Further EU greenwashing proposals: EU Green Claims Directive

The European Commission recently published new rules that mean businesses will have to meet more stringent standards when making environmental claims about their products. 

The proposed EU Green Claims Directive will require companies making products available to EU consumers with environmental claims to substantiate such claims based certain evidence-based criteria. Where a comparative environmental claim is made (stating that a product or trader has less environmental impacts or better environmental performance than others), companies will be required to follow further substantiation requirements.

The proposals will apply to consumer-facing businesses and will capture businesses based outside the EU that make available products to EU consumers. Small companies (with fewer than ten employees and with an annual turnover and/or annual balance sheet total not exceeding EUR 2 million) will be exempt from the proposals.

Further substantiation requirements will apply to operators of environmental labelling schemes (certification schemes which certify that a product, process or trader complies with the requirements for an environmental label). Environmental claims and environmental labelling schemes will also be subject to ongoing verification from Member States.

Whilst the proposals are not aimed at asset managers per se and rather build on the existing EU consumer protection framework (such as the Unfair Commercial Practices Directive), the rules add another layer to the Commission’s drive to address greenwashing and protect consumers. These proposals may also impact private fund portfolio companies in the EU or offering services to EU consumers.

The proposals are expected to be presented to the European Parliament as part of the 18 month legislative review period. Once approved and published in the Official Journal, Member States will then have 18 months to implement the directive.