Greenwashing is a catch-all term used to describe organisations which portray their company as more environmentally friendly than it may be. As consumer and government pressure grows to decrease the carbon footprint and reduce the harm on the environment commerce causes, companies have increasingly tried to portray themselves as eco-friendly or carbon-neutral.
Regulators feel that they need to take action to counter this misleading or sometimes false information, and this has led to a crackdown in the EU with new legislation on the horizon.
But how big is this problem, what changes are likely, and how could they affect your business?
Why greenwashing is a problem?
So, what is greenwashing, and why is it such an issue? Apart from the obvious moral problems of making a claim that they cannot substantiate, this type of activity can be deceitful. After all:
- 56% of all consumers in the EU thought at least once about the environmental impact of any purchase before acting.
- 23% do so for most or all their acquisitions.
- 67% often choose to buy environmentally products even if they cost more, so they’ll be paying close attention to claims by the retailer or manufacturer.
So, if consumers buy from a company that makes a false or misleading claim to be an eco-friendly business through greenwashing, this could amount to fraud.
The EU doesn't like what it sees. In a recent analysis, the body found that 53% of green claims made by companies are vague, misleading, or give unfounded information.
The limitations of current greenwashing laws
Still, the EU has already made some efforts to try and address this problem at the investment level through legislation like the Sustainable Finance Disclosure Regulation. This seeks to outlaw misleading claims and to require “environmentally friendly” investment fund managers to put 100% of their portfolio into such companies. However, many investors have criticised the legislation for being unclear, claiming that it doesn’t help fight greenwashing.
In addition, the Product Environmental Footprint, from 2012, was another regulation meant to measure the environmental performance of a product throughout its life cycle. It should have provided a complete picture of product sustainability and reduced the problem of greenwashing. However, some feel this legislation may not be clear enough either.
What are the key changes to watch out for?
The European Commission tabled the Green Claims Directive on 22 March 2023. Now, companies must provide supporting evidence whenever they make a green claim. These regulations would apply to any labels displayed on products or claims made by companies at both online and physical points of sale within the EU single market.
The legislation will clearly define what can constitute a green claim. It will also feature specific criteria that will help companies learn how to substantiate and abide by a particular claim going forward.
Each company will have to use a standardised product life-cycle analysis that will address all environmental impacts. This report must also include a certificate of conformity, which consumers can access by scanning a QR code or following a link. Until now, authorities would only ask for supporting evidence from a company if somebody questioned that company’s green claim. Now, companies must provide studies and supporting evidence alongside any statement.
Companies will now need to amend their ESG reporting to follow a standardised format, so stakeholders can always compare the impact of the company’s activities on the environment. They need to measure and disclose their exposure in four separate areas – physical, regulatory, legal, and reputational. Further, an external inspector will need to audit all claims.
The legislation will empower individual states to enforce the law.
Potential stumbling blocks
Still, the Green Claims Directive may not fully address the issue of carbon neutrality and carbon deposits. The program may still allow companies to claim they are carbon neutral by using an offset scheme, such as the Carbon Removal Certification Regulation. Some experts criticise these programs as many companies offset emissions through forestation to try and reduce the size of their carbon footprint. Unfortunately, forestation has a high risk of reversal.
How HLB can help you navigate this framework
Companies that do business within the EU single market must prepare for the new Green Claims Directive and the new reporting mandates. They must gather the highest quality data to determine their environmental and social impacts. And they’ll also need to amend their messaging to back up any claims made in marketing materials or attached to labels intended for the market. They need to get ready for stronger surveillance and the risk of fines.
HLB Global offers sustainability advisory services to help businesses comply and grow as they work towards a more sustainable future. Our experienced professionals can help you to draw up a strategic sustainability roadmap with particular emphasis on the new Green Claims Directive.
Read more about the importance of being an ESG-centric business for long-term success, and reach out to HLB PERÚ for more advice.