The European Union has backed a proposed bill that governs how companies should communicate and substantiate environmental claims in order to cut down on widespread “greenwashing” in fashion and beyond. During a full meeting on Tuesday, EU parliament voted to adopt the proposed Green Claims Directive with 467 votes in favor of the legislation, 65 against, and a total of 74 abstentions. First introduced in March 2023, the Green Claims Directive aims to stop companies from making misleading claims about environmental merits of their products and services, and to ensure that consumers receive reliable, comparable, and verifiable environmental information on products.
In a nutshell: Focused primarily on consumer-facing environmental claims that companies make about themselves, as well as their products/services, the Green Claims Directive – which will apply to the vast majority of EU operating companies – will introduce new minimum substantiation requirements and mandate that companies making environmental claims communicate them accurately and have them verified by a third-party before being published. Additionally, it will prohibit the use of generic environmental claims (such as “eco-friendly”, “eco”, “green”, “sustainable”, “made of 100% recycled plastic” and “climate neutral”) unless they are based on demonstrated environmental performance.
In a statement on Tuesday, Parliament’s Environment Committee rapporteur Cyrus Engerer said, “It is time to put an end to greenwashing. Our position ends the proliferation of misleading green claims that have deceived consumers for far too long. We will ensure businesses have the right tools to embrace genuine sustainability practices. European consumers want to make sustainable choices; all those offering products or services must guarantee their green claims are scientifically verified.”
The Potential Impacts: Reflecting on the newly-backed legislation, Abbie Morris, CEO of ESG compliance technology platform Compare Ethics, said the passage of the Directive marks “a significant step forward in combating greenwashing in European markets,” while also representing a critical juncture for businesses that introduce[es] both challenges and significant opportunities.” Specifically, Morris states that “companies will have to proactively adjust and invest in compliance capabilities to avoid financial penalties. This is no small feat, but it is essential to stay competitive in the market and will benefit businesses in the long term.”
As for the potential for impending penalties in the event that companies do not abide by the terms of the Directive, Morris contends that if just 1 percent of greenwashing investigations across the United Kingdom, European Union, and the United States lead to fines that could be brought forward this year, the total would be $451 million. She states that “non-compliance in a single EU member state could result in fines up to 4 percent of a company’s annual revenue, potentially totaling £1.71 billion globally, and the risk escalates with non-compliance in four member states, threatening fines up to 16 percent of revenue, equivalent to £6.9 billion globally.”
THE BIGGER PICTURE: The Green Claims Directive comes as part of a larger drive to create “stricter rules on green claims and increase the enforcement of greenwashing in the EU, which has historically not been approached in a consistent way across the 27 EU Member States,” law firm Cooley stated in a recent note. “Companies that wish to use green claims on their products will now need to consider them very carefully and make sure they have carried out assessments to back them up and had them verified and certified by an independent certification body.”
Not limited to the EU, Travers Smith notes that both the Green Claims Directive and the Green Transition Directive – paired with existing litigation on the false advertising front – “illustrate the high level of concern among governments and regulators,” as well as consumer plaintiffs, “about misleading green claims, [and] underline the need to ensure that any such claims are supported by robust evidence – even to comply with the existing regulatory frameworks” in the EU, the UK, and beyond.