Environmental Claims in the EU/EEA
With the growing focus on the environmental impact of products, the European Commission is now turning its attention to Green Claims. While many companies are significantly stepping up their sustainability efforts, there are also some that are just riding along with the wave, benefiting from the absence of precise regulations their competitors or regulators could invoke. Although environmental claims are subject to the general rules of Directive 2005/29 on Unfair Business-to-Consumer Practices (“UCP Directive”) and Directive 2006/114 on Comparative Advertising, a November 2020 study by the Consumer Protection Cooperation (CPC) Network showed that more than half of the Green Claims it examined were unsubstantiated or insufficiently substantiated. The Commission used this study for an impulse to propose a framework for new binding standards in the Green Claims Directive Proposal.
Unfair Trade Practices, Empowerment of Consumers and Green Claims Directive
The Green Claims Directive Proposal, together with the most recently proposed Consumer Empowerment Directive Proposal, aims to harmonize the evaluation and monitoring of Green Claims in the EU. The Consumer Empowerment Directive Proposal is intended to make changes to the UCP Directive. In particular, Annex I of the UCP Directive, which contains commercial practices that are considered unfair under all circumstances, will be expanded by new entries, three of which relate to environmental claims and sustainability labels. In addition, the list of misleading actions in Article 6 (2) of the UCP Directive will be expanded by an entry on forward looking claims.
The explanatory memorandum to the Green Claims Directive Proposal states that the Green Claims Directive is to apply as a lex specialis to the UCP Directive as well as the proposed Consumer Empowerment Directive Proposal, i.e. it is to take precedence and, at the same time, serve as an interpretative aid for the UCP Directive.
What is a “Green Claim”?
Green Claims, referred to as “Environmental claims” will be defined as
“any message or representation, which is not mandatory under Union law or national law, including text, pictorial, graphic or symbolic representation, in any form, including labels, brand names, company names or product names, in the context of a commercial communication, which states or implies that a product or trader has a positive or no impact on the environment or is less damaging to the environment than other products or traders, respectively, or has improved their impact over time”,
according to the Consumer Empowerment Directive Proposal, to which the Green Claims Directive Proposal refers.
This means that the new rules, if adopted as proposed, will exclusively cover voluntary claims in the context of B2C transactions taking place in the European Union.
General Goals of the Green Claims Directive Proposal
The explanatory memorandum explicitly describes the goals of the Proposal. It shall
- ensure that all Green Claims are substantiated through approved methodology by independent auditors and are reviewed regularly (at least every five years).
- establish a framework in which products or traders can be compared to one another.
- make the information on which the environmental claim is based transparent and available to the public through a weblink, QR code or equivalent.
- ensure enforcement of the new guidelines through new powers for the competent authorities as well as the establishment of a complaints procedure for interested parties.
The Green Claim Directive Proposal specifies central criteria that methods used to substantiate sustainability must comply with. These criteria are intended to ensure that the entire life cycle of the product is taken into account when assessing sustainability. The Proposal centrally refers to the Product and Organization Environmental Footprint (“PEF/OEF”) methods, which were developed by the European Commission’s Joint Research Center (“EC-JRC”), are based on ISO standards 14040 and 14044 and fully comply with the criteria set out in the Proposal.
The EU is to adopt delegated acts to benchmark the environmental performances, which will be called Product Environmental Footprint Category Rules (“PEFCRs”) or Organization Environmental Footprint Sector Rules (“OEFSRs”). With the Proposal, the methods shall allow for a comparison of the environmental performance of different products.
While the Commission does not establish PEF/OEF as the only viable methods, it does incentivize it by providing a presumption of conformity in case the environmental claims are substantiated based on PEFCRs and OEFSRs.
Comparative Environmental Claims
The Green Claim Directive Proposal will make comparative claims more challenging for companies. In cases where a claim does not only highlight the product’s own environmental performance, but compares it to its competitors’ products, the Proposal establishes new rules for such comparative claims. Comparative environmental claims shall only be permissible to the extent that
- the compared products or traders use the same methodology to assess their environmental performance;
- the data used for the comparison shall be generated or sourced in an equivalent manner;
- it includes the most significant stages along the value chain for all of the compared products or traders.
