Regulation

EU Green Claims Directive Explained: Compliance, Enforcement, and Practical Guidance

Max Ackermann

The EU Green Claims Directive is a crucial piece of legislation designed to enhance transparency and reliability in environmental claims made by businesses. With increasing consumer demand for sustainable products, the importance of genuine green claims has never been higher. However, the rise in eco-friendly marketing has also led to a surge in "greenwashing"—misleading or unfounded environmental claims. This directive addresses these issues by setting stringent standards for the substantiation, communication, and verification of green claims across the European Union.

This article aims to explain the key aspects of the EU Green Claims Directive, including

  • its requirements,

  • the compliance process for businesses,

  • enforcement mechanisms,

  • and its broader impact on the market.

Using a question-and-answer format, we will provide practical insights and guidance to help businesses navigate and comply with this important regulatory framework.


Understanding the Directive

What is the EU Green Claims Directive?

The EU Green Claims Directive is a legislative measure aimed at ensuring that environmental claims made by businesses are accurate, verifiable, and based on current scientific evidence. Introduced by the European Commission, the directive seeks to combat greenwashing and provide consumers with reliable information to make informed purchasing decisions. By setting out clear criteria for substantiating green claims, the directive aims to create a level playing field for businesses committed to genuine sustainability practices.

The directive was proposed in response to the increasing prevalence of vague, misleading, and unsubstantiated environmental claims. A 2020 study by the European Commission found that 53% of environmental claims in the EU were unclear or deceptive, and 40% lacked any substantiation​. The directive addresses these issues by mandating rigorous standards for how environmental claims should be substantiated, communicated, and verified.

Who does the Green Claims Directive apply to?

The Green Claims Directive applies to all voluntary environmental claims made by companies operating in the EU, including those based outside the EU but targeting EU consumers. These claims can pertain to products, services, or the overall environmental impact of an organization. The directive covers a wide range of claims, including terms like "carbon neutral," "net zero," and "made from recycled materials".

However, the directive excludes mandatory claims that are already regulated under existing EU laws, such as those related to organic food, fuel economy, and energy efficiency. Additionally, it does not apply to companies classified as micro-SMEs (businesses with fewer than 10 employees or less than €2 million in annual turnover)​.

By setting these standards, the directive aims to enhance consumer trust and promote fair competition among businesses genuinely committed to sustainability. The directive's broad scope ensures that all significant environmental claims are held to the same high standards, preventing misleading practices and fostering a more transparent market.


Requirements and Compliance

What are the key requirements for substantiating environmental claims?

The EU Green Claims Directive mandates that all environmental claims must be substantiated using current, widely recognized scientific evidence. This includes considering the entire lifecycle of the product, from production to disposal, to provide a comprehensive assessment of its environmental impact. Here are the detailed requirements traders must follow:

  1. Scope of Claims: Clearly identify whether the claim pertains to the entire product, part of the product, or specific activities of the trader.

  2. Scientific Evidence: Use widely recognized scientific evidence and accurate information to support the claims.

  3. Lifecycle Perspective: Demonstrate that the environmental impacts subject to the claim are significant from a lifecycle perspective.

  4. Comprehensive Environmental Aspects: Take into account all relevant environmental aspects for the performance assessment.

  5. Legal Compliance: Ensure that the claim is not equivalent to existing legal requirements imposed on products or traders.

  6. Comparison to Common Practices: Provide information on whether the product or trader performs significantly better regarding environmental aspects compared to common practice standards.

  7. Avoiding Significant Harm: Identify if improving one environmental aspect leads to significant harm in other areas, such as climate change or biodiversity.

  8. Greenhouse Gas Emissions Offsets: Separate any greenhouse gas emissions offsets from the actual emissions and provide detailed descriptions of these offsets.

  9. Primary and Secondary Information: Include primary information available on environmental impacts. If primary information is unavailable, relevant secondary information representative of the specific value chain should be used.

  10. Clear Communication: Information supporting the claim must be made accessible to consumers, either directly or through digital means such as QR codes or weblinks​.

In addition to these, when making a comparative explicit environmental claim, traders must:

  • Ensure the data and information used for assessing environmental impacts are equivalent and generated or sourced in a similar manner for both the product/trader and the compared entities.

