More Regulation instead of Competition: Commission plans Costly System Change of Laws on Advertising with Green Claims – Comments on the Proposal of a Green Claims Directive (Part 2)

On March 22, 2023, the EU Commission submitted a “Proposal for a Directive on substantiation and communication of explicit environmental claims (Green Claims Directive)“, COM(2023) 166 final, (hereinafter “Proposal“, the planned directive the “Green Claims Directive“).

In an initial blog post, we provided an overview of the background and content of the proposal and highlighted various aspects included therein, in particular with regard to the substantiation and evaluation of green claims and information obligations provided for.

This second blog post deals with the planned requirements regarding eco-labels and the planned new preventive control of green claims in the form of a conformity assessment procedure.

1. Requirements regarding Environmental Labels and Environmental Labelling Schemes (Art. 7, Art. 8)

As explained in the first part, one of the Commission’s main concerns is to curb the “proliferation of public and private labels“.

Accordingly, the proposal contains a number of requirements relating to eco-labels and the underlying eco-label systems.

1.1. Environmental Label Requirements

“Ecolabels” are defined in Art. 2 No. 7 of the proposal as sustainability labels that exclusively or predominantly cover environmental aspects of a product, a process or a trader. Eco-labels are e.g. “FSC”, “Blue Angel” or “Fairtrade”.

According to Art. 7 of the proposal for the Green Claims Directive, the eco-labels must fulfill the requirements for green claims according to Art. 3 to 6 and be certified according to Art. 10. They are therefore subject to requirements regarding substantiation, communication and certification that correspond to those for green claims. Accordingly, it is stipulated that, for example, information on what the respective label refers to (product, parts of a product and/or a company) must also be provided for substantiation in accordance with Art. 3. Furthermore, there must be evidence that the environmental impacts, environmental aspects or environmental performance that are certified are significant with regard to the life cycle of the relevant products.

However, the reference in Art. 7 (1) to the requirements regarding green claims is unfortunate. This is because some of the criteria in Art. 3 cannot be applied to environmental labels. In the case of environmental labels, for example, the postulate that (in accordance with Art. 3 (1) lit. h) all claimed compensation for greenhouse gas emissions must be shown separately from all other greenhouse gas emissions as additional environmental information makes no sense.

It would therefore be preferable to establish a specific, independent catalog of requirements for environmental labels.

It should also be clarified who has to provide the information for the assessment of the eco-labels to the respective inspection bodies in accordance with Art. 3-6 and Art. 10. This is not clear from the current wording of the proposal, although there is much to suggest that this must be the respective eco-label awarding scheme and not the recipient or user of the label.

1.2. Specifications regarding Environmental Labelling Schemes

Environmental labelling schemes themselves are regulated under Art. 8. According to Art. 8 (1), these are certification schemes which certify that a company’s products, a specific process used by the company in question or the company itself meets the requirements for an environmental label by awarding such environmental label and which allow it to use the label on the market.

The Commission has set itself the goal of limiting the number of schemes and labels. Accordingly, Article 8 (3) stipulates that no new national or regional eco-label schemes may be introduced from the date foreseen for the implementation of the Green Claims Directive (to be finalized). National or regional authorities may continue to use eco-label schemes introduced up to that date, provided they meet the requirements of the Green Claims Directive. Private environmental labels that have already been introduced must also comply with these requirements from the date of transposition of the Directive (see Art. 8 below). However, the following may be newly introduced:

EU eco-label schemes (such as the EU eco-label under Regulation 1980/2000/EC or Regulation (EU) 66/2010 in the past),
national eco-label schemes of third countries approved by the EU Commission and
eco-label schemes introduced by private operators (from the EU or third countries) and approved by Member States in accordance with the requirements of the Green Claims Directive.

The systems of third countries or private operators are subject to a number of requirements. In particular, they must provide transparent, free, easily understandable and sufficiently detailed information about, among other things, the owners behind the scheme and the decision-making bodies of the scheme, as well as the objectives, requirements and procedures for monitoring compliance with the criteria of the eco-label scheme.

Furthermore, the requirements of the eco-label scheme for the companies or products that are to be advertised with it must have been developed by scientifically recognized experts and submitted for consultation to a heterogeneous group of stakeholders (not specified in more detail), who have reviewed these requirements and confirmed their relevance from a societal perspective. This is not elaborated, which is unacceptable given the vagueness of the criteria. As a result, the stakeholder criterion should be deleted.

In contrast, the criterion that new eco-label schemes from private operators or third countries must provide “added value in terms of their environmental ambition” makes sense. It refers in particular to the recording of environmental impacts or in relation to product groups or sectors, in each case in comparison to existing eco-labels. Based on the explanatory memorandum of the proposed directive and the wider context, it is evidently meant that new eco-label schemes identify relevant environmental impacts better or more precisely than existing schemes, or that they identify relevant environmental impacts that have not yet been identified by other schemes. This could indeed put a stop to a noticeable further increase in environmental labelling schemes, even if the requirements are still to be specified by implementing acts of the Commission.

