The proliferation of dubious green claims by companies has sparked renewed concern about the lack of adequate regulation to prevent greenwashing and the low compliance with existing rules. Regulators are starting to revise outdated provisions, while NGOs are suing companies over misleading advertisements.
The European Commission published yesterday (30 March 2022) a new proposal to better regulate what companies can and cannot say to their customers, with a specific focus on climate impact and preventing greenwashing.
The proposal confirms that claims like “carbon neutral” and “climate neutral” are generic and need to be substantiated. It proposes that these claims should be prohibited unless clear information is provided to substantiate them on the same medium where the claim is made. Alternatively, claims could continue to be made if they can demonstrate “excellent environmental performance”, including compliance with existing EU or member state regulations such as the EU Ecolabel.
This is only one of a set of regulations and guidance that the EU is developing as part of its Circular Economy Action Plan. Another initiative, set to be published early in the summer, will focus on claims that are specifically related to the environmental performance of products and businesses.
It will likely better articulate how companies are expected or required to use specific methods developed by the Commission to measure their organisations’ and products’ carbon and environment footprints. It should also provide more clarity on the extent to which climate or carbon “neutrality” claims should be considered misleading.
Setting the bar
The EU’s 2017 Non-Financial Reporting Directive requires companies to publish information about their environmental impact. But this has not led to the necessary level of standardisation in reporting, and new legislation, the Corporate Sustainability Reporting Directive, is in the pipeline. This proposed directive would require the development of a new EU sustainability reporting standard, a draft of which was published last year.
The aim of these policies is to regulate what kind of environmental information and claims companies may communicate and advertise.
In parallel, some EU member states have launched their own initiatives. For example, France has published a draft decree on carbon neutrality claims (CMW’s response to the public consultation on the draft decree is here).
Unfortunately, the French bill aims to regulate such claims at product and company level, despite the fact that the French environment agency issued an opinion stating clearly that carbon neutrality and net zero are concepts that are ill-suited for companies. We agree. Following the release of a recent joint report which exposed widescale greenwashing among top global corporations, we recommended that companies should be banned from making net-zero or carbon-neutrality claims.
Across the Atlantic
In the United States, the Federal Trade Commission will this year update its decade-old Green Guides. This set of guidelines relates to environmental marketing claims, but operates through the prism of existing regulations, rather than being independently enforceable.
In parallel, the US Securities and Exchange Commission this month proposed rules to enhance and standardise climate-related disclosures by companies. This proposal would require, among other things, the reporting of scope 3 emissions (i.e. indirect emissions from raw material and product use, among other things) if these are “material” and separating the reporting of offsets from emissions.
Finally, in addition to this evolving policy landscape, new guidance is emerging from non-governmental initiatives. The Science-Based Targets Initiative released last year its net-zero standard, which requires companies to cover all of their emissions under their climate target and to reduce over 90% of emissions internally. The Voluntary Carbon Market Integrity Initiative is working on guidelines that would provide a framework, and possibly evolve into a standard, to standardise and verify corporate claims, in particular those that involve the purchase of carbon credits.
Why is this needed?
The impetus for this flurry of regulation and guidance is the rapid proliferation of green claims. Advertisements and corporate communications that highlight the supposedly positive impact of specific products, services or companies on the climate and the environment are legion today. In particular, claims of “carbon neutrality” (at product-level) and “net-zero” (at company level) have boomed. Unfortunately, the vast majority of these are unsubstantiated, and many are simply false.
In the review of some of the world’s largest corporations mentioned above, Carbon market Watch and NewClimate Institute found that most of those companies’ net-zero targets were, in reality, much less ambitious than they appear, and averaged only a 40% reduction in CO2 emissions, with the rest being excluded from the target, offset, or simply not clearly addressed.
Our findings are consistent with reports from other organisations, such as As You Sow, which assessed the alignment of large US-based companies with the objectives of the Paris Agreement, or CCFD-Terres Solidaires, which highlighted the discrepancy between the words and actions of TotalEnergies, Nespresso, and Air France.
We have also investigated the case of so-called “carbon neutral fossil-fuels”, which are nothing more than conventional fossil fuels marketed with carbon offsets, but give a false impression of alignment with climate targets.
See you in court
The gap between what companies should, and sometimes must, do, is becoming increasingly clear. As companies ignore existing guidance, civil society has been forced to take legal action to combat greenwashing and to protect consumers and the environment.
In Australia, a case was brought against Santos, a large oil and gas producer, questioning the veracity of its claims that natural gas provides clean energy, and that the company has a clear and credible plan to meet a net-zero emissions target by 2040. Meanwhile, two cases against misleading advertising have been launched in France. One action targets TotalEnergies, while the other is aimed at Nespresso (linked article in French). In the United States, New York City filed a lawsuit against oil majors for misleading consumers through greenwashing.
These cases are the first in what could become a trend. They will likely influence the future behaviour of companies but they are no substitute for robust legislation and regulation.