Directive on Green Claims

Rationale

The proposed Directive is intended to address greenwashing by tackling false environmental claims increasingly marketed towards consumers keen to adopt sustainability orientated products and services. It also seeks to stop the proliferation of public and private environmental labels. Recently, claiming to be "green" and/or “sustainable” has become an important competitive factor. However, a Commission study from 2020 highlighted that 53.3% of examined environmental claims in the EU were found to be vague, misleading or unfounded and 40% were unsubstantiated.

Types of claims

The draft Directive refers to an ‘Environmental Claim’ and an ‘Explicit Environmental Claim’. These are defined quite broadly as:

"any message or representation, which is not mandatory under Union law or national law, including text, pictorial, graphic or symbolic representation, in any form, including labels, brand names, company names or product names, in the context of a commercial communication, which states or implies that a product or trader has a positive or no impact on the environment or is less damaging to the environment than other products or traders, respectively, or has improved their impact over time”

The draft Directive therefore targets green claims that are made by a business which state or imply a positive environmental impact, lesser negative impact, no impact, or improvement over time for their products, services or organisation. In its material accompanying the draft Directive the Commission mentions various examples such as "packaging made of 30% recycled plastic", “bee-friendly juice”, “carbon compensated ride” or "commitment to reduce CO2 emissions linked to the production of this product by 50% by 2030 as compared to 2020". 

The key point to note is that the draft Directive covers explicit claims that a business makes for consumers which relate to the environmental impact, aspect, or performance of a product or the trader itself, and adopts a "life-cycle" approach, from raw materials to end-of-life. Also, it only concerns claims that are not currently covered by other EU rules. Therefore, where EU legislation provides for specific rules on an environmental claim for a particular sector or product category, those rules will prevail. The draft Directive also seeks to deal with climate-related claims that are based on carbon offsets or carbon credits and addresses environmental labelling schemes.

In-scope entities

Those entities that are microenterprises with fewer than 10 employees and less than €2 million turnover are exempt from the draft Directive unless they wish to use the Directive’s rules. Those entities that are outside the EU but make voluntary environmental claims directed at EU customers will have to respect the requirements set out in the draft Directive.

Substantiating a claim

A key component of the draft Directive concerns the substantiation of environmental claims. It contains provisions setting out what businesses need to assess before making an explicit environmental claim. Whilst the draft Directive does not prescribe a single method nor require a full life-cycle analysis for each type of a claim it does provide that the assessment:

• Relies on recognised scientific evidence and state of the art technical knowledge.
• Demonstrates the significance of impacts, aspects and performance from a life-cycle perspective.
• Takes into account all significant aspects and impacts to assess the performance. 
• Demonstrates whether the claim is accurate for the whole product or only for parts of it (for the whole life cycle or only for certain stages, for all the entities’ activities or only a part of them).
• Demonstrates that the claim is not equivalent to requirements imposed by law.
• Provides information on whether the product performs environmentally significantly better than what is common practice. 
• Identifies whether a positive achievement leads to significant worsening of another impact.
• Transparent information on carbon offsetting must be made available. It must be stated whether the offsetting relates to the reduction or elimination of carbon emissions and how this offsetting is achieved.
• Includes accurate primary or secondary information.

For comparative claims – claims that state or imply that a product or trader has less or more environmental impacts or performs better or worse regarding environmental aspects than other products or traders – there are further requirements. These are: 

• The use of equivalent information for the assessment of environmental impacts, aspects or performance of compared products. 
• The use of data generated or sourced in an equivalent manner for the products or traders that are subject to comparisons.
• The coverage of stages along the value chain is equivalent for the products and traders compared while ensuring that the most significant stages are taken into account for products and traders compared. 
• The coverage of environmental impacts, aspects or performances is equivalent for the products and traders compared and ensures that those most significant are taken into account for all products and traders compared.
• The assumptions used for the comparison are set consistent for the products and traders compared.
• For comparative claims on improvement of impacts (compared to earlier version of product) include explaining the impact of improvement on other aspects and impacts and stating the baseline year.

Primary or secondary information

The draft Directive refers to the use of primary and secondary information used to substantiate a green claim. In particular, it states that information used to substantiate explicit environmental claims needs to include primary, company-specific data for relevant aspects contributing significantly to the environmental performance of the product or trader referred to in the claim. However, if the process is not run by the trader making the claim and primary information is not available, accurate secondary information can be used even for processes that contribute significantly to the environmental performance of the product or trader.

The draft Directive adds that, for example, for claims on recycled or bio-based content, the composition of the product should be covered by primary data. In addition, for claims on being environmentally less polluting in a certain life cycle stage, information on emissions and environmental impacts related to that life cycle stage should include primary data as well. Both primary data and secondary data, i.e., average data, should show a high level of quality and accuracy.

The Commission is to be empowered to adopt delegated acts to complement the requirements on substantiation for certain types of claims.

Verifiers

The draft Directive introduces a completely new component, the verifier.

The draft Directive provides that the substantiation and communication of environmental claims and labels will have to be third party verified and certified to comply with the requirements of the Directive before the claim is used in a commercial communication. 

The draft Directive requires an officially accredited body with no conflicts of interest (a verifier) to carry out the verification of claims submitted by the business wishing to use it. Once a verifier has verified the claim, it will decide whether or not to issue a certificate of conformity. This certificate will be recognised across the EU, shared between Member States via the Internal Market Information System and will allow companies to use the claim in a commercial communication to consumers across the internal market. This procedure will also apply to labelling schemes. The Commission is empowered to adopt an implementing act specifying the format of the certificate of conformity. There will be one verifier for each Member State.