These substantiated claims and labelling schemes must undergo independent verification, and Member States are required to establish appropriate verification procedures.​

How are carbon credits regulated under the Green Claims Directive?

The provisions dealing with carbon credits in the EU Green Claims Directive are notably stringent and prescriptive, reflecting a broader focus on transparency and accuracy in environmental claims. Here are the key requirements and restrictions businesses need to be aware of:

  1. Separation of Carbon Credits:

    • Traders must distinctly separate carbon credits used for substantiating climate-related claims from greenhouse gas emissions.

    • They must specify whether these credits pertain to reductions or removals of carbon emissions. This requirement emphasizes transparency in the use of carbon credits.

  2. Contribution Claims:

    • Any claims involving the purchase of carbon credits that do not relate directly to value chain emissions must be clearly distinguished from claims about improved climate or environmental impacts of the product or trader.

    • This ensures that the use of carbon credits is transparent and not misleading to consumers​

  3. Compensation Claims:

    • Compensation claims using carbon credits are restricted to the residual emissions of a trader. These are emissions that remain after achieving approximately 90-95% reduction in greenhouse gas emissions.

    • The European Commission will adopt a method for defining residual emissions based on an emission reduction pathway compatible with limiting global warming to 1.5°C within a year of the directive's entry into force​.

  4. Verification and Certification:

    • Carbon credits used for substantiating environmental claims must be independently verified and certified.

    • Only Union-issued credits, certified under the Carbon Removal Certification Framework Regulation (CRCF), will be acceptable for compensating residual emissions. Other units may be permitted in duly justified cases, provided they meet equivalent standards recognized by the Commission.

  5. Permanent Removals:

    • For compensation of residual fossil emissions, only permanent removals as defined under the CRCF will be considered adequate. Permanent removals refer to practices capturing and storing atmospheric or biogenic carbon for several centuries, excluding enhanced hydrocarbon recovery.

  6. Future Environmental Performance Claims:

    • Claims about future environmental performance based on carbon credits must comply with the European Sustainability Reporting Standards (ESRS). These standards provide detailed rules for disclosure around climate targets and ensure rigorous substantiation of such claims.

  7. Review and Tightening of Rules:

    • The directive includes a provision for the European Commission to evaluate its effectiveness within five years, particularly focusing on whether traders are effectively prioritizing emission reductions in their operations and value chains. This review may lead to further tightening of rules related to the use of carbon credits.

What additional requirements exist for comparative environmental claims?

Comparative environmental claims, which assert that a product or service is more environmentally friendly than others, must meet additional requirements under the directive. These include:

  • Fair Comparisons: Ensuring that comparisons are made against similar products or services, based on equivalent data and assessment methods.

  • Transparency and Detail: Providing clear, detailed information on the basis of the comparison, including the specific criteria and data used.

  • Compliance with Articles: Adhering to specific articles in the directive that govern comparative claims, such as Article 4 (communication requirements) and Article 6 (additional standards for comparative statements)​.

What is the process for pre-approval and verification of green claims?

The EU Green Claims Directive mandates a rigorous pre-approval and verification process for environmental claims to ensure their credibility and compliance. Here is a detailed breakdown of the process:

  1. Verification Body Requirements:

    • Personal Independence: Verifiers must operate independently, free from any personal conflicts of interest that could influence their judgment.

    • Financial Independence: The verification body must be financially independent from the entities it evaluates to avoid any potential bias.

    • Expertise: Verifiers must possess the necessary expertise in environmental science and assessment methods to accurately evaluate claims.

    • Confidentiality: Verifiers are required to maintain strict confidentiality regarding all information reviewed during the verification process​.

  2. Scope of Verification:

    • Article 3 GCD: Content requirements for environmental claims, ensuring that they are substantiated by robust scientific evidence and reflect significant environmental impacts.

    • Article 5 GCD: Communication requirements, specifying how environmental claims should be presented to consumers clearly and transparently.

    • Articles 4 and 6 GCD: Additional requirements for comparative environmental claims, ensuring fairness and accuracy in comparisons with other products or traders.

  3. Certificate of Conformity:

    • Issuance: Upon successful verification, a certificate of conformity is issued, confirming that the explicit environmental claim meets the directive's standards.

