The EU’s proposed ban on greenwashing: What businesses need to know

In recent years, the global IP landscape has seen a rapid shift as businesses seek to build and implement strategies aimed at supporting efforts to address climate change. Efforts to demonstrate environmentally friendly credentials has seen a significant increase in ‘green’ trademark applications and the use of sustainability labels such as ‘sustainable’, ‘bio’, and ‘natural’. Consumers also play a crucial role in promoting green practices, and many are keen to ensure they consume more sustainably. Not only is consumers’ commitment to sustainability is hindered where environmental advertising is false, incomplete or exaggerated, but companies also risk accusations of greenwashing.

As part of the European Commission’s Circular Economy Action Plan and New Consumer Agenda, which aim to support consumers in the green transition, the Commission recently proposed new legislation that would ban greenwashing and tackle early obsolescence of products. The proposals also included the introduction of new consumer rights intended to enhance the durability and reparability of products. Here we outline the key aspects of the greenwashing proposals and the potential impact for businesses.

A ban on greenwashing and planned obsolescence

The Commission is proposing several amendments to the Unfair Commercial Practices Directive (UCPD) to help consumers make more sustainable choices. These reforms would expand the list of product characteristics about which traders cannot mislead consumers to include environmental and social impacts. The proposals would introduce stricter requirements for green claims in general, and they would expand the so-called ‘blacklist’ of prohibited unfair business practices to include:

• Failure to inform about features introduced to limit durability.
• Making generic, vague environmental claims where the environmental performance of the product or trader cannot be substantiated. Examples of such generic environmental claims are ‘environmentally friendly’, ‘eco’ or ‘green’, which wrongly suggest or create the impression of excellent environmental performance.
• Making an environmental claim about the entire product when it really concerns only a certain aspect of the product.
• Displaying a voluntary sustainability label which was not based on a third-party verification scheme or established by public authorities.
  • Not informing that a good has limited functionality when using consumables, spare parts or accessories not provided by the original producer.

As of now, the UCPD does not prohibit the use of green claims unless they are unfair. Such green claims must be truthful, not contain false information and be presented in a clear and accurate manner so that consumers are not misled. Green claims can also be problematic if they deceive or are likely to deceive the average consumer, even if the conveyed information is factually correct. Furthermore, certain practices that are relevant for green claims (eg claiming to be a signatory of a code of conduct on the product’s environmental performance when the trader is not a signatory of a code of conduct, or using an eco-label without authorisation), are already blacklisted under the UCPD, meaning that they are illegal, irrespective of whether or not they would affect a consumer’s decision.

Risks associated with unfair green claims

Unfair – and prohibited – green claims could result in significant legal exposure for businesses using such claims. For example:

• Litigation and regulatory proceedings. Competitors as well as consumer protection associations and institutions could initiate cease and desist actions and request interim injunctions.
• Fines. In addition to private enforcement, competent authorities could initiate infringement proceedings, which could lead to significant fines. For widespread UCPD infringements, particularly with an EU dimension, companies can already be subject to significant fines of up to 4 per cent of their annual turnover. This is particularly relevant when green claims are part of a broad (cross-border) marketing campaign, or the general Corporate Identity (CI) strategy.
• Damage claims. Furthermore, in addition to competitors (eg arguing that they have lost revenue due to the unlawful green claims), individual consumers could also potentially raise damage claims, which increases the risk of mass claim proceedings.
• Confiscation of profits. Some jurisdictions, such as Germany, even provide for the confiscation of profits resulting from the infringement.
• Reputational risk. Finally, businesses also need to consider the significant reputational harm associated with greenwashing, which is already in the spotlight in mainstream media.

Businesses should consider that member states are responsible for setting out remedies and imposing sanctions, so some countries could be stricter on compliance and impose higher fines than others.

Next steps

The Commission’s proposals will be discussed by legislators in both the Council and the European Parliament. This process could take up to 18 months, so we can expect an agreement by the end of 2023. Amendments to the UCPD will need to be transposed into national law within 18 months after adoption. Member states will also need to set out guidelines to ensure compliance, which apply two years from adoption, so the rules may only be in force from late 2025-early 2026.

On 20 July, the Commission will publish a proposal on substantiating green claims, where the EU will look to limit unclear terms such as ‘green’ and ‘sustainable.’ The proposal could introduce a voluntary or legally binding framework on substantiating green claims using environmental footprint methods and independent third party assessments. A proposal on the right to repair, amending the Sales of Goods Directive, to promote systematic repairs going beyond a product’s typical liability period, is also expected later this year. Furthermore, as discussed in a previous blog, the European Commission has also recently unveiled radical proposals to overhaul the design and labelling of consumer products which addresses recyclability, recycled content, reducing carbon and environmental footprint.

Business considerations: foresight is better than hindsight  

• Consider tomorrow’s regulations today. Although there is still time before the additional ban on greenwashing becomes binding law, it is already clear that greenwashing will be subject to increased scrutiny by courts, authorities and consumers.
• Considering that green claims are a significant part of the overall CI strategy, and it takes significant time to build a credible ‘green’ reputation for a brand or the company as such, businesses are well-advised to begin considering the potential greenwashing ban in their long-term brand strategy.
• Be wary of advertising terms and labels. Even if it might be tempting to use broad green claims and self-created sustainability labels, this could be problematic and outright prohibited if the proposed greenwashing ban comes into force. If a brand image is built on such a label/claim today but may be prohibited in the future, this would not only cause substantial and potentially costly re-branding efforts but also harm the credibility of the brand.
• Monitor further progress. Companies should monitor the progress of the proposal in conjunction with other upcoming initiatives described above, and keep them in mind when considering their brand, marketing and CI strategies.