Beware advertisers, the EU has a new plan to limit hot air around environmental claims

This just in: advertisers sometimes exaggerate. I know, it’s hard to believe but it’s true. And it’s particularly true around this time of year, the run-up to Earth Day, when marketers emit a lot of hot air about everything they’re doing to save the planet.

Did you know your favourite toilet paper is single-handedly replanting the Amazon rainforest? Did you know that your go-to beer is cleaning the ocean? Did you know that, were it not for the selfless actions of a condiments company, the climate crisis would have wiped us all out by now?

The European Commission has had quite enough of all this greenwashing, thank you very much, and recently put its foot down in the most EU-way possible: an 80-page Proposal for a Directive on substantiation and communication of explicit environmental claims. The snappier name for this is the Green Claims Directive.

The general gist of the proposal is that there is an awful lot of bullshit out there and it’s hampering the transition to a greener economy: a 2020 EU Commission study found that 53% of green claims give “vague, misleading or unfounded information” and 40% lacked sufficient supporting evidence.

The Commission also points out that there are around 230 sustainability labels and 100 green energy labels in use across the EU “with vastly different levels of transparency.” Consumers want to make more sustainable choices—and are often willing to pay a premium for it—but are sabotaged by the fact they don’t know what they can trust. The new directive would put guidelines in place to standardize claims, so that consumers have “more clarity, stronger reassurance that when something is sold as green, it actually is green, and better quality information to choose environment-friendly products and services.”

What happens if companies are found to breach these new laws? The proposal suggests that they’d be punished with penalties amounting to at least 4% of revenue or exclusions of up to a year from public procurement processes or subsidies.

So are environmentalists and the business community universally happy with the European Commission’s new proposal? Of course not! While this is certainly a step in the right direction, some environmental groups have accused the proposal of being “substantially watered down” by corporate lobbying. “[The commission] got so much pushback that they removed everything that was concrete, left the principles and left a scene-setting for more to come,” Margaux Le Gallou, programme manager at the NGO Environmental Coalition on Standards, told the Financial Times. “It’s too vague with too much left to later.”

While the Commission’s proposal certainly isn’t perfect, it is a step in the right direction and a sign that governments and regulators are slowly waking up to the problems with greenwashing. France has led the way in a lot of this: in 2021 it adopted a new Climate and Resilience Law regulating language related to green claims and imposing a ban on advertising relating to the marketing or promotion of fossil fuels.

The UK’s competition authority, meanwhile, recently announced that it would scrutinize green claims made about household essentials after finding that up to 91% of all dishwashing items and 100% of toilet products are marketed as green or environmentally friendly. (Who knew going to the loo could be so good for the environment?)

In the US, the Federal Trade Commission (FTC) has requested comment on whether to retain or modify its Green Guides, last revised in 2012, which help companies determine whether marketing statements about the environmental benefits of goods and services would be misleading to consumers. 

Corporations don’t tend to love regulation but, it’s important to note, doing the right thing can be very good for business. If you’re caught out greenwashing, there’s a good chance that consumers will punish you for it. “We estimate that companies that are perceived to be greenwashing suffer, on average, a 1.34% drop in their American Customer Satisfaction Index (ACSI) score”, the authors of a recent study on the matter write in the Harvard Business Review.  “[T]his might sound like a small effect, it actually isn’t. Companies are intensely competing within a relatively narrow range of ACSI scores, and a 1.34% drop matters…a change of merely one unit in customer satisfaction (as measured by ACSI) has been estimated to result in 0.032 units of change in net earnings per share (EPS) and 0.40 units of change in return on investment .” There is a caveat to this: customers will give you a pass if they’re big fans of your brand. Morals have a limit!

Anyway, I’m sure I don’t really need to quote Harvard Business Review studies in order to try and convince advertisers not to lie through their teeth or cheat on emissions tests.

I’m sure everyone reading this is excited to get on board with the Commission’s proposals and make sure their green claims are up to snuff. At least I’m 97.6% sure.