments on the GCD?
There certainly are; the Environment Council has a number of comments on behalf of two ministries:
- There is a lack of a uniform methodology for substantiating environmental claims with the result that there may be differences between member states. Firstly, this is confusing for consumers; a claim accepted in one country may be rejected in another. In addition, companies may choose to have their claim assessed in the country with the most favourable assessment, which actually encourages fragmentation and an uneven playing field.
- It is still unclear who will enforce the new directive. The Consumer and Market Authority (ACM) oversees unfair commercial practices and has drafted the Sustainability Claims Guideline.
- Regulation involves costs, not only for governments (European and national), but also for the companies that have to implement it. The verification and compliance costs of environmental claims are estimated by the EU at €450 – €500 for the first year, then at €150 – €200 per year. These costs will fall mainly on SMEs. Given the complexity of verification, this amount is far too low in our estimation. The actual costs, including for adapting packaging and advertising material (on- and offline) will be much higher.
Does the directive actually apply yet?
No, not yet. The UPCD (Unfair Commercial Practices Directive) has been in force since 2005, the Green Claim Directive is an extension of it. The directive is currently still a proposal. Once the proposal is adopted, member states have 18 months to transpose the directive into law.
So business still has some time, but there is no doubt that stricter legislation to combat greenwashing is coming. It is advisable to take a critical look at their own environmental claims and eliminate ‘greenwashing’.