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February 14, 2024
Today’s vote on the Green Claims Directive (GCD) marks yet another important step in the European Union’s (EU) ambition to lead the way globally in regulating environmental claims. Done right, policy can protect consumers from greenwashing and hold companies accountable on the one hand, while also rewarding environmental corporate ambition and action, including investments in the carbon credit market. Done wrong, it could stifle corporate investments into the green transition, significantly reducing our chances of achieving net-zero by 2050.
Environmental claims are assertions made by companies regarding the positive impact of their products, services, or practices on the environment. Within the European regulatory context, environmental or green claims (synonyms) come in two types:
Companies make these claims publicly to market their products or services as being eco-friendly, having reduced environmental harm, or exhibiting environmental improvement over time (“carbon neutral”, “climate neutral”, “climate-friendly”, etc.) The variety of terms used highlights the underlying complexity of positive impacts that a company can potentially claim, addressing the whole sphere of planetary boundaries.
These claims have been subject to controversies which have damaged consumer trust. For example, Apple’s backlash in November 2023 when they announced “their first carbon neutral product” which is based on their questionable definition of “carbon neutral” as reducing its emissions by 75 per cent and balancing the remaining emissions with the purchase of (short durability) carbon removal offsets. The European Commission reported that 53% of environmental claims they examined were misleading, unfounded, or vague, and 40% were unsubstantiated due to the absence of rules to curtail greenwashing, underpinning the dire need for regulatory intervention.
The regulatory landscape for environmental claims in the European Union is notably complex, a complexity that stems from the confluence of various regulatory initiatives over time. From the more recent momentum of the European Green Deal, which propels the EU towards its net-zero ambitions, to the gradual incorporation of environmental issues within older frameworks.
More recently, the EU has upped their game first with the Empowering Consumers for the Green Transition (ECGT) Directive and is now complementing it with the Green Claims Directive (GCD). The ECGT Directive bans any unsubstantiated environmental claims while the recent GCD aims to stipulate the detailed criteria required to substantiate green claims that are not prohibited by the ECGT. Though it touches on many sustainability aspects (such as product life cycle), a central part of the GCD is ensuring that climate-neutral claims are not only credible but also central to environmental considerations.
Notably, offsetting details for 'net-zero' or 'carbon neutrality' claims must include precise data on the emissions being offset, the type of carbon credits used, whether they are from emissions reductions or carbon dioxide removal (CDR) projects, and the specific accounting methods applied. It mandates independent verification of such claims by accredited bodies prior to market introduction. National authorities designated by member states will oversee the verification process, conducting systematic assessments of the claims and their substantiations.
A way green claims could be substantiated is by following frameworks that have already evolved in EU legislation, notably through Corporate Sustainability Reporting (CSR). Initially a practice adopted by large entities, the mandate for CSR reporting is progressively being applied to an increasing number of firms across Europe. Governed by the Non-Financial Reporting Directive (NFRD), and complemented by the Corporate Sustainability Reporting Directive (CSRD) in 2023, these regulations aim to broaden the scope of entities required to publish detailed reports on their Environmental, Social, and Governance (ESG) impacts. It necessitates that businesses detail their GHG emission reductions, carbon removals, and the specifics of any carbon credits used towards achieving net-zero targets (i.e. disaggregation by carbon source and storage). However, currently, the GCD and the CSRD are not directly linked, meaning it has not yet been determined whether corporate reporting could be used to substantiate green claims.
Environmental claims have and will continue to play a key role in the corporate green transition. As they stand, the ECGT and GCD risk creating more harm than good. Here are five key criteria good policy for environmental claims should include to realize the full potential of European environmental claims policy:
Today’s vote on the Green Claims Directive by the European Parliament's Committee on Environment, Public Health and Food Safety (ENVI) and Committee on Internal Market and Consumer Protection (IMCO) marks an important step in the right direction. In their vote - which will be voted on by the Parliament Plenary on March 11th - the Committees amended the GCD to include many of the criteria for good policy mentioned above. In particular, the inclusion of the “like-for-like” principle, link to the CRCF, and allowing extra-EU offsets are laudable.
One outstanding issue is to limit corporate claims to “residual emissions” only. As it stands, the GCD could therefore lead to decreased corporate environmental ambition which could reduce desperately needed corporate investments into the green transition. Instead, it would be advisable for the GCD to reflect the five criteria outlined above, allowing for green claims - both corporate and for products - without the risk of greenwashing.
All eyes will now be on the European Council who are expected to come up with their position by June 17th. My hope is that the Council will follow the Parliament’s lead and go beyond it, allowing for a broad use of environmental claims in line with the five principles highlighted by this article.
Europe is looking to take the lead globally on regulating environmental claims. Done right, this could prevent greenwashing and protect consumers, all whilst driving billions of euros of investment by corporations into the green transition.
We are at a crossroads today. The Empowering Consumers for the Green Transition (EGCT) Directive banned unsubstantiated green claims altogether. However, simply banning unsubstantiated claims without clear definitions of how to substantiate claims will de facto halt corporate climate ambition.
The Green Claims Directive (GCD) is to date the most comprehensive attempt to fill this regulatory gap. As such, it presents a unique opportunity to get this right and - following today’s important vote - seems to be on the right track. This article proposed five specific criteria for good environmental claims policy that can and should be integrated into the GCD and then harmonized with the CSRD and EGCT.
Doing so is the only way to ensure companies across Europe will increase their investments in durable carbon dioxide removal and become a critical ally in Europe’s quest to achieve net-zero by 2050.
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