Green Claims Directive: Battling Greenwashing for a Sustainable Future

by Lisa Zadrozny Stausholm

During this Tuesday’s plenary session, 12th March 2024, the Green Claims Directive (GCD) proposed by the Commission in March of 2023 passed with 467 votes to 65 and 74 abstentions. This means that the report has been adopted and now has to be followed up by the new Parliament that will be elected during these near European elections (find out more on why and how to vote here). The GCD’s exact legal wording has to be decided and transposed to official law within the next two years for each European Member State.

This initiative echoes the objectives of the European Green Deal looking to transform Europe into a circular economy, which means managing resources efficiently, conserving energy and reducing waste, thus benefiting both the economy and the environment. In practical terms, this deal legally requires all EU Member States to reduce Europe’s emissions by a minimum of 55% by 2030.

What is the Green Claims directive and why is this legislation needed?

The need for the Green Claims Directive stems from several issues within the European marketplace that prompted regulatory intervention. More generally, the initial issue was the difficulty for consumers to trust and understand various labels and environmental claims on products they intended buying. With no clear European law to regulate the environmental performance of products on the market, the issue of greenwashing rose.

These 2020 statistics give a clearer image on what led to this directive :

53% of green claims on products were vague, misleading or unfounded
40% of green claims on products didn’t have any evidence to support their environmental-friendly practices
More than 230 sustainability labels and 100 green energy labels exist within the EU (varying greatly in transparency), but…
1/2 of all of these labels offer none or very little verification

As such, the GCD aims to combat greenwashing commercial practices that are not only unfair to consumers as they can’t make an informed choice, but to all economic actors on the market. This initiative aims to create a level-playing field for businesses by preventing unjust advantage for companies engaging in greenwashing. By creating healthy competition and fostering innovation through clear regulations, the GCD ensures a more resilient European market that enhances businesses credibility and builds trust among consumers.

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What is greenwashing, and why did it appear?

As climate change rises, a significant number of consumers aim to use their purchasing power to make the protection of the environment a priority. As such, there is a growing demand to access eco-friendly and sustainable products, even at the cost of a higher price. To balance this, a lot of environmentally friendly offers appeared on the market. Unfortunately, in the absence of clear regulations, many companies capitalized on peoples wish for sustainability not by changing their production practices but rather conveying a false impression of sustainability, ultimately misleading customers by overstating or even blatantly lying about being “green”. This empty eco-friendly marketing practice called greenwashing undermines everyone’s genuine efforts to consume responsibly.

As it is clear that companies need a legal incentive to make a structural change, it is important to build a strong, reliable and trustworthy system that informs and thus allows the citizens wanting to make a change through their consumption to be able to do so. This legislation addresses greenwashing and holds companies accountable, thus empowering consumers and protecting the environment. Also, as companies want and need to be appealing to customers that are largely demanding sustainable products, this legal incentive promotes genuinely sustainable practices in the marketplace. Thus, companies truly striving to be more eco-friendly will be given a competitive advantage through this proposal.

But how does the GCD hold companies accountable?

This directive will address all sustainability claims pertaining to business-to-consumer transactions, including those related to the environmental and social impact of a product, service, brand or company. The GCD will specifically apply to voluntary claims made by businesses to consumers, leaving mandatory disclosures or labeling requirements under other EU regulations unchanged.

More specifically, all European Member States will not only have to make sure that companies can back up their green claims but also that these claims meet a number of requirements, such as :

Specifying if the claim applies to the entire product or all activities of a company or just part of it
- For example : A shirt will no longer be able to only mention the use of recycled materials but will have to be more specific such as saying that x% of the shirt has been made with pure recycled materials ; A company will not be able to simply say that they support fair labor conditions, it will need to explain how and to what extent.
Green claims will have to be based on well-known, accurate scientific evidence, following international standards;
Taking a life-cycle perspective, meaning that when doing the environmental impact assessment of a product, all stages will be considered (from the raw material to the design, production and transportation, disposal,…). This allows the consumer to get a comprehensive understanding of a product’s sustainability.
Considering all significant environmental factors and impacts when evaluating environmental performance.
Showing that the claim goes beyond legal requirements, in the sense that other labels could be relevant.
- For example, if a clothing company is simply stating the fibre composition of a product, it falls under the umbrella of the mandatory Textile Label requiring distributors to enable customers to make an informed choice.
Providing information on whether the product or company outperforms common industry practices;
Ensuring that positive achievements don't have harmful effects on climate change, resource use, water and marine resources, pollution, biodiversity, animal welfare, and ecosystems;
Transparently report greenhouse gas offsets, distinguishing between emissions offsets and emissions, specifying if the offsets involve reductions or removals, and providing information on the quality of the offsets;
Including primary information gathered directly by the company;
Using secondary information from sources like literature studies or patents when primary data isn't available.

These green claims being homogenous across Europe will equally protect all European citizens from greenwashing by standardizing environmental terminology, thus creating a common language and making it easier for consumers to understand and compare environmental information.

How will small and medium enterprises (SME) be impacted by the Green Claims Directive?

In Tuesday’s plenary session’s press release, Parliament specifies deadlines - wanting green claims to undergo assessment and be evidenced within 30 days - and penalties to non-compliant companies - ranging from fines amounting to at least 4% of annual turnover to confiscation of revenues. However, the press release states that to mitigate any disproportionate burden compared to large companies, micro enterprises (<10 employees; <2 million annual turnover) will be exempt from the deadlines and penalties and SME’s will be granted an extra year to comply with them. To promote the green transition of smaller businesses, the Commission will develop calculation tools and make funding available for SME’s to gather the data supporting their green claims. The GDC also urges the European Member States to help SME’s meet these sustainable requirements, such as giving access to financial assistance and providing organisational and technical support.