EU’s greenwashing legislation creates more problems than it solves

On Tuesday, the European Parliament voted through a new Directive - the Green Claims Directive – addressing the verification of, and communication around, stated environmental claims. The basic concept underpinning the legislation is a positive one; namely, to reduce the level of inaccurate or even false environmental claims that currently exist; the ultimate goal is to help consumers make choices that are more sustainable. So-called ‘greenwashing’ is a genuine problem; designed correctly, this initiative from the European Commission could improve the competitiveness of the many Swedish companies and industries that have genuine, credible evidence that supports their environmental claims.

Any legislation in this area should be designed in such a way that it encourages companies to produce products and services that are more environmentally sustainable and that they can talk about and market to consumers, within the framework of clear regulations. Unfortunately, as currently structured, the Directive is moving in the opposite direction. The likely result is that companies will instead simply choose to refrain from communicating on their environmental and climate work. This would be a clear setback for both those companies seeking to develop sustainable business models and products and for individual consumers who want to make more environmentally conscious choices.

Under the new Directive, companies seeking to make environmental claims for their products must seek and obtain prior approval from an external verifier. This may sound a relatively simple procedure, but in practice creates significant cost increases, time delays and uncertainty, as well as considerable additional administration and management. This will particularly impact small businesses. Often, their competitiveness and capacity for breaking into the market is, in many cases, based on developing innovative and sustainable products. Their success depends on their ability to communicate about the available benefits.

At the same time, there are stringent penalties for anyone who happens to break - even unintentionally - any of the Directive’s numerous difficult-to-interpret rules. These include a one-year exclusion from public procurement, a freeze on earnings from ‘offending’ products and fines of up to 4 percent of turnover. Faced with these risks, companies – particularly smaller ones - will instead choose to say nothing about how a given product is significantly more sustainable and environmentally friendly than others on the market.

It is worth noting that the European Parliament has taken a number of steps to try to improve the Commission’s proposals. These include delegated acts that simplify processes for obtaining certain prior authorisations (already a relatively complicated procedure). Unfortunately, these do not go far enough, and many of the underlying problems remain. In addition, the severe penalties have not been amended. It is therefore particularly important that negotiations in the Council of Ministers, which will continue into the spring and early summer, seek to make a genuine difference on greenwashing, rather than seeking to impose convoluted, cost-driving requirements on individual companies, which will instead only lead to so-called ‘greenhushing’.

So, what could make a real difference? The Confederation of Swedish Enterprise, along with a wide range of industry organisations and companies, has argued from the outset of this process that further regulation and legislation is not the answer. There is already a significant amount of regulation surrounding how environmental claims may be communicated. These include mandatory national and European legislation and the International Chamber of Commerce’s (ICC) marketing code, which acts as the business community’s own international standard for self-regulation in this area. What is really missing or in short supply is sufficient and effective supervision and enforcement under existing legislation, something that the Swedish Consumer Agency and the Swedish Environmental Protection Agency had already highlighted early in this process.

Here, targeted investment and greater ambition are needed at European and national levels to ensure that there is actually compliance with the existing rules. Swedish companies ask for and welcome appropriate supervision, despite being the ones that have to pay for it. Why? Because more effective supervision leads to the removal of incorrect environmental claims and improves the competitiveness of those companies that are serious about their efforts. With increased resources and clear guidance for authorities, it would be perfectly feasible to prosecute those companies that have been shown to be in breach of current legislation. At the same time, it could also provide support for the numerous companies that want to do the right thing for themselves, but which lack the knowledge to do so or are uncertain about what they are allowed to communicate.

As indicated, negotiations around the Green Claims Directive are far from over. The final stages of the legislative process are only likely to happen once the new European Parliament and new Commission are in place, which will be towards the end of this year. There is therefore ample time for all parties involved to reflect and listen to the business community. That way, they can advance proposals to ensure that existing regulations are complied with, rather than stifling those companies that make realistic efforts to improve the environment and want to be able to communicate about what they do.