European Union: Green Claims: Prepare For Tougher EU Rules On Promotion Of Products And Services

What's the current position and why does the EU want to tighten up regulation?

In both the EU and the UK, misleading environmental claims about products or services aimed at consumers may amount to an infringement of existing consumer protection law – notably national legislation implementing the EU's Unfair Commercial Practices Directive (despite Brexit, the UK looks set to continue to have broadly equivalent regulation, albeit that it is being restated as part of the Digital Markets, Competition and Consumer Bill currently before Parliament). Regulators in both the UK and the EU have also been active in enforcing existing rules on misleading promotions – as illustrated by the UK Competition and Markets Authority's investigation into alleged "greenwashing" by ASOS, Boohoo and Asda.

Against that background, why is the EU looking to introduce further legislation that specifically targets misleading green claims (as opposed to relying on consumer law, which applies to misleading claims of all types and across most sectors)?

• Growth of green products: The EU's proposals recognise that products and services marketed as having green credentials are generally "registering greater growth than standard products", making it ever more attractive for businesses to make environmental claims.
  
  
• The trust deficit and the broad scope for misleading claims: Because of the complexity of the issues involved, it is particularly difficult for ordinary consumers to know whether to trust green claims – and there is also significant scope for such claims to be misleading. For example, a claim that a particular part of a product is now made with more sustainable materials may, strictly speaking, be accurate, if viewed narrowly – but it could still be misleading if presented in a way that implies the product as a whole, assessed over its entire lifecycle, is "carbon neutral", when this remains far from being the case.
  
  
• Unfairness to businesses that play by the rules: The EU is concerned that widespread use of misleading green claims puts businesses that are genuinely more sustainable, but play by the rules, at a serious disadvantage – and if those businesses are effectively disincentivised from pursuing sustainable policies, this is likely to make it even more difficult for the EU to achieve its ambitious climate-related goals.

What is the EU proposing?

The EU has proposed two Directives intended to tighten up the law on green claims, which are at different stages of the legislative process:

• The Green Transition Directive ("GTD"): This proposal amends existing consumer law on unfair commercial practices to expressly capture environmental claims. The GTD was agreed in principle between the EU Council and Parliament on 19 September 2023 and is expected to be law before the end of 2024 (having been endorsed by the European Parliament on 17 January 2024). At the time of writing, more information on the changes made by the EU Council and Parliament to the original proposal could be found here.
  
  
• The Green Claims Directive ("GCD"): This proposal – which has attracted more attention than the GTD - sets out further specific rules for anyone wishing to make a voluntary environmental claim or use environmental labelling schemes in the EU market, including a requirement for pre-vetting of claims. Although the draft GCD is at an early stage, it is an agreed legislative priority for the three lawmaking EU institutions and builds on many of the principles set out in the GTD outlined above.

These proposals are discussed in more detail below.

Although the measures are likely to apply to the vast majority of products and services aimed at consumers, there are certain exceptions. For example, it does not apply in respect of environmental claims covered by rules in the EU Taxonomy Regulation which is relevant for many financial services firms. Similarly, it is not intended to apply in respect of environmental information that certain businesses are required to publish under the EU's sustainability reporting standards.

What changes will be made by the Green Transition Directive?

Existing EU consumer protection law is already capable of applying to misleading environmental claims, but the GTD aims to make this more explicit. Among other things, it amends the EU Unfair Commercial Practices Directive to make it clear that it is capable of covering the following:

• Providing misleading information about the environmental or social impact of goods or services and the durability or repairability of goods;
  
  
• Making a misleading claim about future environmental performance without clear, objective and verifiable commitments and targets and without an independent monitoring system; and
  
  
• Advertising benefits for consumers which are considered as a common practice in the relevant market e.g. misleading consumers into thinking that those benefits are a feature of the product or service which other competing providers may not be able to offer.

It's important to note that it will not prohibit businesses from making green claims relating to these matters – it merely seeks to make clear that if those claims are misleading, then they could infringe EU consumer law. "Misleading" in this context means a claim which would cause the average consumer to take a different transactional decision (for example, deciding to buy a different product) than would have been the case if they had been aware of the true position.