    • Timeline: The MEPs voted in favour of a 30-day deadline for the verification of environmental claims and labelling schemes, with a potential extension for another 30 days. However, the Commission is tasked with developing a simplified procedure that may include a presumption of conformity for simpler claims and products.

    • Management and Sharing: This certificate is managed by the relevant authorities and shared within the Internal Market Information System (IMI), ensuring recognition across the EU​​.

  4. Periodic Re-verification:

    • Trigger Conditions: Re-verification is required if circumstances arise that could affect the accuracy of the environmental claim.

    • Scheduled Re-verification: Mandatory re-verification occurs every five years to ensure ongoing compliance and accuracy of the claims​​.

  5. Verification Timeline:

    • Standard Deadline: MEPs have voted in favor of a 30-day deadline for the verification of environmental claims and labeling schemes, with the possibility of extending this deadline by another 30 days if necessary.

    • Simplified Procedure: The Commission is tasked with developing a simplified verification procedure that may include a presumption of conformity for simpler claims and products​.

How should companies communicate their green claims?

Under the directive, companies must ensure their environmental claims are communicated clearly and transparently. This involves:

  • Accessible Information: Providing detailed information on the environmental impact of products, available directly on the packaging or through digital means (e.g., QR codes, weblinks).

  • Conformity Certificates: Including a certificate of conformity that verifies the claim has been independently assessed and meets the directive's standards​.

  • Regular Updates: Ensuring the information is up-to-date and reflects the latest scientific evidence and assessments.


Compliance Steps for Businesses

What steps should businesses take to comply with the directive?

To comply with the EU Green Claims Directive, businesses must establish a robust environmental claims management framework. Here are the key steps:

  1. Developing an Environmental Claims Management Framework:

    • Gathering and Analyzing Data: Collect comprehensive environmental data across the product's lifecycle, including raw materials, production processes, distribution, and disposal. This data should be accurate, verifiable, and up-to-date.

    • Conducting Life Cycle Assessments (LCAs): Utilize LCAs to evaluate the environmental impact of products or services comprehensively. LCAs help identify the areas where environmental improvements can be made and substantiate green claims​.

  2. Internal Processes and Controls:

    • Updating Communication Guidelines: Ensure that all environmental claims are communicated clearly and transparently. This includes training marketing and communications teams to accurately present environmental data.

    • Ensuring Data Integrity and Transparency: Implement processes to maintain the accuracy and transparency of environmental data. Regular audits and updates should be part of the framework to keep the information current​.

  3. External Verification:

    • Selecting Accredited Verifiers: Choose independent, accredited third-party verifiers to validate green claims. These verifiers must be financially and personally independent, possess the necessary expertise, and adhere to strict confidentiality​.

    • Preparing for Verification: Prepare all necessary documentation and data for the verification process. This includes detailed reports on the product lifecycle, evidence supporting environmental claims, and internal audit reports.

How can businesses prepare for external verification?

Preparation for external verification involves several key steps:

  1. Documentation: Gather all relevant documentation that substantiates the environmental claims, including lifecycle assessment reports, scientific studies, and internal audit results.

  2. Selection of Verifiers: Identify and engage with accredited verifiers who have the expertise and independence required to assess the claims objectively.

  3. Internal Reviews: Conduct internal reviews and mock audits to ensure all claims and supporting documents are accurate and ready for the verification process.

  4. Continuous Monitoring: Implement continuous monitoring processes to ensure that the claims remain accurate and up-to-date, reflecting any changes in product lifecycle or scientific evidence​.

What are the common challenges businesses might face and how can they overcome them?

Businesses may face several challenges in complying with the directive, including:

  1. Financial and Operational Impacts:

    • Increased Costs: The costs associated with gathering detailed environmental data, conducting LCAs, and undergoing external verification can be significant. To mitigate these costs, businesses should integrate sustainability efforts into their existing processes and seek cost-sharing opportunities through partnerships and grants​.

    • Operational Changes: Implementing new processes and controls can be operationally challenging. Businesses should develop a clear implementation plan, involve cross-functional teams, and leverage existing systems where possible​​.

  2. Knowledge and Data Gaps:

    • Addressing Gaps: Identify any gaps in knowledge or data early in the compliance process. Businesses may need to invest in training and development for staff or hire external experts to fill these gaps​.