While the requirements for one-to-one product or trader comparisons are relatively straightforward, there will be questions on how detailed a study for a sector-wide claim will need to be. This area will certainly require attention in the further course of the legislative process.
Forward Looking Claims
Where a Green Claim highlights efforts a company undertakes to improve the products environmental performance, the claim shall:
- include commitments, milestones and a clearly specified time frame these milestones will be met by the company;
- include annual reporting of the achievement or non-achievement of these milestones;
- where it refers to a previous improvement, reflect on the performance in the baseline year and the year to which the improvement is made; and
- take into account how specific environmental improvements impact other environmental aspects of the product.
These rules are intended to promote the transparency of future claims and enable consumers and competitors to better evaluate the progress of a company’s environmental efforts.
In order to be able to monitor all the requirements set out in the Green Claim Directive Proposal, the Member States are to appoint independent verifiers according to Regulation 765/2008 setting out the requirements for accreditation and market surveillance relating to the marketing of products who will check the claims for their substantiation. While the most obvious requirements for the verifiers, such as independence from their clients, are already set out in the draft, the European Commission reserves the right to set out further requirements through delegated acts.
The Green Claims Directive Proposal contains its own enforcement rules, which are independent of those of the UCP Directive. Enforcement shall be based on the monitoring of the competent authorities as well as on the possibility of third parties to file complaints about Green Claims to the authorities. Once the authorities determine that a Green Claim does not comply with the Green Claims Directive Proposal, they will notify the company using Green Claims of their findings. Companies shall then be required to provide a response within the short period of 10 business days, otherwise the authorities may take proportionate corrective actions to stop the non-compliance. The corrective actions will have to be implemented within 30 business days by the respective company, further non-compliance will be sanctioned with penalties.
The Green Claims Directive Proposal – similar to the UCP Directive –, provides for third parties who have sufficient interest or whose rights are infringed to call a local court, unless national law requires the exhaustion of administrative procedures before judicial proceedings are initiated. Either way, such complaints may lead to injunctive actions, including the immediate stop of the communication of non-compliant Green Claims. If the enforcement rules remain as they are planed now, companies will need reliable and fast-working legal representatives to defend against unfounded complaints.
This adds further pressure on companies who are already facing increasing green washing litigation. In particular, in Europe and the U.S. claimants (including competitors, shareholders and NGOs) at the time being take green claims under attack. Just recently, the Deutsche Umwelthilfe (Environmental Action Germany, “DUH”) sued half a dozen German entities active in the consumer sector.
The Proposal also seeks to bring the Green Claims Directive into the scope of Directive (EU) 2020/1828. This would mean enforcement of injunctive measures and collective redress measures by way of representative action could be taken. Entities qualified to bring action under Directive (EU) 2020/1828 could take action based on infringements of the Green Claims Directive. Actions under the regime imposed by Directive (EU) 2020/1828 are set to become applicable as of 25 June 2023. Currently not all Member States have implemented the necessary laws and regulations. It is likely, however, that these will be available prior to the Green Claims Directive Proposal becoming a law. Where Member States allow legal entities to benefit from such representative actions, the scope of application may be even broader. Germany’s Federal Ministry of Justice, for instance, has proposed that in Germany not only consumers but also small companies should benefit from the representative actions.
The Green Claims Directive Proposal is expected to be formally presented by the Commission by the end of March 2023. Thereafter, the European Parliament and Council will consider the adoption of the Proposal through the ordinary legislative procedure, which will allow for the introduction of amendments and will take at least 18 months. During the legislative process, companies are well advised to closely monitor the development of the Proposal and review their marketing communication and products with on-pack claims for any claims to which the Directive could apply. Combined with the Empowering Consumers Directive Proposal, the Green Claims Directive Proposal could lead to an upheaval in environmental advertising on products.