HOW THE EUROPEAN UNION IS GEARING UP TO FIGHT GREENWASHING

The official reason given was the uncertainty caused by the new regulations, but while the companies concerned reasserted that their communications were honest and accurate, environmentalists believe that the website’s closure and the deletion of information about the programme are a smoking gun: they believe the introduction of the Canadian regulations has exposed one of the many cases of greenwashing perpetrated by oil companies and more generally those with the greatest environmental impact.

On 17 July, a report by the Changing Markets Foundation exposed the tactics used by major meat and dairy companies to “distract, delay and derail climate action”. The investigation, entitled “The New Merchants of Doubt”, surveyed the world's 22 largest companies and revealed how industry lobbyists are pushing voluntary technology solutions that are too soft, spreading misleading information, and investing far more in marketing and advertising than in research and development to reduce their impacts.

A WIDESPREAD PRACTICE NOT POPULAR AMONG CONSUMERS

There are various instances of this. In January 2023, Harris Poll conducted a survey on behalf of Google Cloud, interviewing around 1,500 company directors in 17 countries and seven industries to ascertain their views on the greenwashing risk: it found that nearly three-quarters of the sample believed that a thorough investigation of companies in their industry would uncover instances of greenwashing, and 85% said that customers are increasingly focused on brands committed to sustainability paths. As evidence of this, a 2023 KPMG survey of 2,000 people in the UK found that 54% say they would no longer buy a company's products if it was discovered that its sustainability claims were misleading.

In short, the issue is constantly in the spotlight, because given the severity of the climate crisis and the now out-of-control exploitation of natural resources, the most polluting sectors are at a crossroads: either radically change their business or just change their communication by dyeing it green. It is increasingly difficult, however, for this second option to succeed, both because of growing public awareness and the introduction of regulations aimed at curbing the phenomenon.

BANKS AND FINANCE UNDER THE MICROSCOPE

There are many and varied ways in which companies can slip, even unknowingly, into greenwashing. And the problem also affects financial products, to the point that in the spring, the European Securities and Markets Authority (ESMA) issued new guidelines for the use of the term ESG and those related to sustainability in investment fund names. According to a Morningstar report, under the new rules, two-thirds of funds in the European Union that were associated with sustainability-related terms or ESG criteria may have to change their names, with equity divestments of up to $40 billion if they all decide to keep their names.

Turning to the banking sector, a recent report by the European Central Bank entitled “Business as usual: bank climate commitments, lending and engagement” turned the spotlight on the banking sector's voluntary commitments to tackling the climate crisis, and found that banks that have made greater climate commitments have not registered a bigger reduction in lending to the most impacted sectors compared to banks without climate commitments, “suggesting that they are not actively disinvesting.” In short, the report concludes, “these results call into question the efficacy of voluntary commitments.”

THE TWO EUROPEAN DIRECTIVES

The European Union has decided to take action with a mix of measures to react to a phenomenon that the Commission in office from 2019 to 2024 summarised through four figures:

• 53% of so-called “green claims”, the statements that talk about product and service sustainability, contain vague, misleading or unfounded information;
• 4 out of 10 environmental claims are not based on evidence that can support their veracity;
• 50% of labels that recount a sustainability story offer weak or non-existent verification; 
• the proliferation of “green” brands and labels confuses people: in the EU, there are 230 sustainability labels and 100 “green” energy labels, “with vastly different levels of transparency”, the Commission explains. 

European measures are focused in particular on two closely related directives, the 2024/825
directive on consumer protection in the green transition, known concisely as the Greenwashing or “Empowering” Directive is already in force, and the other, known as the Green Claims Directive, is aimed at regulating the use of sustainability claims. This has not yet completed its approval process and is intended to complement and implement the Greenwashing directive.

GREENWASHING DIRECTIVE: ON THE CONSUMERS’ SIDE

The first of the two provisions entered into force on 27 March 2024, and concerns empowering “consumers for the green transition through better protection against unfair practices and through better information”. The directive amends two previous directives (2005/29/EC and 2011/83/EC), provides for specific categories of “environmental marketing” considered unfair, and introduces new prohibited business practices to the black list in Annex I of Directive 2005/29/EC. The most important prohibited conduct concerns the display of sustainability labels “not based on a certification scheme or which have not been established by public authorities”.

In practice, companies that communicate their sustainability practices through a label must obtain a conformity assessment from an independent third party that verify that the content of the claim complies with international standards such as ISO 17065 governing the operation of bodies certifying products, processes and services. By contrast, certifications established by public authorities are, for example, those certifying compliance with the regulations EMAS (EC) no. 1221/2009 or ECOLABEL EU (EC) no. 66/2010: products with an Ecolabel, therefore, do not require additional testing and certification for the use of sustainability labels.

