Cracking Down on Greenwashing: The EU’s Green Claims Directive
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ESG Reporting

Cracking Down on Greenwashing: The EU’s Green Claims Directive

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CEO Insight Minute: How Can Companies Avoid the Appearance of Greenwashing?

Communicate clearly and unambiguously with consumers—1 of 4 ways our research shows firms can forestall a greenwashing accusation.

Greenwashing involves creating a false impression of environmental responsibility that contradicts a company's actual practices and products. Its prevalence is often underestimated.1 A recent EU proposal for a Directive on substantiation and communication of explicit environmental claims (Green Claims Directive)—expected to enter into force in the first half of 2024—aims to curb this misleading behavior.

Trusted Insights for What’s Ahead™

Greenwashing involves creating a false impression of environmental responsibility that contradicts a company's actual practices and products. Its prevalence is often underestimated.1 A recent EU proposal for a Directive on substantiation and communication of explicit environmental claims (Green Claims Directive)—expected to enter into force in the first half of 2024—aims to curb this misleading behavior.

Trusted Insights for What’s Ahead™

  • The Green Claims Directive mandates strong evidence for claims, necessitating third-party verification. Amid this changing landscape, company leadership must embrace genuine environmental commitments. Proactive leadership is crucial to align business practices with legitimate
    sustainability goals.
  • Companies should anticipate a rise in consumer complaints and greenwashing class action litigation. The newly proposed EU laws— Green Claims Directive—empower consumers to hold companies accountable for misleading environmental claims and requires companies to substantiate their green claims. Companies should proactively review and, if necessary, revise their internal policies on environmental claims to ensure compliance.
  • Beyond avoiding greenwashing, companies must also be wary of greenhushing, the act of concealing or downplaying their sustainability efforts to avoid scrutiny or criticism. In today's environmentally conscious marketplace, companies must strike a balance between avoiding greenwashing and embracing transparency. Greenhushing can be just as detrimental to reputation as making misleading claims.
  • The Green Claims Directive will extend its reach beyond EU-based companies, encompassing any organization that directs its products or services towards EU consumers. The Green Claims Directive joins the growing list of EU regulatory initiatives, including the Corporate Sustainability  Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), that extend their reach beyond EU borders. This trend indicates that businesses operating outside the EU should remain vigilant in monitoring EU regulatory developments.

  • Penalties for noncompliance with the Green Claims Directive could include administrative fines of up to 4% of the annual turnover of the company. In addition to this, defaulting companies may be disallowed from public procurement processes and access to public funding, including tendering procedures, grants, and concessions for one year. Companies may also be ordered to withdraw or rectify misleading claims, or to publish corrective advertising. Companies will have a narrow time window to justify their green product claims, necessitating data to be in order.

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