European Commission proposes a Green Claims Directive

As part of a global push to tackle “greenwashing”, the European Commission has proposed a new law preventing businesses from using misleading and unsubstantiated environmental claims.

Greenwashing broadly describes the practice of providing false or misleading information giving the impression that a company's products or initiatives is more environmentally friendly than is in fact the case.  Last week, the European Commission published their proposal for a Directive on substantiation and communication of explicit environmental claims (Green Claims Directive).  The Green Claims Directive aims to address greenwashing by establishing a clear and uniform regime for the regulation of environmental claims and labels across the European Union.  The goal is to ensure that “consumers are provided with reliable, comparable and verifiable information which enables them to make more environmentally sustainable decisions”.  The Commission also wants to boost the competitiveness of companies that are taking genuine efforts to increase the sustainability of their business, thereby incentivising more companies to follow suit.

What is an ‘environmental claim’?

According to the Green Claims Directive, an ‘environmental claim’ means any message or representation, in any form, which states or implies that a product or trader:

• has a positive or no impact on the environment; or
• is less damaging to the environment than a competitor; or
• has improved their impact over time.

Examples of common environmental claims include, “packaging made of 30% recycled plastic”, “carbon neutral”, and “commitment to reduce CO2 emissions by 50% by 2023”. 

The proposed Green Claims Directive addresses three types of environmental claims: (1) explicit environmental claims; (2) comparative environmental claims; and (3) environmental labels.

See our article on ‘How to avoid greenwashing’.

Summary of key proposals

(1) Explicit environmental claims

The proposed Green Claims Directive will require traders to carry out an assessment to substantiate explicit environmental claims.  The assessment will need to:

• specify if the claim is related to the whole product, part of a product or to all activities;
• rely on widely recognised scientific evidence, taking into account international standards;
• take into account all environmental aspects or impacts in relation to its environmental performance;
• demonstrate that the claim is not equivalent to legal requirements imposed within the sector;
• identify whether improving environmental impacts leads to significant harm in other areas;
• separate total greenhouse gas emissions from any offsets, and describe how the offsets are accounted for to reflect the claimed impact on climate; and
• include primary and relevant secondary information available to the business in relation to the claim. 

When communicating explicit environmental claims, claims will need to:

• include information on how the consumer should use the product in order to achieve the expected environmental performance of that product; and
• include a time-bound commitment for improvements where the claim is related to future environmental performance.

(2) Comparative environmental claims

The substantiation of claims that state or imply that a product or trader has less environmental impacts or a better environmental performance than other competitors will need to:

• use equivalent data and information in making that comparison;
• use data that is sourced in an equivalent manner in making that comparison;
• ensure that all stages along the value chain is covered in an equivalent manner; and
• ensure that any assumptions used for the comparison are set in an equivalent manner.

When communicating comparative claims, claims shall not be made in relation to products that are from the same trader or a competing trader that is no longer active, unless the claim is based on evidence proving that the improvement is significant and achieved in the last five years.

(3) Environmental labels

The proposed Green Claims Directive states that any environmental labels must fulfil the same requirements as above and are subject to verification by a third-party conformity assessment body.  The Directive also sets out requirements for environmental labelling schemes and prohibits labels that use an aggregate scoring of the product’s overall environmental impact (for eg water consumption), unless set in EU rules.

How is the Green Claims Directive  of relevance to Australian businesses?

While the Green Claims Directive will be adopted and implemented only by countries within the European Union, greenwashing is of focus for many regulators globally, including the Australian Competition and Consumer Commission (ACCC).  The ACCC actively coordinates with the European Commission and other global regulators and looks to align its enforcement approach. 

Greenwashing is prohibited by the Australian Consumer Law (ACL) if environmental claims are found to be misleading or deceptive to consumers.  The ACCC has identified greenwashing as an area of concern in its public enforcement policies for the past two years.  Earlier this month, the ACCC announced that its top compliance and enforcement priority for 2023/24 will be investigating concerns relating to environmental claims and sustainability, continuing a focus on this issue by the ACCC in 2022/23. 

In line with this priority, the ACCC recently published a greenwashing report outlining the findings of its internet sweep of environmental claims.  A sweep was conducted across the websites of 247 Australian businesses over 8 different sectors to identify greenwashing practices.  The report highlights that 57% of businesses had made “concerning” claims. 

In particular, it found that businesses are:

• using vague or unclear environmental claims;
• not providing sufficient evidence for their claims;
• setting environmental goals without clear plans for how these will be achieved; and
• using third-party certifications and symbols in a confusing way.

Many of these themes mirror those in the proposed Green Claims Directive, pointing to a high degree of coordination in the approach of the European Commission and ACCC.  In particular, both regulators stress the need for claims to be precise and to only assert benefits specific to the relevant part of the product or business.  Both regulators also emphasise that claims need to be able to be substantiated by credible evidence that is readily accessible by consumers, and certification labels need to be used legitimately.

The sweep has identified high-level concerns and the ACCC has stated that they will be investigating further and undertaking enforcement, compliance and education activities where appropriate.  This will include producing updated economy-wide guidance material, as well as targeted guidance for specific sectors.  The ACCC will engage directly with businesses and industry associations to improve compliance with the ACL.

Recent greenwashing complaints to the ACCC

Relevantly, the ACCC has received a number of publicised complaints calling for it to investigate potential greenwashing activities.

Earlier this February, a complaint was made against the Australian Government’s carbon-neutral certification scheme, Climate Active.  The complaint was filed by the Australia Institute, who alleges that the certification scheme is misleading and deceptive contrary to consumer law (see our article on ‘Chubb review finds Australia’s carbon crediting framework is sound’).  The Climate Active scheme certifies Australian businesses who have offset some of their carbon emissions.  According to their website, businesses can receive ‘carbon-neutral’ certification “when the offsets purchased by an organisation equal the emissions produced”. 

The Australia Institute alleges that in some circumstances, the Climate Active trademark provides misleading or deceptive representations about a company’s carbon neutral status.  They argue that this is “state-sponsored greenwashing” and is undermining Australia’s emission reduction efforts.

Last week, a complaint was made against Etihad Airways for its allegedly misleading net zero and sustainability claims.  Flight Free Australia, represented by the Environmental Defenders Office, requested that the ACCC investigate advertisements which displayed the messages, “Flying shouldn’t cost the earth” and “Net zero emissions by 2050” along the Etihad logo. 

Flight Free Australia alleges that Etihad has engaged in greenwashing because its advertisements imply that flying with Etihad does not have a significant environmental impact, and that Etihad intends or reasonably expects to achieve net zero emissions by 2050.  However, Flight Free claims that Etihad has no credible path to net zero and that it has significantly understated its emissions. 

How can companies reduce risk of greenwashing claims?

In light of this heightened regulatory scrutiny, companies should think about reviewing any environmental claims it makes in relation to its business to avoid potential greenwashing.  The ACCC has indicated that environmental claims should:

• be accurate and able to be substantiated;
• be specific, not unqualified or general;
• be made in plain language;
• not overstate a benefit; and
• consider the whole product life cycle.

ACCC Deputy Chair Catriona Lowe has said:

“We want to see businesses taking steps to ensure that environmental claims are accurate as well as meaningful for consumers.  Our sweep has shown that claims are most useful where they are relevant, clear, reliable and transparent.”

The ACCC has encouraged businesses to self-report if they become aware that they have made false or misleading environmental or sustainability claims.