The Green Claims Directive | The EU’s Next Step on Green Transition

In March 2023, the European Commission adopted a proposal for companies making green claims. As a complementary to the "Directive on Empowering Consumers for the Green Transition" of 2022, the proposal is quite interesting. It both addresses greenwashing by demanding full transparency from the businesses and aims to integrate the European single market through this shift of green transition. The directive intends to prevent companies to make misleading claims about their environmental qualifications and production ethics; which means to "greenwash" themselves. To safeguard the reliability of the companies, it will require companies to predicate on robust, science-based, and verifiable methods when making green-related claims for their marketing. According to the plan, this upcoming transparency will contribute to the green transition through a profile of empowered and concerned customers in the market.

IS THE NEW GREEN CLAIMS DIRECTIVE NECESSARY?

Honestly, it is. According to a study by the European Commission; 53% of green claims give vague, misleading, or unfounded information. 40% of these claims lack proof. Half of the green labels either have no or nonsense verification. Consequently, we might observe a decrease in products labeled as "packaging made of 30% recycled plastic", "ocean-friendly" and "bee-friendly" at stores. Through these steps, the proposal not only subjects the companies to give clear information for a well-protected environment and well-informed purchasers; but also paves the way for fair competition in the European market. When honest companies who apply their environmental claims find a better chance to sustain their motivation and gain the trust of consumers, the greenwashing companies will either suit into necessary processes or be punished by the governments.

The proposal is developed based on Article 114 of the Treaty of the Functioning of the European Union. The base treaty focuses on a well-functioning European internal market and includes greenwashing as a crucial criterion that will doubtlessly be helpful to succeed. As European integration improves every day, this mutual criterion will also help the economic and legal incompatibilities between companies from different member states. The cross-border regulation is expected to contribute a lot to Europe as one.

HOW WILL IT BE REGULATED?

Considering the Directive of March 2022, the upcoming legal regulations will not create an extreme transition. Since the “lex specialis” adjustments of the time have determined specific rules that Europe is subject to know, the adopted proposal's "lex generalis" structure will be functioning for a more comprehensive and regulated system. The defined statements will cover any green-defining object: text, pictorial, graphic, or symbolic representation – whether they are mandatory or not by the Union and national law of the countries. The member states are called to inspect on the national level by consumer protection authorities, which makes the regulation less decentralized and wider functioning. Case-by-case assessments by national authorities are expected implementations.

To keep the transparency reliable, the proposal contains the whole process of production. Companies need to get permission on their green-claiming labels before they can release their products to the market. Though the investigation of production chains stays a little suspicious around the question if they can be monitored, the provision on “approval before the release of product” might create a reliably strong effect here.

Companies are obliged to share statistical information covered by their budget to gain the right to have green-claims on labels. In the example of production chains, each company to fulfill the criteria to be eligible for using the green-claiming labels might introduce a stable integration to the new law. Therefore, the legislation might create a clear stance on the legal status of greenwashing and the intersection of environmental claims and competitive markets. Remarkably, the focus of the proposal is mostly around the words “eco-friendly”, “sustainable” and “environmentally responsible”. Some argue that the bans on climate-related labels are neglected and those labels will still be used even if this proposal passes. Considering this, a lack of focus on terms like “climate-friendly” and “carbon-neutral” might result in continuous disinformation given by the labels. 

As the act concerns the European market as a core for transitioning to the green future, it also projects to enhance its influence through 3rd countries, too. According to the proposal, the trading partners of European states will also be put under the regime that is established by the new proposal. It will help to keep Europe's economic partners reliable and responsible for our future. Though the regulation will involve continental Europe and its partners, the variety between the European companies' sizes has emerged as a concern: Will the Union be able to stabilize its competitiveness when adopting those strict measures? Taking the heat out of this issue, the Commission adopts a special regulation for smaller enterprises.

During the new legal application, microenterprises that have less than 10 employees and 2 million Euros turnover will be subject to a special procedure. These companies will stay exempt from the obligations to prevent a disproportionate influence on the economy.

It might create a controversy to exempt small businesses from the new legislation in terms of equality before the law. The exact reason why small businesses will be more advantaged in the proposal can be explained in two terms of law philosophy: Firstly, Western public law includes the core value of the principle of equality. This principle supervises legal equality instead of actual equality, which seeks to prevent privileges to be acknowledged by some parties of the society. Considering the possibility of the same strict regulations on labels being applied to both small and big companies, it will result in blocking the enlargement of both on the same level. This same level of blockage will put more of a burden on small companies, there, the competition structure in the EU market will punish small businesses more than the big companies. To maintain the principle of equality stable, the same legal situations should be evaluated in the same manner when different ones are treated differently. Just like we need to propose special legal clauses for women and LGBTQ+ people to remove their disadvantages in society; a special regulation being implemented on small companies to prevent their further disadvantages is a compatible act with Western law. 

The second basis for this special regulation is related to the free market modeling of the European economy. This model projects the freedom of capital and non-intervention of the state, but still, the EU is charged to be a referee. As the EU is responsible to support entrepreneurship, it has to apply special clauses to microenterprises to enlarge themselves. The law of competition seeks to organize the markets, which aims to prevent monopolies. If the regulation would not exempt small businesses from the newly-introduced clauses, it would result in indirect support to the monopolization of big companies – and that will lead to the development ratio of the European market being affected negatively. In this sense, both to protect the core values of European law and maintain the stability of market and development; the exemption gains a significant purpose. 

However, still, those small companies will be obliged to receive a certificate of conformity of the environment claim – which will state that they still have to fulfill the requirements in the future. Any type of business will still be subject to the Unfair Commercial Practices Directive. Thus, it is expected to balance the fair functioning of the market, at both in terms of European and national levels. 

EXPECTED IMPACTS ON BUSINESSES

The Commission expects additional costs for companies, but it will not have a continuous nature: They will be obliged to remove their labels if they do not fulfill the criteria. Additionally, the states or the Union will not be the ones proving a company's reliability but the substantiation will be done by the companies themselves. As it is still the companies' preference to make green claims, the ones who want to avoid those costs will withdraw – and as mentioned, a decrease in the green labels will be observable in the upcoming years. 

Another expected cost by the Commission emerges as the administrative ones about labels and logos. Enterprises have substantive compliance costs due to applying amendments required by the law. The proposal text states that the costs of applying for labels might increase – however, that might result in a decreased need to apply for several labels. Lastly, the Commission informs that they do not expect an impactful enforcement cost for public administration in the impact assessment since they will provide the necessary information online.

Words:
Tolga Rahmalaroglu
Luxiders Magazine

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© Priscilla Du Preez via Unsplash