Existing EU consumer legislation also contains a "blacklist" of practices which are automatically presumed to be unfair, without the need to show the impact on the average consumer's transactional decision (see above). Where this is the case, it is significantly easier for regulators or other enforcement authorities to demonstrate an infringement. The GTD will expand this list to include (among others) the following types of green claims:

• Making a generic environmental claim for which the trader is not able to demonstrate recognised excellent environmental performance relevant to the claim;
  
  
• Making an environmental claim about the entire product when the claim only concerns a certain aspect of it; and
  
  
• Presenting requirements imposed by law on all products as a distinctive feature of the trader's offer.

Timing

As noted above, the GTD is expected to become law later in 2024. EU Member States are then likely to have about 18 months in which to amend their national legislation to reflect the changes outlined above – but some may choose to act sooner, particularly in view of the fact that a number of national consumer protection regulators in the EU have already identified green claims as a key area of focus. It should also be noted that the EU Council and Parliament have made various changes to the original proposal (although the substance of it remains as described above). At the time of writing, more information on these changes could be found here.

What changes will be made by the Green Claims Directive?

The Green Claims Directive (GCD) imposes specific requirements on businesses wishing to make environmental claims about products or services aimed at consumers. It does so in three key areas:

• Substantiation i.e. the evidence required to support the claim;
  
  
• Communication of the claim i.e. rules about how businesses can present claims and requirements to make supporting evidence publicly available (e.g. via a website); and
  
  
• Verification i.e. a requirement for independent third parties to certify that the claim is in accordance with the rules set out in the GCD on substantiation and communication.

These are discussed in more detail in the remainder of this briefing.

The GCD is likely to apply to a wide range of businesses, but it does not apply to B2B promotional material; only marketing to consumers. Traders that are outside the EU, including those in the UK, but who are making claims in relation to products or services directed at EU consumers, will also be caught. There is a carve-out from most requirements of the GCD for micro-enterprises (entities employing fewer than 10 people and whose annual turnover and/or annual balance sheet total does not exceed €2 million).

What's the timing?

The European Council and Parliament are now in a period of negotiation (up to September 2024) to discuss and examine the proposed GCD. The GCD may be subject to change during this period of consideration. Once adopted, Member States will have around 18 months to transpose the GCD into national law.

Green Claims Directive - substantiating green claims

In order to meet the proposed minimum substantiation requirements in the GCD, businesses would need to ensure environmental claims:

• are supported by recognised scientific evidence and state of the art technical knowledge;
  
  
• demonstrate the significance of environmental impacts, aspects and performance from a product life cycle perspective;
  
  
• demonstrate whether the claim is accurate for the whole product or only for parts of it (for example, for the whole life cycle or only certain stages of the product, for all the business' activities or only a part of them) and if a positive aspect leads to significant worsening of another impact;
  
  
• report on greenhouse gas offsets in a transparent manner;
  
  
• provide information on whether the product performs environmentally significantly better than what is common place;
  
  
• base any comparisons with other products and organisations on equivalent information and data; and
  
  
• demonstrate that a claim is not equivalent to requirements imposed by law on products or traders.

Businesses would have an ongoing obligation under the GCD to ensure that the information used for the substantiation of the environmental claims is reviewed and updated at least every 5 years, or where there are circumstances that may affect the accuracy of the claim.

There will naturally be a cost impact on businesses substantiating the relevant environmental claims. The costs argument put forward by the EU is that because it will remain a voluntary decision to include (or not) environmental claims in their packaging, these costs can be controlled by businesses not making the relevant claims. To the extent that a claim does not meet the relevant requirement, it must not be used, or must be removed, for instance, through changes to packaging design.

Green Claims Directive - communicating claims

In addition to substantiation (see above), the GCD also contains requirements for businesses to comply with as part of communicating a green claim. These include:

• claims must only cover environmental impacts, aspects or performance that have been assessed in accordance with the substantiation requirements outlined above and that are identified as significant for the respective product or business;
  
  
• claims should be accompanied by a significant amount of information relating to the substantiation, which can be in a physical form, or in the form of a weblink, QR code or an equivalent;
  
  
• if applicable, information should be included as to how the consumers should use the product in the appropriate manner to meet the expected environmental performance; and
  
  
• if the claim relates to the future environmental performance of a business/product, it must include a time-bound commitment for improvements within its own operations and value chains.