Communication

Information on the product or trader that is the subject of the green claim and on the substantiation shall be made available together with the claim in a physical form or in the form of a weblink, QR code or equivalent. Such information:

• Shall only cover environmental impacts, aspects or performance that are assessed in accordance with the substantiation requirements laid down in the draft Directive and are identified as significant for the respective product or trader.
• Where relevant for the claim made, shall include information on how consumers may appropriately use the product to decrease environmental impacts.
• Shall be accompanied by information on the substantiation - including information on product or activities of the trader; aspects, impacts or performance covered by the claim; other recognised international standards, where relevant; underlying studies and calculations; how improvements that are subject to the claim are achieved; the certificate of conformity and coordinates of the verifier.

The Commission is empowered to adopt delegated acts to complement the requirements on communication for certain types of claims.

For comparative claims on the improvement of an environmental impact of a product as compared to another product of the same trader, or that the trader no longer sells to consumers, will be based on evidence that improvement is significant and achieved in the last five years.

Environmental labels and labelling schemes

The draft Directive contains further requirements for environmental labels. The intention behind these requirements is to confront the current market practice of using non-transparent and mostly private environmental labels, in order to improve transparency and resilience of the labelling systems. The requirements are also complementary to those requirements on displaying a sustainability label set out in the Commission’s proposal on empowering consumers for the green transition and the Commission guidance on interpretation and application of the UCPD.

The draft Directive includes:

• Requirements on transparency and accessibility of information on ownership, decision-making body and objectives. 
• Criteria underlying the award of labels are developed by experts and reviewed by stakeholders. 
• The existence of complaint and resolution mechanism.
• Procedures for dealing with non-compliance and possibility of withdrawal or suspension of labelling in case of persistent and flagrant non-compliance.

It also introduces:

• The prohibition of establishment of new national or regional publicly owned schemes.
• A validation procedure for new schemes established by private operators from the EU and third countries that should be assessed by national authorities and validated only if they demonstrate added value in terms of their environmental ambition, their coverage of environmental impacts, of product category group or sector and their ability to support the green transition of SMEs as compared to the existing EU, national or regional schemes.

Enforcement

Under the draft Directive Member States will designate responsibility to one or more appropriate competent authority. Such authorities will monitor companies’ compliance and investigate and enforce the draft Directive’s requirements. They will have a wide range of powers including those giving them access to relevant information so that they can establish whether or not there has been an infringement, and require businesses to adopt remedies and take action to end an infringement.

Member States may either chose to adopt the draft Directive’s rules on penalties or opt to continue using the current mechanism in place to combat unfair commercial practices. The draft Directive prescribes that the maximum amount of fines should be set at least at the level of 4% of the business’ total annual turnover in the Member State or Member States concerned in case of widespread infringements with an EU dimension. The key point is that penalties must be effective, proportionate and dissuasive. And when deciding on the type and level of penalties Member States should have regard to (among other things) the nature, gravity, extent and duration of the infringement.

Access to justice

The draft Directive contains provisions on the handling of complaints and access to justice. Natural or legal persons or organisations regarded under EU or Member State national law as having a legitimate interest shall be entitled to submit complaints to Member State competent authorities when they deem, on the basis of objective circumstances, that a business is failing to comply with the Directive. For these purposes, non-governmental entities or organisations promoting human health, environmental or consumer protection and  meeting any requirements under Member State national law shall be deemed to have sufficient interest. 

Alongside the draft Directive the Commission has published Q&As which explicitly provides for consumer organizations:

 “In the Commission Green Claims proposal it is foreseen that, thanks to the Representative Actions Directive (EU) 2020/1828, ‘qualified entities’, such as consumer organisations, will be able to bring legal actions to protect the collective interests of consumers. This will apply, for instance, if a trader makes green claims (implicitly or explicitly) assuring that it complied with the minimum requirements for substantiation, but it is suspected that it was not the case.”

Corporate sustainability reporting

The draft Directive does not apply to environmental information reported by undertakings that apply European sustainability reporting standards on a mandatory or voluntary basis in accordance with the EU Accounting Directive and sustainability information reported on a voluntary basis by undertakings defined in articles 3(1), 3(2) or 3(3) of that Directive where that information is reported in accordance with standards referred to in Articles 29b or 29c of the EU Accounting Directive or in accordance with other international, European or national sustainability reporting standards or guidelines.

Impact on financial services

The draft Directive excludes most financial services. Recital 10 of the draft Directive provides:

“…this Directive shall not apply to sustainability information involving messages or representations that may be either mandatory or voluntary pursuant to the Union or national rules for financial services, such as rules relating to banking, credit, insurance and re-insurance, occupational or personal pensions, securities, investment funds, investment firms, payment, portfolio management and investment advice, including the services listed in Annex I to Directive 2013/36 75 of the European Parliament and of the Council, as well as settlement and clearing activities and advisory, intermediation and other auxiliary financial services, including standards or certification schemes relating to such financial services."

Carbon credits

The draft Directive states that businesses should prioritise the reduction of emissions in their own organization or value chain instead of relying on carbon offsets. However, it does not prevent businesses from using carbon offsets. The draft Directive requires businesses to report separately any greenhouse gas emission offsets used. Businesses must also specify:

• Whether those offsets relate to emission reductions or removals. 
• The share of total emissions that are addressed through offsetting.
• The methodology used (to ensure that all offsets relied upon are of high quality and accounted for correctly and transparently).

Next steps

The draft Directive has been submitted to the European Parliament and the Council for consideration. It is expected that the European Parliament and the Council will need at least one year before they can reach a common position on the Commission’s proposals. The legislative process may be delayed as a result of the European Parliament elections, which will take place in May 2024. Once the draft Directive comes into force, Member States will have 18 months to transpose it into national law and a further six months before the rules are applied. The Commission expects a timeline of four years for the Directive to apply.