2. Conformity Assessment (Art. 10 and 11)

2.1. Ex-ante Verification by Independent Verifier

Of great legal and practical importance is the planned fundamental innovation, according to which green claims and environmental labels will be verified by an independent verification body in accordance with the requirements of the Directive (Art. 10, 11). It is not specified how this is to be carried out procedurally. Rather, this is left to the Member States. It is merely stipulated that the Member States must establish procedures with which compliance with the requirements “can be verified”. The review is aimed solely at compliance with the relevant provisions of the Green Claims Directive. However, it does not prejudge the assessment of the respective green claim in accordance with the UCP Directive (Directive 2005/29/EC) (Art. 10 (8)).

Upon completion of the verification, the verification body issues a certificate of conformity, if applicable, confirming that the explicit environmental claim or eco-label complies with the requirements of the Directive (Art. 10 (6)). Only then may the respective green claims or eco-labels be used on the market (Art. 10 (4)).

Inspection bodies must be accredited in accordance with Regulation (EC) No. 765/2008 pursuant to Art. 11 (1). This is to ensure that the accreditation of the inspection body follows guidelines defined throughout the EU. In Germany, accreditation is carried out by the German Accreditation Body (DAkkS).

For accreditation, the verifier itself must fulfill various requirements that are provided for in Art. 11 Para. 3. For example, it must be independent of relevant products and companies (lit. a, b), carry out the testing activities with the “highest degree of professional integrity” and the necessary technical competence (lit. c), and have the expertise, equipment and infrastructure required to carry out the testing activities for which it has been accredited (lit. d).

2.2. Considerable Effort foreseeable for Companies and Verifiers

The ex-ante review is likely to involve considerable effort for both companies and inspection bodies. Unlike in the past, companies will have to submit various supporting documents for a prior review, which, in view of the less specific requirements of Articles 3-7, is likely to cause considerable uncertainty and, in dialog with the respective inspection body, considerable effort.

This is likely to generate considerable costs overall. The Commission itself assumes that the envisaged substantiation and assessment of advertising claims relating to products or the company itself for submission to the relevant review body may trigger considerable additional costs. According to the explanatory memorandum to the proposal, it estimates the corresponding costs for advertising claims relating to the ecological footprint of a company itself at an average of EUR 54,000 (provided that no sector-specific regulations intervene); this is the highest value it assumes; for the certification of complicated product claims, it estimates only around EUR 8,000. The estimate is not specified or broken down in more detail. In any case, the costs for (complex) scientific studies and their evaluation are apparently not covered. Overall, it can be assumed that in many cases the respective costs are likely to be significantly higher than stated by the Commission. Companies will also have to reckon with considerably higher costs for personnel deployment with regard to the additional tasks involved.

Irrespective of this, the relevant procedures are likely to take a considerable amount of time, depending on their complexity.

Overall, it can be assumed that advertising with green claims will become much less attractive than before.

A sufficient objective justification for this is not apparent. In the explanatory memorandum to the proposal, the Commission argues that the envisaged ex ante review would avoid high costs for official (ex post) enforcement. This may be true from the perspective of the authorities, but the overall approach is not appropriate. There may be a certain need to set substantive legal limits to which the participants must adhere. However, a need to combine this with independent third-party control – with the considerable additional burdens for the market participants concerned that have been outlined – is not clear.

The chosen approach is all the more disconcerting as the Commission itself recently stated with regard to adjustments to the UCP Directive, among others, that the instrument of prior administrative approval of environmental claims (there: by an EU body) is relatively costly and offers only limited benefits compared to the adaptation of substantive regulations, SWD(2022) 85 final, p. 31 and 51. It is not apparent that and, above all, why this should now be different in the case of the Green Claims Directive.

As a result, the chosen approach is difficult to understand. Companies will find it more difficult to advertise with green claims or eco-labels in the long term. This will also harm SMEs in particular, which are especially active and innovative in these areas, and therefore also the sustainability aspect of the matter.

2.3. Limited Benefit of EU-wide Recognition of the Certificate

The certificate issued by the inspection body, if applicable, is recognized throughout the EU (Art. 10 (7)). From a business perspective, this sounds positive at first, but at second glance it is only of limited help. This is because, according to the proposed directive, the recognition should only apply to the certificate of conformity itself, whereas the assessment of the respective claim according to the UCP Directive is not prejudiced, for example with regard to questions of misleading claims (see Art. 10 para. 8, see section 2.1 above).

As a result, despite a successful conformity assessment under the Green Claims Directive, companies cannot be sure that their respective claim is protected against attacks by competitors for misleading statements under the UCP Directive. This is unfortunate. The Commission itself repeatedly emphasizes the importance of legal certainty for companies in the proposed directive. Against this background, the creation of uniform rules for green claims within a single piece of legislation would have been obvious, or at least the complete harmonization of the substantive requirements for green claims in the two directives. As this has not been done, companies will not only have to be prepared for increased costs when advertising with green claims, but also for subsequent attacks on their claims by other market participants.