As a complement to the requirements on substantiation and communication of explicit green claims, the GCD sets out obligations in relation to environmental labels and environmental labelling schemes. The Commission notes the proliferation of environmental labels, creating confusion for consumers and undue burden for traders operating in multiple markets. The Directive also aims to limit the expansion of environmental labels by:

• prohibiting the establishment of new national or regional publicly owned schemes in the EU;
  
  
• requiring new schemes established by public authorities in third countries (e.g. the UK) to be approved by the Commission before entering the EU Market; and
  
  
• requiring new schemes established by private operators in the EU or third countries to be validated by the national authorities (such schemes could only be approved if they can show added value compared to existing schemes).

Green Claims Directive - verifying claims

The efficacy of the GCD will be dependent on the establishment of a robust system to independently verify and certify environmental claims prior to them being made public.

The verifier must be an accredited third-party conformity assessment body. Traders of certain goods will already be familiar with such entities, who also certify compliance of products with safety and environmental requirements that have applied in the EU for decades. After evaluating compliance with the requirements in the GCD, the verifier will, where applicable, issue a certificate of conformity. Once a business obtains the certificate of conformity, it is able to use it throughout the EU.

The capacity of accredited verification services is expected to be significantly challenged, given the high number of claims they will need to verify and the fact that there will be no option to self-certify. There will also be a general obligation on businesses to continue to monitor developments relating to their environmental claim, which might require them to amend the relevant label or re-verify it. Although the cost, time and administrative burdens are unlikely to severely impact larger businesses, they may well deter smaller traders from making any environmental claims about their products or services, even when these are justified.

Green Claims Directive - enforcement and penalties

In keeping with other EU consumer protection and safety laws, the GCD will be enforced by one or more bodies designated by the relevant Member State. The competent authorities will have a wide range of enforcement powers and an obligation to continually monitor and investigate compliance with the GCD. The GCD provides for a comprehensive suite of dissuasive penalties, though as regulators themselves face budget and capacity constraints, how these will translate into real world enforcement remains to be seen.

Where an authority detects an infringement, the business will have 30 days to bring the claim or label into compliance with the GCD or cease the use of and references to the claim, which may be difficult to achieve depending on the nature and scale of the supply and distribution chain.

In addition, Member States would be required to implement penalties for infringement. The penalty would depend on the "nature, gravity, extent and duration of the infringement, its character (i.e. intentional or negligent), the financial strength of the responsible party, the economic benefits derived from the infringement as well as any previous infringements or other aggravating factors".

Such penalties may include fines, with the maximum level being at least 4% of the trader's total annual turnover in the Member State or Member States concerned. Further penalties which Member States must implement include the confiscation of revenues gained from transactions involving the infringing product, although establishing what percentage of revenue gained from an environmental claim versus the overall price of the product are expected to be difficult to establish. Further penalties may also include prohibitions from placing products or making available services on the EU market.

What about the UK?

Having left the EU, the UK will not be under any legal obligation to change its national law to reflect either the GTD or the GCD. However, the following points should be noted:

• Could the UK follow the EU's lead? In 2022, the UK Competition and Markets Authority (CMA) recommended legislating to require businesses to disclose information on the environmental impact of their products and services, so as to enable consumers to make better informed choices. It also recommended adding certain types of misleading green claims to the list of blacklisted practices in the UK's unfair practices legislation (which is derived from the EU equivalent, discussed above). The Government has yet to respond to the CMA's report but if it were to take up the recommendation, this could result in measures similar – at least in some respects – to the GTD and the GCD.
  
  
• Impact of the EU measures: As a third-country for EU purposes, traders in the UK are still likely to feel the effects of the GTD and the GCD, either where they are selling products or services into the EU, or through rising prices to reflect their suppliers' increased costs associated with substantiating and verifying green claims.
  
