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The EU Green Claims Directive – a missed opportunity to end greenwashing

Wednesday, March 29, 2023

Last week, the European Commission published a proposal for the Green Claims Directive, which aims to prevent greenwashing and to enable consumers to make choices based on reliable information.

While companies are increasingly voicing their climate efforts through different claims, consumers' trust in climate claims and labels remains low. On the other hand, there is confusion among companies about available sustainability frameworks and their applicability across certification schemes and national requirements. Robust methodologies for making substantiated climate-related claims are still largely missing. 

All this leaves a lot of room for intentional greenwashing and unintentional misleading. False and vague claims are abundant, while genuinely sustainable products and services may remain disadvantaged. Complementary EU-level regulation is needed and welcome.

The proposed Directive covers green claims broadly, including environmental labels. It requires companies to verify their environmental claims and provide the necessary evidence to substantiate them. Comparisons to other goods or companies should be accompanied by information and data.

But what does the proposed Directive say about climate claims related to offsets?

The proposal, rightfully, states that climate-related claims are particularly prone to being unclear and ambiguous and to mislead consumers, amounting to greenwashing. Even though the Directive has good intentions, it has failed in serving its purpose of ending greenwashing and protect consumers due to massive loopholes.

What is missing in the Directive?

The Directive has left the door open for misleading and greenwashing claims by not including legally binding requirements for setting an emission reduction pathway and interim targets that are compatible with the goals of the Paris Agreement. Setting net-zero targets far into the future without taking concrete steps to reach them today could mislead consumers into believing companies are 1.5 C aligned when not.

Carbon Market Watch and NewClimate Institute published the Corporate Climate Responsibility Monitor 2023 Report. The report assesses the transparency and integrity of the emission reduction and net-zero targets of 24 major global companies accounting for 4% of global emissions. Findings revealed concerning facts about companies' carbon neutrality and net-zero targets, which amount to greenwashing. For instance, 12 companies commit to no emission reduction target for their net-zero target year, 17 commit to less than 40% emission reduction, and only 5 out of the 24 companies studied commit to deep decarbonization with their net-zero pledges.

Findings revealed concerning facts about companies' carbon neutrality and net-zero targets, which amount to greenwashing.

The Green Claims Directive recognizes the rules developed under the EU's Carbon Removal Certification Framework. The latter aims to set an EU-wide regulatory framework for certifying carbon removals, developing certification methodologies tailored to each type of carbon removals, and increasing public trust through transparency and robustness of the certification. Initial expectations were that the Green Claims Directive would regulate the use of carbon removal credits and associated corporate claims. However, this has been left out of the proposal, leaving a gap in the explicit definitions and requirements regarding different carbon offsetting claims.

Insufficient provisions concerning offset claims

1. Report total GHG emissions separately from any carbon offsets used.

Disclosing the share of offsets is essential to mitigate the risk of greenwashing to some extent. Still, unfortunately, this information is not likely to reach consumers as the disclosure requirement only applies to companies' websites and reports and not to the information advertised on products. To increase transparency and avoid misleading claims, companies must offer consumers the opportunity to check the footprint calculations and claims easily, for example by providing links or QR codes.

2. Specify whether these offsets relate to emission reductions or removals, and ensure that the offsets relied upon are of high integrity and accounted for correctly to coherently and transparently reflect the claimed impact on climate. 

In addition to the broad categories of avoided emissions and removals, companies should publicly report specific project types, project names, and carbon credit vintages. Avoided emissions include three major project types – REDD+, Improved Forest Management (IFM), and renewable energy, each with shortcomings. 

The Green Claims Directive requires entities to "ensure offsets relied upon are of high integrity." However, this is nearly impossible in practice due to a combination of a complex and fragmented voluntary carbon market, flooded with low-quality credits and a knowledge gap preventing companies from evaluating which projects are of high quality.

3. Provide information to which extent the offsetting-related claims rely on offsets, e.g., does the claim cover the whole product's footprint or just a fraction of it?

The Green Claims Directive is falling short of ambition regarding the offset claim's scope. The Directive requires information on the extent of emissions the carbon neutrality claim covers. But even if such information is disclosed, it might still be misleading for consumers if not clearly communicated. 

According to the Carbon Market Watch and NewClimate Institute Corporate Climate Responsibility Monitor 2023 , the average company's carbon neutrality claim covered just 3% of its emission footprint. However, consumers could be misled that the claims apply to the company's entire business.

To be grounded in truth, carbon neutrality claims should cover the whole value chain of the product or entity, including upstream and downstream processes, and follow a life-cycle approach. This high-integrity approach is proposed in the new ISO Carbon Neutrality Standard draft.

Yes, but not enough

The effort to tackle greenwashing and unsubstantiated climate-related claims is welcome. It is necessary to require the green claims to be transparent and verified. In this aspect, the Green Claims Directive is a clear policy signal in the right direction. But, as they say, the devil's in the details. More precise regulation is needed to ensure that communication around climate action and targets presented to the consumers are not unsubstantiated, vague, and misleading. The current Directive is a step in the right direction, but it is insufficient to stop greenwashing.

Text: Janne Rinne and Eftimiya Salo

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