The European Union (EU) has taken its initial position on the Green Claims Directive by reaching a series of agreements and proposals for protecting consumers from greenwashing. 

The new rules of the directive aim to help consumers make informed purchasing decisions by preventing companies from making misleading claims regarding the environmental impact of their products and services. 

While the directive doesn't directly apply to financial services firms operating in the EU in most cases, impact-focused firms should understand the new proposal and the regulatory risks that companies face when making environmental claims in the marketing and labeling of their products. 

Let’s explore the proposal for new rules on the Green Claims Directive in detail. 

What is the Green Claims Directive? 

Firstly introduced in March 2023, the Green Claims Directive is a legislative proposal by the EU that is aimed at combating greenwashing and promoting sustainable products and services. The directive prevents false or misleading environmental claims in business-to-consumer practices and sets minimum requirements for substantiation, communication, and verification of explicit environmental claims. 

The Green Claims Directive applies to all companies established in Europe, including subsidiaries, except companies with an annual turnover of less than 2 million euros. Non-complying firms with the directive may face fines of up to 4% of their total revenue, exclusion from public procurement processes, or the publication of corrective advertising to rectify misleading claims.  

Updates to the Green Claims Directive

The new proposal of rules for the directive specifically targets explicit environmental claims — written or oral text — and environmental labels that companies use in marketing. It applies to existing and future environmental labeling schemes, both public and private.  

It includes the following measures: 

• Evidence-based claims: EU companies should use clear criteria and the latest scientific evidence to substantiate their labels and claims. It also should be easy to understand with a specific reference to environmental characteristics they cover, including recyclability, durability, and biodiversity. 
  
  
  
  

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  Prior verification procedure: Green claims made by companies need to be verified by third-party independent entities before being published in their product or service. Certain types of environmental claims being from third-party verification should prove their compliance with new rules by completing a technical document. 

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  Public environmental labels: The European Council agreed on the possibility of establishing new schemes and exempting those regulated by EU or national law from third-party verification, if they meet EU standards. 

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  Climate-related claims: The new proposal introduces new requirements to prove climate-related claims, including those involving carbon credits. The general approach includes an obligation to provide information about the type and quantity of carbon credits.

Next Steps

The council's new proposal will form the basis for negotiations with the European Parliament on the final shape of the directive. The negotiations for a new directive are expected to begin in the new legislative cycle. 

While you’re here… 

New proposals like this can have a material impact on the activities of institutional impact investors. Such regulations may require more detailed due diligence processes, risk monitoring, and ESG performance assessments to identify risks of greenwashing in prospective and portfolio companies. This is an area where Auquan can help. 

Auquan streamlines deal sourcing, due diligence, monitoring, sustainability, and compliance workflows so teams can move faster and more efficiently. Using advanced AI, Auquan generates material and sustainability insights on any entity worldwide — public or private — fine-tuned for your individual investment and lending requirements.

Let’s explore how Auquan can help you and your team eliminate tedious and time-consuming manual data work and focus more on what you do best: making strategic decisions ahead of the market.