  
• Piggy-backing on the EU's verification regime? The EU legislation is likely to create a new market for the provision of verification services. Some UK businesses may want to explore whether it is worth using the expertise developed by EU verification bodies in assessing environmental claims to substantiate their own claims – even where they don't propose to use those claims in the EU. Although the UK has yet to introduce a requirement for verification, this may happen in the future. Additionally, existing UK consumer law prohibits misleading claims – and an independent certification of the claim, if obtainable at a reasonable price, is likely to be helpful in defending it against challenge.

The trend towards increased scrutiny of green claims

Even if the UK Government declines to follow the EU's lead in this area, the overall direction of travel in the UK towards higher scrutiny of environmental claims is already apparent – and in that respect, it mirrors developments in the EU. In 2021, the UK's CMA published the Green Claims Code (the "Code") to help "businesses understand and comply with their existing obligations under consumer protection law when making environmental claims" (see our briefing on the draft code here).

In July 2022, the CMA opened an investigation into three fashion brands (ASOS, Boohoo and Asda) to scrutinise their broad sustainability claims (the results of which have not yet been published). In January 2023, the CMA launched a wide review of environmental claims made about fast moving consumer goods, describing claims such as "better" for the environment as "problematic". In a similar vein, there have been recent calls by some NGOs for Tesco to be investigated by the CMA under the Code in relation to the sale of meat sourced from Brazil (due to links to Amazon deforestation).

Simultaneously the UK Advertising Standards Authority is carrying out enforcement against environmental claims (for example, banning Etihad Airlines' advertising campaign in April 2023 related to sustainable aviation), including where advertisements are misleading by selectively representing an organisation's approach to climate matters (for example, a HSBC advertisement highlighting the bank's contribution to net zero financing without mentioned its financing of fossil fuels).

Given all this activity, it may be that – in contrast to the EU - the UK Government prefers to wait to see whether its existing arsenal of weapons is up the job of combatting greenwashing, without the need to implement new legislation on the scale of the GCD.

Why worry about any of this now?

As noted above, it's likely to be several years before the GTD is implemented in national legislation and the GCD has yet to be finally agreed by the EU – so why worry about any of this now?

These measures illustrate the high level of concern amongst Governments and regulators about misleading green claims. In particular, they further underline the need to ensure that any such claims are supported by robust evidence – even to comply with the existing regulatory frameworks in the EU and the UK. According to the European Commission's impact assessment, around 80% of websites or advertisements contained environmental claims, but more than 50% of the 150 sampled claims were vague, misleading or unfounded. The position in the UK is likely to be similar.

Even before the force of the GCD is felt, NGOs in Europe are already looking to hold businesses accountable for consumer-facing greenwashing. The European Consumer Organisation (BEUC) and its member organisations from 13 countries have recently submitted a complaint to the European Commission regarding claims that plastic water bottles are "100% recyclable" when the bottle caps cannot be recycled, and labels are rarely made from recycled materials. Companies subject to the complaint include Coca-Cola, Danone and Nestle. Meanwhile in the UK, the Competition and Markets Authority has also been very active in investigating allegedly misleading green claims – see section 9 above.

While the GCD remains under review, it would be sensible for businesses to start thinking about whether any environmental claims they currently make would stand up to the requirements set out in the GCD. Traders in the UK should be cognisant of the differences between the EU and UK regulatory regimes, both in terms of what is currently in place and with an eye to any future developments. Those businesses that have already established rigorous methods of assessing the impact of their products (for example by tracking lifecycle emissions) will be better positioned to take advantage of the potential new opportunities in this area.

The EU measures could lead to some businesses deciding not to pursue environmental claims as part of their advertising and packaging (even where these are well founded) and thus potentially reducing the number of products in the market with green credentials. Some businesses may conclude that it is better to focus on alternative marketing strategies. On the other hand, given society's recent shift towards promoting the benefits of green products, it may still prove to be more profitable to accept the enhanced requirements to access a greater portion of consumers. Businesses also need to factor in the potential for damage to their brand if they are perceived to be ignoring the environmental concerns of consumers, especially if competitors continue to pursue a green marketing strategy.