Proposed regulation will require companies to substantiate their environmental footprint claims, seeking to ensure green claims are more reliable.

By Paul A. Davies and Michael D. Green

Background

On 27 August 2020, the European Commission (the Commission) launched a public consultation on a possible proposal on substantiating green claims about products or services. This follows on from the Commission’s Inception Impact Assessment Roadmap on potential regulation of green claims. The consultation period for this Roadmap closed on 31 August 2020, so the Commission is already moving ahead with the consultation on the proposal itself. This initiative is another step toward meeting the objectives identified in the European Green Deal, pursuant to which the Commission committed itself to making the EU climate neutral by 2050.

The proposed regulation predominantly addresses the issue that companies’ environmental claims about the performance of their products and services are currently unreliable, incomparable, and unverifiable, and there are no rules standardising how such environmental claims are measured and assessed. Frequently, market commentators say that companies are giving a false impression of their products’ or services’ environmental impact or advantages, also known as “greenwashing”. The Commission found that there are “more than 200 environmental labels active in the EU”, and more than 80 widely used reporting initiatives and methods for carbon emissions alone. The multitude of reporting standards poses difficulties for market actors to comprehensively assess a product’s green footprint, and prevents them from making sustainable decisions. There are multiple drivers that lead to the current problem:

  • Market failures: There has been no market agreement on a single standard to quantify environmental impacts of products or services.
  • Regulatory failure: The previous instruments adopted by the Commission have been voluntary.
  • Imperfect information: For the majority of products, market actors do not have access to simplified and reliable information.

The Proposals

The Commission proposes harmonisation through one of the three options below:

  • Option 1: Updating previous Commission recommendations covering methods to measure and communicate environmental performance of products and services (the Environmental Footprint methods).
  • Option 2: Establishing a voluntary EU legal framework, which would enable companies to make green claims about products or services in accordance with the Environmental Footprint methods. This would complement existing methods.
  • Option 3: Creating a binding EU legal framework and requiring companies to substantiate claims about the environmental footprint of products or services under the Environmental Footprint methods. Companies would thus be required to substantiate claims under the 16 environmental impact categories contained in the Environmental Footprint methods, which range from the extraction of raw materials to the end of a product’s or a service’s life.

Industry Responses

Industry associations currently appear supportive of a binding framework that establishes meaningful environmental impact indicators. For example, The Advanced Rechargeable and Lithium Batteries Association (RECHARGE), supports the Commission creating a bespoke legal framework, under Option 3 above. As a further recommendation, RECHARGE also stated that, “information systems such as the product passport supported by either a QR code or a similar electronic marker” may also be beneficial.

The proposed regulation also raises two issues, according to RECHARGE. Firstly, market actors that lack experience in applying environmental standards should not be initially penalised under the proposed regulation. Instead, real-world validation should be required before mandatory obligations can be established and enforced. Secondly, RECHARGE notes that the Commission does not seem to consider the regulation’s interaction with other initiatives, such as the EU Emissions Trading System or the Global Reporting Initiative. The Commission should provide clarification about possible overlaps, before full harmonisation is to be achieved.

The consultation closes 3 December 2020.

Latham & Watkins will continue to monitor developments in this area.

This post was written with the assistance of Sabina Aionesei in the London office of Latham & Watkins.