New Directive on greenwashing proposed by European Commission on 22 March 2023

In March the European Commission proposed a Directive for the Council of the European Union and the European Parliament on substantiation and communication of explicit environmental claims (Green Claims Directive). The proposed Directive answered calls from the business community, EU member state governments and activists to make ESG rules clear and consistent. Last month, both the Council of the EU and European Parliament agreed to implement the Directive, meaning that negotiations with EU member states on the law’s final wording is now beginning. The Green Claims Directive is most likely to soon impact sections 5, 6 and 13 of the Danish Marketing Practices Act [1] which are currently being relied on in a crackdown against greenwashing by the Danish authorities, and also by activist groups.

Denmark is leading EU member states in enforcing greenwashing laws, meaning it is important for locally operating businesses to take care when using terms attractive to Danish consumers and investors such as ‘sustainable’ and ‘eco-friendly’ as well as comparative or factual claims. In February 2023, the Danish Financial Services Authority ordered the companies behind eight sustainability funds (including two of Scandinavia’s largest banks, Nordea and Danske Bank) to take remedial action [2] after finding that they had violated the relevant EU Sustainable Finance Disclosure Regulation (SFDR). [3] In Denmark’s courts, the EU’s largest pork producer, Danish Crown, is currently defending itself against three Danish NGO’s which argue that one of the company’s marketing campaigns is misleading consumers with claims that the company’s pork production is ‘climate controlled’ and that the pork is ‘more climate friendly than you would think’. Given the significant commercial advantages that businesses stand to gain by advertising their green accolades, this insight keeps you up to date in the rapid developments shaping the country’s greenwashing regulations.

A snapshot of greenwashing regulation development as relates to Denmark:

• 2014: Danish Consumer Ombudsman issues guidelines on the ‘use of environmental and ethical assertions’ [4]
• 2019: EU introduces the SFDR for asset managers and other financial markets participants
• 2020: EU introduces the Taxonomy Regulation, [5] providing definitions for economic activities that qualify as ‘sustainable’
• March 2021: SFDR comes into effect
• December 2021: Danish Consumer Ombudsman released a compressed and refined update to its 2014 guidelines for domestic restrictions on ‘greenwashing’ [6] as we analysed at the time [7]
• January 2023: Corporate Sustainability Reporting Directive (CSRD) enters into force, intended to reduce risk of greenwashing through requiring clarity in reporting for investors and consumers [8]
• March 2023: European Commission proposes Green Claims Directive for and on request by European Parliament and European Council [9]
• May 2023: The Council of the EU and the European Parliament (544 votes to 18, with 17 abstentions) separately agree to implement the directive [10]
• June 2023: Negotiations between the European Parliament and EU member states begins on final wording of their respective local laws [11]

Denmark is ahead of many EU member states in ESG regulation and enforcement. Its refined 2021 Quick Guide for Businesses on Environmental Marketing (Kvikguide til virksomheder om miljømarkedsføring) (available only in Danish) [12] already provides limited direction, similar to that of the UK Competition and Markets Authority’s 2021 Green Claims Code guidance for businesses. [13]

Now that the Green Claims Directive has been adopted by the European Council, EU member states will have 18 months to implement its entry into national laws. Below is a brief comparison of some early points of difference between the new EU Directive and Denmark’s Consumer Ombudsman 2021 guide which remains current, so that you can prepare for imminent domestic developments.

Definition of environmental claims
The Danish guidelines provide examples of environmental claims as defined very broadly, while the EU’s proposed Green Claims Directive focuses on explicit environmental claims (EECs), in efforts to ensure maximum clarity of sustainability-related textual representations.  An area addressed by the Danish Consumer Ombudsman not yet directly addressed by the EU Directive is communication through images, colours and symbols which is not strictly textual: this will be an important area to monitor for potential gaps between Danish and EU standards.

Prohibited claims
In line with the current sections 5 and 6 of the Marketing Practices Act, the Danish guide prohibits few specific claims beyond those that are misrepresentative. A notable exception is the claim of a product as ‘organic’, which is prohibited from being used in marketing for textile products that have less than 95% of all fibers originating from certified vegetable or organic livestock production, and similarly for cosmetic products that have less than 95% of their raw materials/ingredients originating from certified organics sources. The proposed EU directive so far only points to extensive EU regulations relating to organic production and does not yet provide specific guidance in this area. The proposed directive does however clearly prohibit labels of ‘ecological’ on any products that contain toxic or hazardous substances, a point not directly stated by the Danish guide.

The Danish guide sets prohibitions on claims that are unsubstantiated and provides several examples. These include prohibiting claims that a product is ‘100% recyclable’ or ‘completely free of chemicals’ if consequent environmental impact is at all negative in the product’s manufacturing or recycling, or if the product was originally made with any synthetic materials, respectively. It is therefore very difficult to remain compliant to the Danish guide when making sustainability claims without substantiating them.

Substantiation requirements
The EU Directive is similarly strict regarding unsubstantiated generic claims such as ‘eco’ or ‘nature’s friend’, and sets out specific requirements for evidence, including the need for clear and specific information on the environmental benefit of a product or service, as well as evidence that the claimed benefit is significant and not outweighed by any negative environmental impact. Further, the Commission’s directive proposes prohibitions on self-certifications, representations based on cumulative environmental impacts (with limited exceptions) or the establishment of new national or regional certification schemes and on labels that do not meet 10 specifically proposed criteria.

Beyond referring to section 13 of the Danish Marketing Practices Act and providing a cautionary example of a company ceasing a sustainability campaign due to inability to evidence its claims,[14] the current Danish guide does not yet provide specific details for what type of evidence satisfies substantiation requirements.

Criteria required for substantiating environmental claims goes to the heart of the Danish Crown’s ongoing court case in which activists are arguing that the meat producer’s substantiation process was corrupted given the company’s own funding of academic research relied on as evidence to its claims. The EU directive will most likely cause substantiation requirements to develop in all EU member states.

Key take-aways
We summarise the key take-aways for care and restraint to be used when doing business as a friend of the climate as follows:

• Danish authorities are ramping up enforcement efforts relating to ESG, effecting not only compliance but also marketing.
• Denmark’s 2021 Quick Guide that provides examples of how to avoid misleading and unverifiable marketing is helpful, but purposefully temporary in its low resolution.
• The EU is addressing inconsistent approaches to marketing ‘sustainable business’ which will soon make EU members states’ greenwashing laws a lot higher resolution: these are likely to be actively enforced by national authorities, if not pursued by activist groups.
• The risks of greenwashing are high. The commercial rewards of sustainable business practices are also high but are becoming mandatory. To do business in Denmark requires attention to ESG at all levels of your business.

Magnusson
Magnusson’s advanced commercial regulatory team regularly advises on climate and ESG related issues.

If you have questions on how to operate your business in Denmark when it comes these issues, please do not hesitate to get in touch.