  3. Maintaining Compliance Over Time:

    • Regular Updates: Ensure that all environmental claims are regularly reviewed and updated to reflect the latest scientific evidence and changes in the product lifecycle. Continuous monitoring and periodic re-verification are crucial for maintaining compliance.


Enforcement and Penalties

How is the Green Claims Directive enforced?

The enforcement of the Green Claims Directive is managed by competent authorities within each EU member state. These authorities are responsible for:

  1. Monitoring Compliance: Ensuring that businesses comply with the directive's requirements through regular checks and audits.

  2. Handling Complaints: Investigating complaints submitted by individuals or organizations about non-compliant environmental claims.

  3. Imposing Penalties: Taking corrective action and imposing penalties for non-compliance, such as fines, revenue seizure, and exclusion from public procurement​.

The directive also provides mechanisms for collective redress, allowing consumer groups and NGOs to file complaints and take legal action against businesses that fail to comply.

What are the penalties for non-compliance?

Penalties for non-compliance with the Green Claims Directive are designed to be stringent and deterrent. They include:

  1. Fines: Up to 4% of the annual turnover of the offending company within the affected member states.

  2. Revenue Seizure: Confiscation of revenues derived from misleading or unsubstantiated green claims.

  3. Public Procurement Exclusion: Temporary exclusion from public procurement processes and public funding for up to 12 months.

  4. Reputational Damage: Significant reputational damage and loss of consumer trust, which can impact overall sales and brand image​ .


Impact and Future Outlook

What are the benefits of complying with the Green Claims Directive?

Compliance with the Green Claims Directive offers several benefits for businesses:

  1. Consumer Trust: Enhances consumer trust and loyalty by providing accurate and verifiable environmental information.

  2. Competitive Advantage: Creates a competitive edge for businesses that genuinely commit to sustainability, differentiating them from those engaging in greenwashing.

  3. Market Opportunities: Opens up new market opportunities by aligning with consumer demand for sustainable products and services​.

How will the directive impact the market and business practices?

The directive is expected to significantly impact market dynamics and business practices by:

  1. Increasing Transparency: Promoting greater transparency in environmental claims, leading to more informed consumer choices.

  2. Encouraging Innovation: Driving innovation in sustainable practices and technologies as businesses strive to meet the directive's standards.

  3. Leveling the Playing Field: Ensuring fair competition by holding all businesses to the same high standards of environmental substantiation.

What is the timeline for the directive’s implementation and future developments?

The EU Green Claims Directive, aimed at ensuring transparency and reliability in environmental claims, is progressing through the legislative process. Here are the key milestones and the latest updates:

  1. European Parliament Approval: The European Parliament adopted its first reading position on the Green Claims Directive on March 12, 2024. This marked a significant step towards formalizing the directive, with 467 votes in favor, 65 against, and 74 abstentions.

  2. Next Steps and EU Elections: Following the Parliament's approval, the directive must now be negotiated with the Council of the European Union. However, these discussions are expected to take place after the EU elections in June 2024. The new Parliament will take up the directive for further negotiations and potential amendments.

  3. Expected Timeline: If negotiations proceed smoothly, it is anticipated that the directive could be finalized and adopted by the end of 2024. Member states will then have 18 months to transpose the directive into national law, making the compliance requirements effective by mid to late 2026.


Conclusion

The EU Green Claims Directive represents a significant step forward in promoting transparency and credibility in environmental claims. By setting rigorous standards for substantiation, communication, and verification, the directive aims to combat greenwashing and foster genuine sustainability efforts. Businesses that comply with the directive will benefit from enhanced consumer trust, competitive advantages, and new market opportunities. As we move towards a greener future, it is crucial for businesses to start preparing for compliance, ensuring their environmental claims are both credible and compelling.


Sources and further reading

  1. European Commission, 2023

  2. European Commission, 2019

  3. European Commission, 2020

  4. European Commission, 2022

  5. Publications Office of the EU

  6. House of Change

  7. Passle

  8. KPMG

  9. Deloitte United States

  10. White & Case LLP

  11. Bird & Bird, 2023

© House of Change GmbH 2024

Made with 💚 in Hamburg & Berlin

© House of Change GmbH 2024

Made with 💚 in Hamburg & Berlin