EU Green Claims Directive Proposal
On March 22, 2023, the European Commission published a proposal for a new EU directive on the substantiation and communication of explicit environmental claims (the "Proposal"). This Proposal sets out specific rules for consumer protection, obliging businesses that sell goods or services within the EU to substantiate and verify any voluntary, explicit environmental claim they make, and to present it accurately to consumers. It also complements the March 2022 proposal for a directive on empowering consumers for the green transition, amending the Unfair Commercial Practices and Consumer Rights directives.
The Proposal applies to all voluntary claims made by companies in either textual form or in an environmental label that are directed to EU consumers and relate to the environmental impact, aspect, or performance of the company's products, services, or organization (such as "eco-friendly," "green," "carbon neutral," or "ecological"). However, the scope of the Proposal provides for several exemptions and expressly excludes environmental information reported by undertakings that apply European sustainability reporting standards in accordance with the Accounting Directive, including the requirements recently introduced by the Corporate Sustainability Reporting Directive.
The Proposal provides for three main requirements:
- Substantiation of environmental claims, which shall be based on an assessment that meets several minimum criteria, including, for example, the use of recognized scientific evidence and technical knowledge, the demonstration of the significance of impacts from a life-cycle perspective, the disclosure of the use of greenhouse gas offset mechanisms, or the use of accurate primary company-specific data.
- Verification and certification of environmental claims by an independent and accredited verification body before any such claim can be used in a commercial communication. In this respect, the Proposal provides that Member States will need to adopt appropriate verification procedures for businesses to be able to comply with their obligations.
- Solid, transparent, and reliable communication of environmental claims, which requires businesses to communicate, next to the product information, any explicit environmental claim together with its "substantiation" (e.g., standards used, information on offsets, summary of the assessment of the claim and the certificate of conformity, contact information of the accredited verification body), either in a physical form or in the form of a weblink, QR code, or equivalent.
The requirements set out in the Proposal will be applied, monitored on a regular basis, and enforced by one or more appointed authorities designated by each Member State. In case of noncompliance with the Proposal requirements, several sanctions may apply, including, for example: (i) fines, which may be, in some cases, up to 4% of the business' total annual turnover (e.g., in a case of widespread noncompliance), and/or (ii) confiscation of the relevant product or of revenues gained from the transactions. Additionally, certain consumer protection organizations and other public bodies representing consumers' interests will also be able to bring legal actions to protect the collective interests of consumers.
The Proposal in the EU is being made at the same time the U.S. Federal Trade Commission ("FTC") is considering updates to its Green Guides, which provide guidance to help marketers avoid potentially unfair or deceptive environmental claims. The extended comment period for the Green Guides ended April 24, 2023. As with the Proposal in the EU, considerations regarding the Green Guides in the United States include an increased focus on advertising claims related to carbon offsets and climate change. Similar to the sanctions under the Proposal in the EU, the FTC appears to be considering a rulemaking to establish independently enforceable requirements related to unfair and deceptive environmental claims, which would turn previously unenforceable guidance into federally enforceable law. The issuance of the Proposal in the EU and the FTC's request for comments on the Green Guides in the United States show increasing international focus on and regulation of environmental marketing claims that is likely to continue.
If adopted, the Proposal will provide a unified regulatory framework at the EU level and bring more clarity regarding ways for companies to communicate on the environmental impact of their products and services. It may also help companies to defend, through the verification and certification mechanism by an independent accredited body, against the increasing number of greenwashing allegations and ESG litigation brought against companies.
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