by Cian Clinch December-20-2023 in Commercial & Business
a. Introduction
In March 2023, the European Commission published the Proposal for the Green Claims Directive (“the Proposed Directive”). The core underlying policy aim of the Proposed Directive is to ensure that consumers receive reliable, comparable and verifiable information to allow them to make informed sustainable decisions, and to reduce the risks associated with “green washing”. The Proposed Directive introduces minimum requirements relating to the substantiation and communication of environmental claims, with which traders’ environmental claims must comply. Before the Proposed Directive is enacted into law, it must proceed through the legislative process. It is currently estimated that this legislative process, at the EU level, will conclude around September 2024, with vote by Committee expected in February 2024, after which the Members States will be given a timeline to enact transposing national legislation.
The proposed Directive aims to address concerns identified in a 2020 EU Commission study, which found that 53.3% of the 150 environmental claims examined contained vague, misleading, or unfounded information about products’ environmental characteristics, with 40% of such claims being completely unsubstantiated. More broadly, the Proposed Directive is part of a suite of new policy measures under the European Union’s Green Deal. For example, on 19 September 2023, the European Parliament and Council reached a provisional agreement for a Directive on Empowering Consumers for the Green Transition (“the Proposed Green Transition Directive”). This provisional agreement aims to tackle unfair commercial practices that mislead consumers away from sustainable consumption. The Proposed Green Transition Directive also aims to establish a range of requirements on environmental claims and prohibit generic environmental claims (such as “eco-friendly”, “eco”, “green”, “nature's friend”, “ecological” and “environmentally correct”), if such claims are not based on excellent and demonstrated environmental performance. In the event of a conflict between the two Directives, the Proposed Directive will prevail.
This article sets out some of the key provisions of the Proposed Directive, and the potential impact it will have on Irish businesses.
b. “Explicit” and “Comparative” Environmental Claims
Under the Proposed Directive, traders will be required to substantiate explicit environmental claims which will need to be independently verified by a third-party assessment body and proven with scientific evidence. This area is currently regulated in a somewhat makeshift fashion, with certain “misleading” claims falling within the scope of the Unfair Commercial Practices Directive (transposed in Ireland by way of the Consumer Protection Act 2007). However, the Proposed Directive would cover almost all explicit environmental claims. Such claims would need to be substantiated and verified in accordance with certain criteria under the Proposed Directive, including, but not limited to: whether the claim relates to the entire product or business of the trader; whether the claim relies on widely recognised scientific evidence, accurate information and takes relevant international standards into account, and; whether it follows a life cycle approach.
The Proposed Directive also requires traders to communicate the exact environmental impacts covered by its explicit environmental claims, as well as the underlying studies or calculations which form the basis of these claims. This requirement seeks to ensure that environmental claims are made in relation to products or traders whose environmental benefits go beyond what is considered common practice.
The Proposed Directive provides for, in the context of environmental claims which “state or imply that a product or trader has less environmental impacts or a better environmental performance than other products or traders” (defined as “comparative environmental claims”), additional requirements with which traders will be required to comply. For example, any such equivalent environmental claim will need to be based on equivalent scientific information. Furthermore, traders will be prohibited from only highlighting the positive environmental impact of their products.
c. Labelling
The Proposed Directive also seeks to regulate requirements in relation to environmental labels i.e., sustainability labels which predominantly (or exclusively) relate to the environmental aspects of a product, process or trader. The requirements relating to environmental labelling schemes relate to: transparency and accessibility of information; underlying criteria for the award of labels; existence of dispute resolution mechanisms, and; non-compliance procedures.
One of the core policy goals underpinning the Proposed Directive is to ensure that environmental labels are robust, transparent and reliable. As such, sustainability labels based on self-certification will not be permitted under the Proposed Directive. Independent verification is therefore a central theme of this aspect of the proposed Directive.
d. Enforcement
Under the Proposed Directive, national regulators will be responsible for setting up verification and enforcement processes to be performed by independent and accredited verifiers. It is stated under the Proposed Directive that Member States may designate the same regulator as is designated under the Unfair Commercial Practices Directive. In Ireland, this designated body is the Competition and Consumer Protection Commission (“the CCPC”). The national regulator will have a wide remit under the Proposed Directive, which could see the CCPC, if designated, taking the following steps:
- Initiating investigations or proceedings against traders in breach of their obligations.
- Issuing “corrective requests”, namely requiring traders to remedy any breaches within 30 days.
- Seeking injunctive relief with respect to any breaches of the Proposed Directive.
- Imposing fines and penalties on traders, with the maximum fine being 4% of the company’s annual turnover in the affected Member State or Member States concerned.
e. Exemptions:
The Proposed Directive also sets out some exemptions for small businesses. In particular, it is proposed that the substantiation requirements outlined above will not apply to microenterprises (i.e., companies with fewer than 10 employees and an annual turnover of less than €2 million), unless said microenterprise wishes to use a certificate recognised across the EU market.
Conclusion
As noted at the outset, it is expected that the Proposed Directive will not be enacted until September 2024 at an EU level, after which transposing legislation will also need to be passed by each Member State. However, given the extent of the obligations that will be imposed upon businesses, as outlined above, it would be advisable for businesses to begin to take steps to reduce any compliance gap once the Proposed Directive actually becomes law.
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About the Author
Cian Clinch
Cian is a partner in the Commercial & Business team at Hayes solicitors. He predominantly specialises in commercial litigation and dispute resolution and has acted for a variety of companies and financial institutions in contract, debt, insolvency, restructuring and recovery matters.