Green Claims Directive - The EU Commission turns off the tap to "greenwashers"

Sustainability and the ecological footprint of products and services can be advertised, but do not have to be. The same applies to the accuracy of the information communicated. These can be correct - but they are not always. A study by the European Commission in 2020 found that 53.3 per cent of the environmental claims made for products and services in the European Union (EU) were vague to misleading and as many as 40 per cent were simply without substance.

On 23 March 2023, the EU Commission published a proposal for a directive against advertising that presents products, services and the company itself as more environmentally friendly than they actually are, thereby misleading consumers and hindering a genuine sustainable transformation of the economy. 

The directive on the verifiability and communication of environmental product claims („Green Claims Directive“) is intended to create transparency and give consumers the certainty that something that is advertised as environmentally friendly actually is. Consumers should be able to make informed purchasing decisions on the basis of comprehensible information. In addition, the competitiveness of those market participants who strive to increase the environmental compatibility of their products and services should be strengthened. In this way, the directive contributes to the transformation of the economy and society in accordance with the demands of the "EU Green Deal". It also contributes to the project to update European consumer law and complements existing EU regulations, both in the area of consumer protection and in relation to environmental standards.

The proposed Directive requires all companies to make voluntary claims about the environmental impacts, aspects or performance of their products, services or the company itself, using terms that are not defined by the EU, such as "ocean-friendly" or "climate-neutral". 

Companies must first carry out an assessment, which should form the basis for any environmental claims. It must be made clear whether the claim refers to the entire product, a part of the product or specific aspects of the product. The claims must be substantiated by scientific evidence and may only be made if the environmental benefits of the product go beyond what is required by law. If positive environmental effects are advertised, they must not be reversed by any negative side effects. The aim is to give consumers a complete picture of the overall environmental balance. 

The EU Commission also sets guidelines for the popular comparisons in advertising. If a statement is made that portrays the advertised product as more environmentally friendly than other products, it must be ensured that an equivalent information and data basis is used for the comparison.

In order for eco-labels, which promise consumers verified sustainability standards, to actually be reliable, they must in future comply with EU requirements regarding transparency and scientific assessment methodology. 

Consumers should be empowered in the best possible way to recognise the environmental potential of the product. Therefore, if the environmental claim refers to the use of the final product, companies must inform consumers how to use the product in order to achieve the environmental benefits. Furthermore, information on environmental claims should be made available to consumers in the form of a web link or printed QR code.

All information and its supporting documents must be submitted to an accredited verification body ("verifier") prior to publication. This independent body is to ensure that the information provided by the company complies with the requirements of the Directive and to issue a certificate of conformity. In addition, the environmental information must be updated by the company on an ad hoc basis and checked for accuracy after five years at the latest.

The only exemptions from the regulations and obligations of this directive are micro-enterprises that have fewer than ten employees and whose annual turnover does not exceed two million euros. For small and medium-sized enterprises, the member states are to offer financial resources as well as training and organisational-technical support so that they can implement the requirements of the directive.

The member states are required to set up competent authorities for monitoring. These authorities should regularly check the accuracy of environmental claims and labels. To this end, they are to be given extensive rights. These include the right to demand the release of and to inspect documents, data and information, to order remedial action, to impose penalties and to publish infringements. The principle of "naming and shaming" thus also finds its way into this directive. Other penalties provided for in the case of infringements are

• fines, the amount of which is determined by the economic benefits gained from the infringement and is increased in the case of repeated infringements
• the siphoning off of profits made with the products concerned, and
• exclusion from public tenders and support services for up to twelve months.

Before the Directive can be transposed into national law, it still has to go through the EU legislative procedure. Member states then have 18 months to integrate the directive into their national law and an additional six months until the provisions actually enter into force. 

It remains to be seen how the testing schemes and definitions of terms will be designed in concrete terms. However, companies should already be prepared for the reliability of their voluntary environmental claims to be critically reviewed and take appropriate measures to ensure the accuracy and verifiability of their environmental claims. 

A study conducted by the German Institute for Compliance on the topic of internal investigations in 2022 showed that more than 74 percent of the participating companies expect ESG issues to become more important in internal investigations in the future. With its proposal for a directive, the EU Commission is thus addressing a topic that will be relevant for German companies in terms of prevention as well as detection and clarification of violations.

KPMG's experts will be happy to answer any questions you may have on this topic.