DEMONSTRATING EXCELLENCE IN ENVIRONMENTAL PERFORMANCE

The directive prohibits the use of generic environmental claims – such as ecofriendly, green, nature-friendly and so on – in the absence of recognised and demonstrable excellent environmental performance relating to the claim. But how is excellence in environmental performance demonstrated? The directive refers specifically to compliance with Regulation (EC) no. 66/2010 and thus the Ecolabel, or with officially recognised EN ISO 14024 eco-labelling schemes in the member states, or by “corresponding to top environmental performance for a specific environmental characteristic in accordance with other applicable Union laws, such as Class A in accordance with Regulation (EU) 2017/1369 of the European Parliament and of the Council”. Recognised excellence in environmental performance should relate to the entire claim, and furthermore, a generic claim such as “conscious”, “sustainable” or “responsible” based solely on recognised excellence in environmental performance is not permitted, because such claims relate to other characteristics in addition to environmental characteristics, such as social characteristics.

THE IMPORTANCE OF MADE IN ITALY

In Italy, the voluntary scheme known as “Made Green in Italy”, established by Law no. 221 of 2015 (article 21, paragraph 1) is of particular interest: the adjective “green” that this label adds to “Made in Italy” is the result of an environmental performance measurement based on the Product Environmental Footprint (PEF), a method developed by the European Commission to calculate the environmental impact of a product through guidelines based on life cycle analysis and established international standards, such as ISO 14000/44. Products wishing to bear the "Made Green in Italy" label must submit their environmental footprint study for verification by independent and accredited third parties.

COMMUNICATING THE PART FOR THE WHOLE PROHIBITED

Another prohibited misleading practice that has therefore been added to the list in Annex I of Directive 2005/29/EC is the environmental green claim that defines the product or the trader’s business as a whole, while in reality it only concerns a specific aspect of the product or a specific and unrepresentative element of the trader’s business. Examples given by the European legislator are a communication about a product “made with recycled material”, which gives the impression that this relates to the whole product, when in fact only the packaging is made from recycled material, and when a trader gives the impression that it uses only renewable energy sources when in fact several of its facilities still use fossil fuels.

PROPOSED GREEN CLAIMS DIRECTIVE: THE EU COUNCIL’S POSITION

As mentioned above, the Greenwashing Directive is closely related to the proposed Green Claims Directive, which will be negotiated between the newly elected European Parliament and the European Council, which at the end of the previous European legislature approved its own general approach, modifying many points of the text approved by the European Parliament.

While the principle that environmental claims must be based on scientific evidence verified by independent third-party experts before being published remains firm, the Council intervened with a view to “reducing the administrative and financial burden on businesses”.

This implies, for example, that some less complex claims may go through a simplified procedure, conducting a kind of self-certification known as “specific technical documentation”, the content of which will have to be defined in detail by the Commission following the directive’s final approval. The position adopted by the Council of the European Union excludes from the simplified procedure claims of a comparative nature, those related to climate and those concerning future environmental performance.

THE IMPORTANCE OF CLEAR COMMUNICATION

The Council is also focused on the need to guarantee clear communication for the green claim that does not linger on the technical characteristics, which should in any case be made available to those who wish to explore them in more detail, for example through QR codes, in the product digital passport introduced by the Ecodesign Regulation or in the “Single Digital Gateway established by Regulation (EU) 2018/1724 with its Your Europe user interface and associated national gateways”. Next, as regards the need to use independent third-party verification and validation, according to the Council position, member states will be able to choose to exempt these labels from third-party verification "if the applicable verification standards and procedures meet certain criteria, including equivalence" with respect to the procedures set out in European legislation.

OFFSETTING EMISSIONS IS NOT ENOUGH

Another element of continuity between the two directives is the prohibition of declaring that a product has a neutral, reduced or positive impact on the environment, when such a declaration is based on the offsetting of the greenhouse gas emissions produced. The basic principle here is that emissions should be reduced as much as possible by redesigning the production cycle and, as proposed by the position adopted by the European Parliament, the option of referring to the use of offsetting schemes should be limited only to so-called “residual emissions”, i.e. those that could not be reduced in other ways. Again, it will be up to the European Commission following final approval to define in detail when residual emissions can be referred to. On this point, the Council proposed that, for communication purposes, “in offset claims, companies must prove a net-zero target and show progress toward decarbonisation, as well as the percentage of total greenhouse gas emissions that have been offset”.

THE IMPORTANCE OF TRAINING

Given the scope of these provisions, both the one already in force and the one awaiting final approval, companies and organisations have a clear need for intensive training and support to ensure that their sustainability communication is accurate and effective. This is also true given that in the European Parliament's approved negotiating position on the proposed Green Claims Directive, companies that break the rules could face penalties such as temporary exclusion from public tenders or fines of at least 4% of their annual revenues. Since its inception in 2020, the magazine EconomiaCircolare.com has turned the spotlight on this need by accompanying the analysis of legislation and cases – sometimes even judicial cases – of greenwashing with the organisation of training events and business support activities. The topic will also be the subject of a specific focus during Ecomondo 2024: we will engage with various players from the world of measurement and certification, to support organisations in the difficult but necessary challenge of making the right sustainability choices and communicating them in a way that avoids the charge of greenwashing.

Article by Raffaele Lupoli
editor-in-chief of EconomiaCircolare.com