Green Claims Compliance
Efficiently navigate complex regulations while enhancing trust and promoting transparency
What is an environmental claim?
An environmental claim refers to any communication within a commercial context, whether in text, imagery, graphics, or symbolic representation, including labels, brand names, company names, or product names, that suggests, though not required by Union or national regulations, that a product or business has a favourable or neutral influence on the environment or causes less harm to the environment compared to alternatives, or that it has made advancements in reducing its environmental impact over time. (European Commission, 2023).
Why are regulations needed?
- Consumers encounter the phenomenon of encountering unclear or inadequately supported environmental assertions, often referred to as “greenwashing.”
In 2020, a study revealed that a significant portion (53.3%) of environmental claims in the EU, spanning various product categories, presented vague, misleading, or unsupported information regarding a product’s environmental attributes.
The 2020 inventory of such claims also scrutinised their validation in terms of clarity, accuracy, and the availability of verifiable evidence. This analysis uncovered that 40% of these assertions lacked substantiation. These findings were further authenticated by an inspection conducted by Consumer Protection Cooperation (CPC) authorities in November 2020. Among the 344 sustainability claims assessed, authorities determined that in more than half of the cases (57.5%), traders failed to provide adequate details to assess the accuracy of the claims (European Commission, 2023).
CPC authorities also encountered challenges in determining whether the claims pertained to the entire product or only specific components (50%), whether they referred to the company as a whole or only certain products (36%), and which stage of the product’s lifecycle they encompassed (75%) (European Commission, 2023).
- Consumers encounter sustainability labels that do not consistently offer transparency and credibility. Environmental labels within the EU’s internal market are subject to varying degrees of strength, oversight, and transparency, denoting different governance structures. The proliferation of numerous ecolabels, each addressing distinct aspects and employing diverse operational methods while undergoing differing levels of scrutiny, is projected to further compound the confusion.
An evaluation of 232 active ecolabels in the EU also scrutinised their verification and certification components, revealing that nearly half of these labels exhibited either weak or entirely absent verification procedures (European Commission, 2023).
Directives & Laws Tackling Greenwashing
European Union (EU): Green Claims Directive
The Green Claims Directive unveiled by the EU in 2023 establishes explicit guidelines for companies seeking to assert environmental claims for their products, requiring companies to prove their environmental claims (European Commission, 2023).
As per the European Parliament, negotiators from Parliament and Council have reached an agreement to prohibit the following:
- Making general environmental assertions, such as “environmentally friendly,” “natural,” “biodegradable,” “climate neutral,” or “eco,” without substantiating evidence of proven exceptional environmental performance related to the assertion
- Disseminating promotional messages about a product with a characteristic that reduces its longevity, provided information regarding this feature and its impact on the product’s durability is accessible
- Issuing claims based on emissions offsetting programs that imply a product has a neutral, reduced, or positive environmental impact
- Using sustainability labels that lack approval from recognized certification bodies or have not been established by governmental authorities
- Making durability claims related to the product’s usage time or intensity under standard conditions, unless substantiated
- Encouraging consumers to replace consumable items, such as printer ink cartridges, prematurely, without a strict necessity
- Portraying software updates as essential, even when they primarily enhance functional features
- Representing products as repairable when, in reality, they are not
Table of Contents
Who is impacted?
All businesses participating in the EU market that make any kind of environmental claim, irrespective of how small or big the claim may be.
Anticipated to be implemented in?
The EU mandates that every member nation must enforce penalties on companies that disseminate deceptive environmental statements. These penalties should be sufficiently stringent to deter companies from profiting from their misleading actions, and they may amount to as much as 4% of the company’s annual revenue (World Favor, 2023).
United Kingdom (UK): The Competition and Markets Authority’s (CMA) Green Claims Code
In 2021, the Competition and Markets Authority (CMA) declared its intention to examine the environmental claims associated with a broad spectrum of products, aiming to check whether companies are adhering to UK consumer protection regulations. The CMA asserts that by adhering to the principles listed below, businesses can reduce the risk of misleading consumers and avoid legal violations.
According to the CMA, in practical terms, this implies that businesses need to ensure that their environmental claims:
- Maintain truthfulness and accuracy
- Are clear and lack ambiguity
- Refrain from excluding or concealing vital information
- Take into account the entire product life cycle
- Provide substantiated evidence
- Comparisons done between competing brand products are not inaccurate or false
Who is impacted?
The primary focus will be placed on textiles and fashion, travel and transportation, as well as fast-moving consumer goods such as food, beverages, beauty products, and cleaning items. Nevertheless, it’s important to note that any sector or business may potentially undergo scrutiny.
In effect since?
Large corporations might face the possibility of incurring fines of up to 10% of their worldwide revenue.
France: The Climate and Resilience Law
Article 12 of the Law restricts companies from advertising their products or services as carbon-neutral or employing equivalent terms (such as “zero carbon,” “climate neutral,” “fully offset”) unless they can provide details regarding both their direct and indirect emissions.
Who is impacted?
This legislation will have implications for numerous industries, but it is expected to have a particularly significant impact on high-intensity sectors, including transportation, construction and real estate, financial institutions, and industrial sectors.
In effect since?
If there’s a breach, a company could be liable for a 100,000 EUR penalty. However, it is important to note that the fine has the capacity to escalate to equal the entire expenditure on the advertising campaign.
United States of America (USA): Federal Trade Commission's (FTC) Green Guides
The Green Guides, initially introduced in 1992, underwent revisions in 1996, 1998, and 2012, offer guidance in three key areas: (i) fundamental principles applicable to all environmental marketing assertions; (ii) insights into how consumers are likely to understand specific claims and ways in which marketers can support them; and (iii) strategies for marketers to clarify their claims, preventing consumer deception.
These guidelines pertain to environmental statements featured on labels, advertisements, promotional content, and any other marketing channels, regardless of whether they are explicitly stated or implied, conveyed through language, symbols, logos, visual representations, product brand names, or any other communication method. All claims should align with the relevant provisions. Some general principles are outlined below:
- Clarity, prominence, and comprehension are essential for qualifications and disclosures.
- Environmental marketing claims should explicitly indicate whether they pertain to the product, its packaging, a service, or a specific portion thereof unless the context makes it evident.
- Refrain from exaggerating or implying an environmental feature or advantage, particularly when the environmental benefits are minimal.
- Any comparisons made should strive for clarity to prevent consumers from becoming confused.
Who is impacted?
Any business that advertises or markets products or services with environmental claims should be aware of and follow the FTC’s Green Guides to ensure compliance with regulations and avoid deceptive marketing practices.
In effect since?
While the guides themselves do not constitute official agency rules or regulations, the FTC possesses the authority to enforce them and rectify non-compliant behaviour.
Neglecting to adhere to an FTC directive could result in civil penalties of as much as $50,120 USD for each violation. As per FTC’s news release, the FTC has issued warnings to nearly 700 marketing firms, cautioning them about potential civil penalties if they are unable to substantiate their product claims.
Over the years, the FTC has initiated various actions concerning misleading environmental statements, as a component of its broader mission to guarantee the truthfulness and substantiation of environmental marketing. For example, Kohl’s and Walmart were directed to cease misleading green claims and pay penalties of $2.5 million and $3 million, respectively. Volkswagen was compelled to pay over $9.5 billion to compensate misled car buyers due to their false environmental claims.
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