On March 22, 2023, the European Commission (“Commission”) presented its proposal for a Directive on substantiation and communication of explicit environmental claims (“Proposed Green Claims Directive”). The Proposed Green Claims Directive is intended to work in tandem with the Commission’s 2022 Proposal for a Directive empowering consumers for the green transition through better protection against unfair practices and better information (“Proposed Greenwashing Directive”). Both Proposed Directives are intended to contribute to the EU’s green transition towards a circular, climate-neutral and clean economy by enabling consumers to make informed purchasing decisions based on reliable information about the sustainability of products and traders. In particular, the Proposed Green Claims Directive would create a common methodology for substantiating green claims about the environmental footprint of products, services and companies and require companies making environmental claims to secure a certification of compliance from an independent national “verifier.”
The Commission’s publication of the Proposed Green Claims Directive follows the leak of a previous draft of the proposal in January 2023, which we reported on here. Much has changed from the original proposal, but the impact on business remains clear: if passed, the environmental claims that companies make would be subject to strict substantiation requirements, and prior certification by third-party verifiers. Crucially, the proposal would require Member States to fine companies up to 4% of their profits — and bar them from public procurement contracts — if they make unsupported environmental claims.
The Commission has now opened a public consultation on the Proposed Green Claims Directive, and the European Parliament and Council must now review it over the next two years. Interested businesses may want to consider submitting comments to the Commission and proposing amendments to the European Parliament and Council.
What is new?
Currently, EU law does not explicitly regulate environmental claims. Instead, environmental claims are subject to the general rules of Directive 2005/29 on Unfair Business-to-Consumer Practices and Directive 2006/114 on Comparative Advertising, and national authorities may apply the EU’s guidance on applying general consumer protection rules to green claims (see our previous blog post discussing the guidance here). However, in practice, EU Member States apply the general principles in a variety of ways. The Proposed Green Claims Directive, together with the Proposed Greenwashing Directive, is expected to create a harmonized set of rules on the substantiation of voluntary green claims applicable to all companies operating in the EU/EEA.
The Proposed Green Claims Directive would introduce a number of rules for companies making environmental claims. The rules would apply to almost all companies doing business in the EU (excluding micro‑enterprises). However, the rules would not apply to environmental claims that are already subject to more specific rules (e.g., organic claims; energy labelling) and non‑environmental sustainability claims (e.g., claims referring to social impact). The key points to understand are:
- The rules would apply to explicit environmental claims, either in textual form or contained in an environmental label: At this stage, it is not yet clear whether the EU plans to introduce new rules for implicit environmental claims e.g. using “environmental”‑themed colors or images on product packaging. If not, those kinds of business practices would remain subject to existing national laws. This may lead to variation in how different national authorities enforce against companies — as some may be more tolerant of the “overall impression” provided by the packaging or advertising than others.
- Companies must substantiate environmental claims: Companies would be required complete a 10‑point assessment that, among other things, specifies the aspect of the product or life‑cycle that the claim applies to; provides scientific evidence for the claim; demonstrates that the claimed environmental impact is significant, and is better than mere compliance with law or common practice; clarifies whether the claimed environmental benefits result in any negative environmental impact; and separates greenhouse gas emissions offsets from greenhouse gas emissions reductions. As in the leaked draft of the Directive, the Proposed Green Claims Directive seems to put significant emphasis on life-cycle assessments as the basis of claims — which suggests that claims related only to narrow aspects of the product (e.g., recyclability) may not be tolerated.
- Comparative and future claims require extra substantiation: Companies would be required to base comparative claims on “like‑for‑like” information and assessments. If making claims about future environmental performance, companies would be required to commit to specific, time‑bound milestones for improvements. These requirements have been significantly watered down from the previous, leaked draft, though they still impose strict methodological demands on companies and the European Parliament and Council may tighten them. For many, “like-for-like” studies may be too burdensome to conduct.
- Companies would be required to give consumers full background information: Companies would be required to provide all the background information, assessments, standards, data, etc. that support the claim either with the physical product, or through a web link or QR code that accompanies the product. If relevant, companies would also have to give instructions to the consumers on how to use the product so that it meets the claimed environmental performance. This may present some problems for products with minimal packaging space.
- Companies would only be allowed to use approved environmental labels: Once the Proposed Green Claims Directive comes into force, companies would only be able to use environmental labels that are EU‑approved and included in a central EU list. Businesses would no longer be able to create and use an environmental label (either independently, or as a group). This is in line with the provisions of the Proposed Greenwashing Directive, which categorically prohibits self‑certification. Third-country environmental labels would also need EU assessment and approval. The actual process for approval, and the benchmark that labels would have to reach, remains unclear. While not covered by the Proposed Green Claims Directive, there could be a risk that authorities may apply by analogy the strict requirements on environmental labels to other sustainability labels (e.g., those related to social impacts).
- Companies would have to obtain a prior certification from a national verifier: The proposed Directive would require Member States to appoint third-party independent “verifiers” to assess and certify environmental claims, and issue certificates of compliance. This is a first for voluntary claims, which typically do not require prior certification of compliance or authorization under EU rules. Crucially, companies would have to receive the certification of compliance before publishing the claims. This may affect the speed and volume in which companies can make claims. It is unclear whether verifiers would be held responsible for the claims companies make, in particular as they would also oversee the proposed communications. It is also unclear whether there will be a transitional period to phase out packaging that includes that have not been certified.
- Non-compliant companies would face significant penalties: Penalties for breach of the Proposed Green Claims Directive must be “effective, proportionate and dissuasive”. The Proposed Green Claims Directive provides that Member States may impose fines which deprive companies of the benefits of infringements (up to 4% of turnover in cross‑border cases); confiscate profits, and exclude businesses from public procurement for up to 12 months.
The Commission has opened a public consultation period on the Proposed Green Claims Directive. Companies interested in submitting comments may do so until May 25, 2023, through the Commission’s public consultation website.
The European Parliament and Council must also now consider the Proposed Green Claims Directive for adoption through the so-called “ordinary legislative procedure”, which typically takes at least 18 months but may be altered due to the European Parliament elections in the second quarter of 2024. As with all Directives, each EU Member State will be required to implement the provisions of the Green Claims Directive in national law, and will be free to adopt more stringent rules. As indicated above, industry should keep a close eye on the development of this proposal as the requirements it would impose will likely have a significant impact on the current practices. Covington can help companies with navigating the Commission’s public consultation process and the legislative process.