EU Greenwashing Law: Business Impact

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by KnowESG
KnowESG_EU Greenwashing Law, Business Impact
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Currently, more than 70% of environmental claims made by products in the EU market are either exaggerated or unsupported by evidence, according to the European Commission.

The Green Claims Directive: Setting the Standard

To combat this issue, the EU is introducing the Green Claims Directive. This legislation aims to establish clear guidelines and verification methods for environmental claims, with hefty penalties for non-compliance.

What's Considered a Green Claim?

The Directive casts a wide net, encompassing both environmental claims and social aspects like working conditions and fair trade practices. This tackles both "greenwashing" and "bluewashing" (misleading social responsibility claims).

An environmental claim can be any message (text, image, or symbol) suggesting a positive environmental impact, reduced impact compared to similar products, or ongoing environmental improvement efforts.

Social characteristics include fair labour practices, human rights considerations, and commitments to diversity, equity, and inclusion (DEI). Also, claims regarding contributions to social initiatives and ethical practices fall under this category.

Meeting the Standards

The Directive outlines several criteria for acceptable claims:

  • Solid Evidence: Claims must be backed by recognised scientific data and current technical knowledge.

  • Specificity: Claims need to clarify whether they apply to the entire product or specific aspects.

  • Life Cycle View: Environmental benefits must be demonstrated throughout the product's life, not just in isolation.

  • Comprehensiveness: All environmental impacts need to be considered.

  • Going Beyond Compliance: Claims should not solely reflect legal requirements.

  • Benchmarking: Claims should highlight environmental improvement compared to common practices.

  • Transparency in Offsetting: Carbon offset claims must explain how the offsetting is achieved and whether it directly reduces or eliminates emissions.

Making Information Accessible

Consumers should have easy access to the evidence supporting a claim. This information can be provided physically, through a weblink, QR code, or similar methods.

Who's Affected?

The Directive applies to all businesses operating in the EU, except for very small businesses (fewer than 10 employees and under €2 million annual turnover).

Penalties for Non-Compliance

Businesses face consequences for non-compliance, including:

  • Fines: Up to 4% of annual turnover in relevant EU countries.

  • Revenue Seizure: Confiscation of profits gained from misleading consumers.

  • Exclusion from Public Funding: Inability to access public contracts and funding for up to a year.

  • Product Confiscation: Removal of non-compliant goods from the market.

  • Public Naming: Exposure of the business for misleading practices.

The Complaint Process

Individuals or organisations can file complaints if they suspect a business is violating the Directive. These organisations could include environmental, consumer protection, or public health groups.

Authorities will investigate complaints, conduct inspections if necessary, and inform the complainant of their findings. Complainants have the right to challenge decisions through legal channels.

Member States are responsible for ensuring public awareness of the complaint and review processes.

Implementation Timeline

The Directive was proposed in March 2023 and gained massive support from the European Parliament. Once formally adopted, Member States will have 18 months to incorporate it into their national laws.

Taking Action Now

Given the potential for an accelerated timeline, businesses should begin preparing immediately:

  • Review Existing Claims: Conduct a thorough assessment of all environmental claims associated with your brand and products.

  • Verification Process: Establish a system to substantiate claims and obtain third-party verification where possible.

  • Investment in Sustainability: The review process may reveal areas where your sustainability efforts fall short. Investing in sustainable practices is crucial to comply with the Directive and stay competitive.

A Level Playing Field

The Green Claims Directive presents an opportunity for businesses to take sustainability seriously. It ensures fair competition by preventing misleading claims and empowers consumers to make informed choices.

In a market where sustainability-focused products are rapidly growing, businesses that embrace the Directive can strengthen their market position, minimise legal risks, and streamline their sustainability efforts.

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