EU Regulation vs. Greenwashing: Deciphering the EU Green Claims Directive

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As environmental consciousness grows, companies often bombard consumers with buzzwords like “eco,” “carbon neutral,” and “sustainable” to grow market share. These claims may often be unsubstantiated or exaggerated, making it difficult for consumers to distinguish between authentic environmental commitment and greenwashing. To combat misleading claims like these, the European Union (EU) is introducing new legislation around the marketing of “green” and “climate neutral products.” The new climate regulation, dubbed the EU Green Claims Directive, aims to ensure that consumers receive accurate, reliable, and verifiable information about the environmental impact of products and services. The EU Council and Parliament reached a provisional agreement on the directive on September 19, 2023, and it’s set to be implemented by 2026. With 94% of EU consumers stating that protecting the environment is important to them, this EU regulation will empower consumers to make more informed choices and help drive the transition to a more sustainable economy. In this article, we cover what the forthcoming EU Green Claims Directive is, its potential impact on businesses, and the role that carbon credits can play.

“Citizens are suffering the consequences of climate change and want to be part of the solution. With the compromise reached today consumers will have the necessary information to make the right green choices and will be better protected against green washing, social washing and other unfair commercial practices.”

Alberto Garzón Espinosa, Acting Spanish Minister for Consumer Affairs

What is the EU Green Claims Directive?

The EU Green Claims Directive, initially unveiled in March 2023, represents a significant step in the EU’s effort to combat misleading environmental claims prevalent in the market. The proposed legislation mandates a standardized approach for businesses when making environmental assertions about their products or services. For example, when a company claims its “packaging uses recycled plastic” or boasts about a “reduction in CO2 emissions.” Claims such as these must adhere to stringent criteria and undergo rigorous verification by independent, accredited agencies. These measures will ensure that companies are transparent and truthful about the environmental impact of their products. The directive covers a wide range of claims, including those related to the positive environmental impact, lesser negative impact, no impact, or improvement over time of products, services, or organizations. By setting minimum requirements for substantiation, verification, and communication of voluntary environmental claims and labels, the directive aims to promote transparency and trust in the market.

Key elements of the Green Claims Directive include:

  • Guidelines: Criteria on how companies should prove their environmental claims and labels. 
  • Third-party verification: Requirements for claims to be verified by an independent, certified third-party. 
  • Labeling governance: Governance rules for the administration of environmental labeling systems to ensure they are accurate, clear, and trustworthy.

The EU Green Claims Directive is not an isolated effort – it’s part of the EU’s ambitious goal of achieving climate neutrality by 2050. It’s also linked with and complements other EU policies focused on transforming the EU into a more sustainable, circular economy. Specifically:

  • European Green Deal: First introduced in 2019, this is a comprehensive set of policies, including the Green Claims Directive, that aspire to make the EU climate neutral by 2050. 
  • Circular Economy Action Plan: A key initiative of the European Green Deal, it aims to foster a transition from a linear to a circular economy. In a linear economy, products are made, used, and discarded. A circular economy, by contrast, focused on reusing, recycling, and repurposing resources as much as possible. 
  • Ecodesign for Sustainable Products: This is another EU policy that intends to establish sustainability standards for products to improve their circularity, energy performance, and other environmental aspects.
  • Farm to Fork Strategy: This strategy, and the related legislation, is geared toward promoting environmentally friendly food systems, including reduced use of pesticides, fertilizers, and antibiotics.

In essence, the Green Claims Directive is part of a suite of EU policies, all working toward facilitating the transition to a more environmentally responsible economy.

Why is the EU introducing the Green Claims Directive climate regulation?

EU consumers today are faced with a dizzying array of green labels and claims made by companies. There are 230 sustainability labels and 100 green energy labels in the EU with varying levels of transparency. And according to earlier research by the EU:

  • More than half (53%) of green claims provide vague or misleading information.
  • 40% of claims lack supporting evidence.
  • Half of green labels offer weak or non-existent verification.

With such ambiguity in the market, consumers can be easily misled, which can lead to undeserved competitive advantages for companies indulging in greenwashing. By introducing the directive, the EU aims to restore consumer trust, protect the environment, and ensure a level playing field for businesses.

What will the EU regulation banning carbon neutral claims mean for businesses?

The new EU Green Claims Directive will have significant implications for businesses operating within the EU. Companies will be required to provide clear evidence to support their environmental claims and have them verified by independent, accredited third parties. It applies to any of the following unless it is already covered under other EU rules such as the EU Ecolabel:

  • Voluntary claims that convey a positive, reduced, zero, or improved environmental impact over time. This also applies to claims about a business or product using a life-cycle approach, from raw materials to end-of-life.
  • Environmental labeling schemes.
  • Climate-linked claims such as “carbon neutral” or “100% CO2 offset.”

