Just three months apart, both the US and EU have taken steps to specifically tackle misleading or unsubstantiated “green” claims made by companies to their customers, signaling an increasing focus on greenwashing on both sides of the Atlantic. Last December, the US Federal Trade Commission (“FTC”) announced its review of the Guides for the Use of Environmental Marketing Claims, (known as the “Green Guides”), with comments due by April 24, 2023. This month, the European Commission (“EC”) adopted a proposal for a new Directive on substantiation and communication of explicit environmental claims (“EU Green Claims Directive”). Companies that make environmental or sustainability claims aimed at customers in the US and/or the EU should prepare for the regulatory developments and targeted enforcement actions that are likely to ensue.
US FTC Green Guides
The Green Guides were first issued in 1992 and provide guidance on environmental marketing claims, including how consumers are likely to interpret particular claims and how marketers can substantiate those claims to avoid deceiving consumers. The FTC uses the Green Guides to help companies avoid making environmental marketing claims that are unfair or deceptive under Section 5 of the FTC Act, under which the FTC can bring enforcement actions against companies. The Green Guides may also be used in private litigation alleging greenwashing under state laws, both as evidence for and defense against false or deceptive advertising (e.g., under California law).
As of the Green Guides’ most recent revision in 2012, the FTC has clarified that they apply not only to environmental marketing claims made directly to consumers but, also, to environmental marketing claims made to another business. This development is, therefore, relevant to both business-to-consumer and business-to-business claims.
The Green Guides were due for their 10-year review in 2022, and in December 2022, the FTC announced that it was seeking public comment on potential updates and changes to the Green Guides. Much has changed in the marketplace since 2012, in both science and consumer perception, and the FTC’s review will likely focus on specific issues and terms that have increased in relevance and visibility, including but not limited to:
- Carbon Offsets and Climate Change: The Green Guides currently provide some guidance on carbon offset and renewable energy claims. The FTC seeks comments on whether additional information on related claims and issues should be included in the revised Green Guides.
- “Recyclable”: The FTC seeks comments on whether it should update guidance on “recyclable” claims, including whether to change the current threshold that guides marketers on when they can make unqualified recyclable claims. The FTC will also be hosting a workshop to examine “recyclable” advertising claims on May 23, 2023, in Washington, DC with live streaming available.
- “Organic” and “Sustainable”: In 2012, the FTC declined to issue guidance related to the terms “organic” (for non-agricultural products) and “sustainable.” It now asks whether it should revisit those determinations.
- Energy Use/Energy Efficiency: The FTC asks whether to add guidance on energy use or efficiency claims for home-related products, electric vehicles (“EVs”), or other products.
- Enforceability: The FTC seeks comments on whether it should consider rulemaking to establish independently enforceable requirements related to unfair and deceptive environmental claims. (Currently, the Green Guides are not binding law themselves.)
The public comment period on the potential updates and changes to the Green Guides was extended for 60 days, until April 24, 2023. Information about how to submit comments can be found in the Federal Register notice announcing the extension.
A list of recent cases brought by the FTC relating to topics covered by the Green Guides can be found on the FTC’s website.
EU Green Claims Directive
On March 22, the EC adopted a proposal for a new Green Claims Directive, which would require companies to substantiate their green claims using robust, science-based, and verifiable methods, as part of the Circular Economy Action Plan under the European Green Deal. The proposal targets explicit claims made on a voluntary basis by businesses towards consumers about the environmental impacts, aspects, or performance of a product, service, or the company itself. It excludes claims that are covered by existing EU rules, such as the EU Ecolabel or the organic food logo, or that will be covered by upcoming EU regulatory rules. Some examples of green claims that would be covered include “Packaging made of 30% recycled plastic” and “Company’s environmental footprint reduced by 20% since 2015.”
The Green Claims Directive would require businesses to meet new common criteria for substantiation of green claims, such as requiring a scientific assessment, limiting comparative claims to only those using equivalent information and data, and providing substantiation information with the claims (e.g., via a QR code). The proposed directive would also require companies making green claims or using green labels to have such claims and labels verified and certified by an independent and accredited verifier. The verifier would then issue a certificate of compliance recognized across the EU. The EC expects this verification system to help reduce costs for companies trading across borders within the EU, as well as to address the proliferation and credibility challenges of untrustworthy sustainability labels.
The proposal would exempt microenterprises (fewer than 10 employees and less than EUR 2 million turnover) from the obligations of the Green Claims Directive, though the proposal asks member states to take measures to help small and medium enterprises (“SMEs”) to apply the requirements. Companies based outside the EU but that make environmental claims directed at EU customers or whose products are placed on the EU market will also be impacted by the Green Claims Directive.
Additional information on the proposed Green Claims Directive is available via the questions and answers, factsheet, and webpage on green claims. As with other EU directives, the Green Claims Directives will next go to the European Parliament and Council for consideration, which will include a consultation period during which companies may submit their comments on the proposal. The directive would then have to be transposed into the national laws of the EU member states, including penalty provisions.
Next Steps
Both proposals aim to address greenwashing by tackling false or unsubstantiated green claims made to customers, providing more tailored frameworks for companies to rely upon, as well as more targeted enforcement mechanisms than what currently exists under existing consumer protection laws in the US and EU. As such, both initiatives are likely to lead to increased enforcement and litigation surrounding greenwashing, and companies may wish to:
- Submit comments on the FTC proposal by April 24, 2023, and prepare to submit comments on the Green Claims Directive proposal when the consultation period opens.
- Review existing statements or claims to determine their adherence to current requirements and guidance, such as the current version of the Green Guides, and revise or update as needed to reduce risk of greenwashing enforcement or lawsuits.
- Require legal review of green claims proposed by business teams to ensure best practices are followed and supporting evidence is verified, collected, and disclosed, as appropriate.
