“Clearing the chaos”: EU clamps down on greenwashing

12 October 2023

The Parliament and Council of the EU have recently proposed a new directive banning 'greenwashing' (or misleading environmental claims). The proposed directive will introduce various restrictive requirements on how businesses can promote their sustainability initiatives including prohibiting claims that a product has a neutral, reduced or positive impact on the environment based on emissions offsetting schemes. A Parliament spokesperson heralded the regime as “an excellent deal for consumers” and declared: “we are clearing the chaos of environmental claims.”

The EU has tended to be a leader in global regulatory attitudes on issues around greenwashing and climate reporting. As a result, the proposed EU directive is likely to influence regulatory perspectives outside of the EU, despite not being directly applicable. We expect that any businesses in New Zealand looking to understand the risks of greenwashing more closely will be interested in the scope of the proposed restrictions.

Summary of the proposed restrictions

In summary, the proposed directive1 will amend existing consumer protections in the EU by restricting the following environmental marketing practices:

1. “Generic” environmental claims:

The directive prohibits “generic” environmental claims which are defined as environmental claims not contained in a sustainability label (such as a trust mark) where the specification of the claim is not provided in “clear and prominent terms.” There is an exception where there is evidence of “excellent environmental performance” (including by reference to other EU regulations regarding eco-labelling).

Examples of generic claims caught by the new directive include “environmentally friendly”, “natural”, “biodegradable”, “climate neutral”, “sustainable”, “energy efficient” or “eco”, as well as broader statements such as “conscious” or “responsible” that suggest or create the impression of excellent environmental performance.

2. Claims based on emissions offsetting:

The directive restricts environmental claims based on carbon offsetting (i.e. the purchase of carbon credits or the provision of financial support for environmental projects aimed to neutralise or compensate for a business’ environmental impact).

Specifically, under amendments proposed by the EU Parliament, the directive would restrict claims “related to future environmental performance solely based on carbon offsetting schemes or without clear, objective, quantified, science-based and verifiable commitments, without a detailed and realistic implementation plan with reference to budgetary and technological commitments, without feasible targets, and without an independent monitoring system that is based on relevant data.” In short, businesses looking to make environmental claims in reliance on offsetting schemes will need a very robust empirical basis for the claims.

However the proposed directive also provides that this “should not prevent companies from advertising their investments in environmental initiatives as long as such advertising does not claim that such investments or initiatives compensate, neutralise, or render positive the impact of the product or the impact of the trader’s business on the environment.”

3. Sustainability labels

Use of sustainability labels not based on approved “certification schemes” (i.e. eco-labels) or established by public authorities, will be banned. Such schemes must be open to all traders on transparent, fair and non-discriminatory terms, and should fulfil minimum transparency and credibility conditions (compliance with which is overseen by an independent third party). These requirements will impose a high standard for the use of eco-labels.

4. Durability and replacement claims

The directive prohibits making claims which falsely state the durability of products. In addition, in drafting proposed by the EU Commission, the directive prohibits the omission of information regarding the existence of “a feature of the good introduced to limit its durability” (e.g. software designed to fail after a certain period of time). Similarly, there is a prohibition against claims which prompt consumers to replace products earlier than would otherwise be necessary.

The proposed restrictions, which form part of the EU’s wider “green transition” initiative, remain in draft and are subject to final agreement between the institutions of the EU. The directive is likely to be finalised in November, after which member states would have 24 months to incorporate the new rules into their domestic laws.

Implications for New Zealand businesses                                                           

There are currently no specific greenwashing regulations in New Zealand, and sustainability claims are instead governed by general consumer protection laws (for example, requirements to ensure that claims are substantiated by reasonable grounds under the Fair Trading Act 1986). Nevertheless, the EU reforms may result in similar restrictions being introduced in New Zealand in due course, and may also influence the approach currently taken by New Zealand regulators under existing laws. In that regard, greenwashing claims have attracted the increasing attention of various regulators. For example:

  • The Commerce Commission has issued guidance on environmental claims2 warning against the use of generic environmental claims (such as “made with renewable energy”, “biodegradable”, “better for the environment” and “recyclable”).
  • The FMA recently issued a formal warning to Vanguard for failing to disclose details of infringement notices (relating to misleading investment screens) issued by ASIC in Australia.3 More generally, the FMA’s Executive Director for Response and Enforcement, Paul Gregory, warned in May that the FMA was “sharpening its focus” in relation to greenwashing and that “there are broader policy and consumer tailwinds for claims to be articulate, accurate and meaningful.”
  • The Advertising Standards Authority also remains an active forum for greenwashing allegations (in part due to the simplicity with which complaints can be filed). For example, in March Unilever withdrew advertisements promoting “100% recyclable” Persil bottles, following a complaint to the ASA alleging that the advertisements were “blatant greenwashing.”4

The perspectives of global lawmakers are likely to be of interest to New Zealand regulators seeking to test the scope of existing consumer protections in the unfolding context of greenwashing allegations. As such, keeping track of overseas reforms will help New Zealand businesses to safely promote sustainability initiatives within acceptable boundaries, and to gain a clearer sense of the evolving line that divides acceptable marketing practices from unacceptable greenwashing.

If you have any questions about the matters raised in this article or how the proposed law might impact your business, please get in touch with the contacts listed or your usual Bell Gully adviser.

[1] https://www.europarl.europa.eu/cmsdata/270965/Mandate.pdf [2] Environmental-claims-guidance-July-2020.pdf (comcom.govt.nz)[3] https://www.reuters.com/business/sustainable-business/new-zealand-regulator-warns-vanguard-over-greenwashing-notice-2023-03-29/[4] 23051.pdf (asa.co.nz)


Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.