While member states still need to establish mechanisms for validating and managing claims, the rule imposes the following minimum requirements:

  1. Scientific data: Claims must be backed by widely acknowledged scientific data.
  2. Comparisons: Any comparisons between products or companies must be unbiased and based on equivalent information.
  3. Aggregate scoring: Claims relying on aggregated scoring of the product’s environmental impact on elements such as biodiversity, water, usage, etc. will not be permitted.
  4. Environmental labels: New environmental labels will not be allowed unless developed at the EU level. Private labels will only be allowed if they can prove enhanced environmental goals over existing labels and secure prior authorization. 
  5. Third party verification: Claims and environmental labels must be verified by certified, third-parties. Environmental labels must also undergo regular reviews.

Ultimately, the EU aims to level the playing field for businesses operating in the EU, ensuring that those genuinely committed to environmental sustainability gain competitive advantage. At the same time, it may pose challenges for companies that have relied on greenwashing in the past.

Can businesses still use carbon credits or offsets?

The EU Green Claims Directive does not ban carbon credits. Quite the contrary – the EU is supportive and has the largest mandatory market in the world. However, businesses cannot make unverified claims driven solely by carbon offsets. For example, this product is 100% carbon neutral based only on offsets. The two main challenges that the new EU regulation seeks to address are:

  1. Businesses using offsets in place of reducing their emissions.
  2. Inconsistency in carbon credit quality which can result in issues such as overestimations and double counting of avoided or reduced emissions.

Businesses must prioritize reducing emissions within their own operations and supply chains rather than being overly dependent on offsets. However, residual emissions, which will differ by industry, may be addressed through high-quality carbon credits. Any environmental claims, including future performance, that leverage carbon credits must be accurately accounted for and transparently communicated. Specifically, this means conveying which methodologies are used to verify the integrity of the offsets, as well as what type they are (emissions reduction or removal). In addition, companies must specify which part of the claim is based on their own emissions reduction vs. which part is based on purchased offsets. This will help ensure that any claims using offsets are grounded in methods that accurately represent their climate impact.

Which companies will the new EU regulation apply to?

The EU Green Claims Directive will apply to any business that voluntarily communicates environmental claims to consumers, either about their products or the business as a whole. Microenterprises with under 10 employees and a turnover below €2 million euros ($2.1 million dollars) are excluded from this directive. However, small and medium enterprises (SMEs) are still encouraged to engage in environmentally responsible practices. Additionally, non-EU businesses that target EU consumers with environmental claims will have to adhere to this directive. 

When will the EU Green Claim Directive be enacted into law?

The directive is expected to come into force by 2026, although that could change depending on the legislative process. The EU Council and Parliament reached a provisional agreement on the directive on September 19, 2023. The next step in the normal legislative process is for both parties to formally adopt the directive, after which it enters into force. Member States will then have 18 months to implement it into national law. 

What can businesses do to get ready for the new EU regulation?

There are a few steps businesses can take to prepare for the new EU climate regulation:

  • Become familiar with the criteria and verification processes.
  • Review and potentially adjust environmental claims and marketing strategies.
  • Engage with accredited verification agencies.
  • Stay informed about the evolving standards and regulations.
  • Consider shifting your carbon offsetting approach from making carbon neutral claims to making a positive climate contribution (Sustainable Development Goal 13).
  • Emphasize genuine, evidence-backed efforts towards environmental sustainability.

How can Cloverly help?

In a constantly changing regulatory landscape, businesses benefit from having partners that understand and can help them navigate the intricacies of new mandates. Partnering with Cloverly ensures that companies are primed to meet new climate regulations such as the EU Green Claims Directive. Our network of carbon accounting partners equips you with the resources you need to measure, monitor, and disclose your emissions across all scopes. And the Cloverly platform empowers you to make meaningful climate contributions today with trust, access, and ease. Regardless of where you are in your decarbonization journey, integrating carbon credits into your sustainability strategy is essential. High-quality carbon credits don’t just neutralize your emissions (immediate and long-term residual), they also represent authentic, positive environmental impact. By aligning with new climate regulations such as the Green Claims Directive and transparently communicating your impact, you can showcase your climate leadership with your stakeholders.

To learn more about carbon credits can help you stay ahead of regulatory changes and drive business value, download the white paper: 7 Benefits of Carbon Credits: How to Make the Business Case

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