ESG Matters: EU proposals to tackle greenwashing

If anything, the extensive reach of these proposals showcase the ever-increasing focus on greenwashing, in politics, from regulators and from the public. Companies should therefore not underestimate the impact on product development. These directives, if passed, will also boost climate litigation possibilities.

The absence of regulation creates room for greenwashing
The current lack of common rules for companies making voluntary green claims leaves the way open to greenwashing. As evidenced by the results of a 2020 study by the Commission: 53.3% of environmental claims investigated in the EU were vague, misleading or unfound, and 40% of the claims were unsubstantiated. The absence of a clear framework is considerable to create an uneven playing field in the EU to the detriment of truly sustainable companies, and makes it more complicated for consumers to make sustainable choices as part of the EU green transition. The EU now intends to change this with two proposed directives.

The proposed Consumer Empowerment Directive
The first one is the proposal for a Directive on Consumer Empowerment. This Directive will update the current Unfair Commercial Practices Directive (2005/29/EC) and Consumer Rights Directive (2011/83/EU) and aims to increase the contribution of consumers to a circular economy. To this end, it introduces rules to avoid misleading environmental and social claims and includes a ban on planned obsolescence and the use of unreliable and non-transparent sustainability labels. For example, the definition of 'unfair commercial practices' will be extended in such way that it includes the practice of displaying a sustainability label that is not based on a certification scheme or not established by public authorities and the practice of making an environmental claim about an entire product whilst it only concerns a certain aspect of the product. Companies will also be required to provide consumers with information on products' durability and reparability.

The proposed Green Claims Directive
The second proposal is the Green Claims Directive that aims to harmonise the rules for voluntary environmental claims in business-to-consumer practices. If adopted, companies cannot disclose 'green claims' to consumers without first having these independently verified and having ensured that scientific evidence supports these claims. As part of the scientific analysis, companies will have to identify the product's environmental impact, as well as any trade-offs, in order to present a complete and accurate picture. Companies are also required to communicate these claims clearly and unambiguously. For example, claims or labels that use aggregated scores for the overall environmental impact of the product will no longer be allowed unless specified in EU rules. Comparisons of products or organisations must be based on equivalent information and data.

Next steps
The new requirements and expanding litigation possibilities under the proposed Directives will likely have a significant impact on current business practices. Companies should therefore closely follow the developments, even though the EU legislative procedure to adopt these directives may take until 2024 or 2025. With respect to the Green Claims Directive, companies can also submit comments during the public consultation period (until 25 May 2023).

What it means for you

This development is relevant for the following reasons:

• Any development of new products needs to take the EU Greenwashing Framework into account, to ascertain that no unfounded ESG claims are made
• The EU Greenwashing Framework may create support for consumers to bring unfair market practice claims
• The EU definition of greenwashing will likely have a general impact on ESG related transparency and may intensify ESG-scrutiny from national regulators

Getting ready for change
These proposed directives underline that meeting ESG objectives is definitively moving from the reputational and stakeholder management area to legal. Our Sustainable Business & Climate Change team can help you to position and prepare yourself for the impact of these directives.