Rigorous European legislation bringing clarity on proper green communication

Environmental awareness and sustainability have been subjects of intense discussions since they are of growing importance to individuals in their daily decisions. Because this dimension of economic competition is becoming more crucial in company communications, legislative and enforcement trends are arising in the areas of competition law and consumer protection law.

Up until now, these trends have been rather sporadic, depending on, Member State priorities and lacking effective EU harmonisation on how to handle cross-border or even globally communicated green claims. The following article focuses on the most recent legislative development in the field of consumer protection law, namely the European Commission’s Proposal for a Directive on substantiation and communication of explicit environmental claims that might bring clarity to the main requirements for remaining compliant, although these requirements may seem strict at first sight.

Legislative actions taken by the EU

The Proposal for Green Claims Directive was preceded by an Amending Proposal, the Proposal for a Directive amending the UCP Directive. Both legislative initiatives are part of the Commission’s action programme approved in 2020 (i.e. the European Green Deal), which aims to integrate appropriate responses to environmentally significant issues.

The UCP Directive contains general rules (lex generali) for all types of business-to-consumer commercial practices. The Amending Proposal aims to increase the protection of consumers under the UCP Directive specifically from an environmental and sustainability perspective through the improved participation of consumers in the circular economy and in particular by:

• Providing better information on the durability and reparability of certain products to consumers before concluding the contract; and
• Stepping up the protection of consumers against unfair commercial practices that prevent sustainable purchases, such as greenwashing practices (i.e. misleading environmental claims), early obsolescence practices (i.e. premature failures of goods), and the use of unreliable and non-transparent sustainability labels and information tools.

Importantly, not only the EU seems to envisage new legislation in relation to green communications. For instance, national agencies such as the Hungarian Competition Authority (HCA) also launched a comprehensive market analysis at the end of 2022, which aims to examine the market realities and practices regarding green claims and ultimately to formulate a legislative proposal to the legislator.

Proposal for Green Claims Directive

The existing regulation of business-to-consumer commercial practices was not considered by the Commission to be sufficient and capable of reflecting recent changes in consumer preferences and business commercial practices related to sustainability and the environment. This has resulted in the Proposal for Green Claims Directive, which, in addition to the UCP Directive and the Amending Proposal, contains specific rules on commercial practices relating to sustainability and the environment (lex specialis).

The Proposal for Green Claims Directive extends the list of unfair commercial practices in Annex I of UCP (e.g. making a generic environmental claim for which the trader is not able to demonstrate recognised excellent environmental performance relevant to the claim), and introduces substantiation, communication and verification requirements for green claims, as follows:

• Further requirements for substantiation of (comparative) claims (e.g. all claims must rely on widely recognised scientific evidence, use accurate information and take into account relevant international standards);
• Further requirements on communication of (comparative) environmental claims (e.g. all claims must only cover environmental impact, performance assessed in accordance with the substantiation requirements laid down in the Proposal for Green Claims Directive and are identified as significant for the respective product or trader);
• Further requirements for environmental labelling schemes (e.g. requirements on transparency and accessibility of information on ownership, decision-making bodies and objectives);
• Specific rules for review, verification and certification of the substantiation and communication of (comparative) environmental claims and environmental labelling schemes (e.g. the information used for substantiation of explicit environmental claims must be reviewed and updated by traders when there are circumstances that may affect the accuracy of a claim, but not later than five years; the substantiation and communication of environmental claims and environmental labelling schemes must meet the specific criteria and be approved by verifiers).

In addition, the Proposal for Green Claims Directive introduces various monitoring and enforcement mechanisms, which businesses need to pay attention to. In line with this, the truthfulness and the substantiation of green claims must be proven and verified by the business publishing them, and truthfulness and substantiation must be constantly monitored and reviewed, otherwise the Proposal for Green Claims Directive envisages significant fines and other sanctions to be imposed on the businesses concerned.

What is the takeaway from the above?

Green communications have been in the spotlight in the EU for a while, but legislative and enforcement activities have been mild so far. Following the extensive and strict provisions of the Proposal for Green Claims Directive, it is likely that such a mild approach will change in the near future.

As a result, we recommend that you carefully review your company's green communications and sustainability to ensure they will comply with the Amending Proposal and the Proposal for Green Claims Directive. There are already existing good practices derived from Member State enforcement activities that are available, although the new EU rules might require even greater scrutiny once the Green Claims Directive comes into force.

For more information on EU and Hungarian competition law, contact your CMS client partner or local CMS experts.

The article was co-authored by Kristóf Keresztes.