European Commission seeks feedback on introducing new rules requiring companies to substantiate green claims

As part of its new 2020 Circular Economy Action Plan (one of the main blocks of the European Green Deal, the European Commission has recently opened a public consultation on the introduction of new rules requiring companies to substantiate green claims on their products and business by using standard methods for quantifying them. The initiative aims at making claims reliable, comparable and verifiable across the EU – reducing ‘greenwashing’ (meaning that companies give a false impression of their environmental impact). The consultation opened in the end of August and closes on 3 December 2020.

What’s behind the initiative?

Competition for green markets is growing and provision of comparable and reliable information on products is essential for making informed purchases and investments. Currently, there are over 100 environmental labels in the EU with different and therefore non-comparable methods to assess environmental impact. This has led to a significant number of misleading or exaggerated claims in the market, culminating in so called “greenwashing”, meaning that companies try to consciously achieve a "green image" through marketing and PR measures, but without actually implementing corresponding measures. However, false claims do not always result from intentional behavior. There is wide room for interpretation when it comes to green claims and no binding rules exist. At the moment, national competent authorities can only prohibit misleading environmental claims towards consumers on the basis of a case-by-case application of the existing EU consumer law, i.e the Directive 2005/29/EC on Unfair Commercial Practices.

How does the initiative affect companies?

It is expected that the initiative will have a positive economic impact on companies by supporting growth and fair competition in green markets. For companies that are already making green claims, overall costs could decrease since they will no longer have to use several different methods to substantiate their claims. This is particularly true for companies trading cross-border: the goal is to establish a level playing field for all products sold on EU markets. The impact assessment will also look into impacts on competitiveness outside the EU.

Policy Options

The European Commission’s policy options build on Recommendation 2013/179/EU which defines Product and Organisation Environmental Footprint (PEF/OEF) methods. In determining the environmental footprint of products (PEF) and organisations (OEF), the environmental performance along the life cycle of the product or organization is quantified. While the PEF methodology is targeted at individual goods or services, the OEF methodology applies to the entire scope of an organization's activities - in other words, to all activities related to the supply chain (from extraction of raw materials, to use, to options for final waste management) of the goods and/or services produced by the organization. The Footprint calculations of organizations and products can therefore be considered as complementary activities, each supporting specific applications.

In the Inception Impact Assessment of the initiative, four policy options are presented to address the abovementioned problems:

  1. no modification of Recommendation 2013/179/EU;
  2. update Recommendation 2013/179/EU;
  3. establish a voluntary legal framework enabling companies to make green claims in accordance with the PEF/OEF methods;
  4. establish a mandatory legal framework obliging companies to make green claims in accordance with the PEF/OEF methods.

The Inception Impact Assessment was published on the European Commission’s website and received feedback from 20 July 2020 to 31 August 2020. Currently, the initiative is in the phase of Public Consultation which ends on 3 December 2020. Should the consultation lead to the conclusion that legislative action is necessary, the Commission aims for an adoption in the second quarter of 2021.

And in the meantime?

Companies increasingly recognize green claims as an opportunity to increase their sales. Although the legal (especially civil) processing of green claims is still in its infancy, liability risks and considerable reputational risks exist in the event of false green claims.

Companies could be liable according to the different Member State’s contract laws. For example, German authors suggest a contractual liability which differentiates between product-related and company-related green claims. Liability because of untrue statements about product-related factors can be established by applying warranty law: The promise to comply with a green claim could be interpreted as an agreement on the quality of the product. If the claims turns out to be false, the product might be qualified as defective leading to the whole range of warranty rights of the buyer (right to cure, compensation, cancellation of contract). False green claims regarding company-related factors could constitute a pre-contractual breach of the duty of truth. As a result, the buyer could possibly withdraw from the contract and claim damages.

In addition, we see environmental organisations monitoring the practice of greenwashing closely, a term which has received greater traction and prominence over the last few years. This is in part due to grassroots activism and shifting consumer values but also to EU new regulations and initiatives that are aimed at tackling “greenwashing” in all its forms. Notably, one of the policy aims of the EU Green Deal (which was announced in December 2019) is to improve access to reliable, comparable and verifiable information to enable consumers to make more sustainable decisions.

Many companies have already suffered from reputational damage because they were unable to prove the accuracy or relevance of their green claims. To avoid accusations of greenwashing, companies should be informed about the expectations of environmentalists and consumers. They should ensure their green claims are true and consistent with public expectations. Working with stakeholders (suppliers, customers, NGOs) could help to gather a better understanding of their view and to identify potential weaknesses. To avoid reputational risks, companies should openly acknowledge if certain parts of their products or business are not “100% green” and commit to work on it. This prevents third parties from “discovering gaps” in their green claims. Another method recommended by environmental organisations is to “focus on the journey”. If marketing is focussed on “becoming green” and not “being green in all aspects already”, the risk of greenwashing may significantly be reduced.