Background
The European Union (EU) wants to tighten rules on greenwashing. But what exactly is “Greenwashing”? It’s a process by which a company conveys false impressions or provides misleading information about how its products or activities are more environmentally sound than they really are.
According to the European Commission (Commission), greenwashing marketing techniques are increasing in the EU. This finding is the outcome of a “sweep” exercise conducted by the Commission and national consumer authorities on companies’ websites. In a Tweet, Justice Commissioner Didier Reynders – who leads the Commission’s agenda on consumer empowerment and protection – reported that “in 42% of cases the claims are suspected to be exaggerated or false & could potentially qualify as unfair commercial practices under EU rules”. In half of the cases, the company did not provide sufficient information for consumers to judge the claim's accuracy, and in 37% of cases, the claim included vague and general statements such “eco-friendly”, “responsible” or even “sustainable” – conveying a false impression that a product has no negative impact on the environment (both in advertising and on the product itself).
Big and small companies alike are regularly targeted by allegations of greenwashing. This can be costly: in the EU, companies potentially incur legal penalties up to 4% of their annual turnover in the Member State(s) concerned when making such claims.
In the context of the green transition, where consumers increasingly seek to buy environmentally sound products and services, and where controversies arise around the manufacturing process of many goods (e.g., textile and fashion, cosmetics, household equipment or cars, etc), the issue of greenwashing and therefore of commercial communication is becoming increasingly timely, and will become even more sensitive in the future.
Objectives of the new EU rules
In line with EU Green Deal and its New Consumer Agenda, the Commission recently presented a proposal empowering European consumers to play an active role in the green transition. To do so, the Commission proposed amending two existing legislations: the Consumer Rights Directive (Directive (EU) 2019/2161) and the Unfair Commercial Practices Directive (UCPD) (Directive 2005/29/EC).
Through these revisions, the Commission seeks to embed sustainability principles within these legislations, notably by:
- Ensuring that consumers receive better information on the durability and reparability of products.
- Banning greenwashing to protect consumers from commercial practices that prevent them from shopping sustainably.
Changes and impact
This revision will significantly impact companies’ marketing practices for end-consumers, goods and services. Thus far, greenwashing practices in the EU have been tackled using a case-by-case assessment, and a company can be fined if misleading practices are proven to negatively affect consumers. However, amongst other things, with this new legislation:
- Traders will be prohibited from making an environmental claim related to future environmental performance without clear commitments and targets.
- Traders will be prohibited from conducting certain unfair commercial practices (blacklist):
Making generic, vague environmental claims (e.g. “environmentally friendly”, “eco” or “green”, “environmentally correct”, “climate friendly”, “gentle on the environment”, “carbon friendly”, “carbon neutral”, “carbon positive”, “climate neutral”, “energy efficient”, “biodegradable”, “biobased”), where the environmental performance of the product cannot be demonstrated as well as broader statements such as “conscious” or “responsible” that suggest or create the impression of excellent environmental performance.
Making an environmental claim about an entire product when it only concerns a certain aspect of the product.
Displaying a voluntary sustainability label which was not based on a third-party verification scheme or established by public authorities.
Importantly, once adopted and transposed into the Member States' national legislation, consumers will be entitled to remedies in the event of breaches, in particular through the collective redress procedure under the Representative Actions Directive.
EU policy process
This proposal for a ban on greenwashing will now be discussed by the European Parliament and the EU Council. The proposal should be officially adopted in early or mid-2023, depending on the duration of the negotiations. Following its adoption, Member States will be granted two years to transpose these amendments in national laws to provide businesses with sufficient time to adopt the new rules.
It is worth noting that the Commission in July 2022 will table a similar proposal for a Regulation on substantiating environmental claims (Green Claims) where companies, in addition to providing accurate information about their environmental claims, will need to support these claims using environmental footprint methods as a way of assessing the environmental performance of their products.
Understand the EU policy debate and speak up
By breaching consumers’ trust, greenwashing can have long-lasting negative reputational and financial impacts on companies. Greenwashing can also create a negative knock-on effect and alter an entire sector’s perception beyond a single company. These situations must be avoided by any means.
Key Takeaway: A sound knowledge of the legislation, the ability to keep control over the policy process to avoid legal grey zones and ensure legal certainty, and the development of healthy communications strategies about the company’s sustainability endeavours is critical to hedge against these risks.
Participate in the decision-making process
By setting the rules governing the functioning of the Single Market, EU institutions have a significant impact on all companies operating in the EU. This is even more so the case with the fast-track adoption of the European Green Deal intended to make the EU market fit for the environmental transition.
Key Takeaway: Although the EU policymaking process can appear complex and distant from the outside, it is in fact transparent and open to feedback. Hence, any company can contribute - including through sharing their long-standing expertise and supporting institutions in developing legislations fit for purpose, while building positive relationships with key stakeholders and reinforcing their position of thought leadership.
Shape your ESG strategy
On the back of increased legislation and scrutiny, scepticism has grown among the public and media around bold ESG claims. These audiences have become sensitive to exaggerated ESG language as general understanding of the issues has increased.
Key Takeaway: When communicating about ESG, companies need to be able to demonstrate credibility around their impact and associated risks – the language used needs to hit the right tone to thoughtfully reflect the company’s efforts. It is also important to demonstrate tangible actions today that are put in place to minimize negative impact. Solely pointing to future ambitions and goals is not enough.