ESG – Environmental, Social and Governance

Greenwashing: EU's latest legislative initiative steps up scrutiny of 'green' claims

Published on 25th Oct 2023

New rules will focus on avoiding misleading ads and information about a business's environmental credentials and goals

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While there is no statutory or case law definition of "greenwashing" under English law or in other laws and codes within the EU at present, it is defined in the European Commission's proposal for a Green Claims Directive as "the practice of making unclear or not well-substantiated environmental claims" to consumers – which will require businesses to be vigilant of the risk of greenwashing misrepresentation.

Greenwashing, therefore, covers more than just environmental claims made in traditional advertisements (such as TV ads and poster campaigns) – it could potentially include, for example, claims made on corporate websites, queries raised by ethical investors or statements made in company reports, including sustainability reports.

What has been done so far?

The European Commission previously published a proposal for a Green Claims Directive to tackle greenwashing and misleading environmental claims.

If implemented, these proposals would impose additional compliance obligations on companies (over and above their existing obligations under general advertising laws and standards). Before making an environmental claim, companies will need to carry out a life cycle analysis to support those claims. It has also been proposed that Member States will need to establish independent verification bodies to review proposed "green" claims as against the evidence substantiating them, to verify their accuracy and ensure they are not misleading. This would lead to a new process for the verification and authorisation of certain advertising claims in a way not previously seen.

What is the latest development?

It has now been announced that the European Parliament and the European Council have reached a provisional agreement to ban certain misleading practices by 2026.

The following are examples of what will be banned:

  • making generic environmental claims (such as "environmentally friendly, "climate neutral", "natural", "eco", "green" or "biodegradable" – to name but a few) without detailed proof of recognised excellent environmental performance;
  • claims based solely on emissions offsetting schemes;
  • sustainability labels not based on approved certification schemes;
  • presenting goods as repairable when they are not.

The next step is the final approval of the proposal, which is expected before the end of this year. The rules will then come into effect through EU Member States implementing them into national legislation by 2026, at the latest.

What are European countries doing about greenwashing?

While these new European developments may lead to great change in approach in some Member States, others have been addressing the issue of greenwashing in the last couple of years, such as in France and the Netherlands.

France

Measures have already been put in place in France to tackle greenwashing. French law already provides for specific bans on misleading environmental claims (that is, claims that would mislead on the essential characteristics of the good or service, which notably includes its environmental impact and the extent of the advertiser’s commitments, in particular to the environment).

French law also prohibits the use of claims such as “carbon neutral”, “zero carbon footprint”, “climate neutral” or the equivalent in relation to products or services, except when some disclosure conditions are met (the results of greenhouse gas (GHG) emission balance sheets, the process by which the GHG emissions are first avoided, then reduced and finally offset and the methods for offsetting residual GHG emissions).

The Netherlands

In the Netherlands, authorities are also taking enforcement action to tackle greenwashing.

In the last few years, sustainability claims have been one of the main focuses of the Dutch Authority Consumers & Markets (Autoriteit Consument & Markt (ACM)). In June 2023, the ACM published a new version of its Guidelines on Sustainability Claims. The guidelines provide five rules of thumb to foster honest communication about sustainability, illustrated by examples.

To put words into action, the ACM conducted investigations into the practices of the clothing, energy and dairy sectors. Following these investigations, two big retail chains publicly made commitments to the ACM to no longer use certain sustainability claims on their clothes and websites (including "conscious", "conscious choice" and "ecodesign"). In addition, both retail chains pledged to donate money to non-profit organisations active in sustainability (the commitments are available here and here). Currently, the ACM is focusing its investigations on companies in the transport sector.

The self-regulatory Dutch Advertising Code Committee (Reclame Code Commissie, or RCC) published the Advertising Code on Sustainability Claims in February 2023. It encourages the responsible use of sustainability claims.

In July 2023, the RCC decided that the use of the absolute claims "sustainable" and "green" by a scooter-sharing service gives the impression that the service has no harmful effects on the environment at all – and that that is misleading.

The Dutch Authority for Financial Markets (Autoriteit Financiële Markten, AFM) published Guidelines on Sustainability Claims in October 2023. Sustainability is one of the supervisory priorities of the AFM. The guidelines follow, among other things, three investigations into compliance with the Sustainable Finance Disclosure Regulation (SFDR). They deal specifically with sustainability claims made by financial companies and pension providers (for example, regarding sustainable investing). The AFM guidelines contain many examples specifically relevant to the financial market and apply to both sustainability claims that are made voluntarily (for example, in marketing materials) and mandatory disclosures (such as the SFDR).

In essence, the ACM Guidelines, RCC Code and AFM Guidelines are based on the same core ideas.

What this means for businesses

Where EU regulations apply, companies will be required to carry out a thorough assessment before making a broad range of environmental claims and this will be against more stringent rules and requirements for claim evidence than some member states have previously seen where environmental claims are concerned. The bar for making claims about a business's environmental goals or the environmental impact of a product, service or brand is certainly rising.

Widely recognised scientific evidence, covering the full life cycle of a product, will need to be relied on – but the further step of obtaining approval from verification bodies will also need to be completed before a claim about a product's green credentials can be made. This will be a time-consuming and costly exercise for companies. Companies should also not underestimate the risks of getting their environmental claims wrong.

Osborne Clarke comment

Many regulators in the UK and Europe Union have increased their scrutiny of environmental claims in the last couple of years and many regulators have, or are on track to have, the ability to pass down large fines and other material penalties where a company has misled consumers as to its green credentials. Greenwashing is something that should be high on the risk register of many companies at the moment and certainly in advance of 2026.

If you would like to discuss the issues raised in this Insight, please get in touch with your usual Osborne Clarke contact or one of our experts below.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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