Dan Smith and Ben Stansfield, partners at international law firm, Gowling WLG, examine CSRD, CSDDD, and the Green Claims Directive, while highlighting ways to avoid greenwashing as well as providing valuable insights for businesses seeking to maintain credibility and transparency in their sustainability efforts.
Sustainability and environmental consciousness are paramount for any business, and it is crucial to avoid making misleading or exaggerated claims about green initiatives – a practice known as greenwashing.
The European Union (EU) has demonstrated its commitment to sustainability with the launch of its strategy, the European Green Deal, to become a climate neutral society by 2050. The Green Deal is a selection of policies and laws aimed at enhancing sustainability in environmental, social and governance (ESG).
Three of these policies include the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the Green Claims Directive.
This article will examine CSRD, CSDDD, and the Green Claims Directive, and highlight some ways to avoid greenwashing, providing valuable insights for businesses seeking to maintain credibility and transparency in their sustainability efforts.
The Corporate Sustainability Reporting Directive
The CSRD aims to improve and broaden sustainability reporting among companies operating in the EU. The proposal was introduced in 2021 to address the limitations in the EU’s previous sustainability reporting directive, the Non-Financial Reporting Directive (NFRD). Under the CSRD’s more comprehensive framework, companies need to disclose their social and environmental impacts by following the EU’s sustainability standards, with heavy auditing to ensure credibility.
The CSRD was formally adopted in 2023, and companies are required to submit their first reports by January 2025.
The Corporate Sustainability Due Diligence Directive
The CSDDD is intended to ensure businesses take responsibility for the negative impacts of their activities. This directive establishes a uniform EU wide standard, compelling both EU and non-EU companies to establish due diligence strategies regarding human rights and environmental issues. It requires companies to identify and address adverse impacts on human rights and the environment within their operations, subsidiaries, and supply chains.
Although the proposal is currently under discussion by the European Commission, it is anticipated it will be adopted in 2024, helping to create a new era of corporate responsibility and due diligence for companies.
The Green Claims Directive
The European Parliament adopted the Green Claims Directive in March 2024. It provides guidelines and minimum criteria required to substantiate environmental claims as well as an updated eco-labelling scheme. If the European Parliament and Council of the European Union reach an agreement, EU Member States will be required to implement the directive into national law within 24 months and proceed to apply the measures within 36 months.
Scrutiny on sustainability claims
Marketing claims relating to sustainability are monitored more and more closely worldwide. As an example, the UK’s Advertising Standards Authority has become increasingly proactive, adopting AI tools to identify questionable environmental claims in digital media.
Both authorities and consumers are demanding honesty, transparency, and substantiation. Businesses must ensure that their claims reflect reality and are supported by comprehensive evidence.
Companies may face fines and other penalties if they breach the rules, not to mention the collateral damage to their brand.
Reputational damage
Comparing the consequences across key markets, such as the UK, France, Germany, Middle East and Asia, businesses found guilty of greenwashing can face severe ramifications. Apart from heavy fines, in some countries, sanctions for misleading green claims may also include imprisonment. Perhaps the biggest risk though is the brand and reputational damage which can result from allegations of greenwashing, whether or not there is also a regulatory investigation or action through the courts.
Further, be aware that greenwashing in one market can harm a company’s reputation worldwide due to the global reach of social media and digital advertising.
Holistic approach
The best defence against greenwashing allegations is transparency and evidence-based claims and presenting a holistic view when promoting sustainability initiatives. When formulating green claims, it is crucial to start with the evidence and ensure that it supports the claim being made.
Businesses should also consider the overall impression of their advertising (does the use of ‘green’ imagery misleadingly imply a higher level of environmental performance) and the proportionality of their green claims in the context of their overall environmental impact.
If you embrace candid, specific and transparent reporting of your green endeavours, it will help retain more sceptical customers, while also avoiding public misconception.
How to avoid greenwashing
- Set achievable and realistic sustainability goals.
- Review the regulatory framework and stay abreast of changes.
- Embrace technology to evaluate environmental impacts, as it becomes more readily available.
- Avoid vague terms like ‘sustainable’, ‘green’ or ‘eco-friendly’ – without qualification, these may be difficult or impossible to substantiate with the required level of evidence.
- Present and report green endeavours in a specific and transparent manner. Look at the marketing assets you want to distribute as a whole – does the presentation, imagery etc exaggerate the environmental benefits?
- Do not cherry-pick positive environmental aspects which may be minor in the context of a business or product’s overall impact. Be honest about the environmental impact of your business and the progress you have made towards your sustainability goals.
- Seek legal counsel and prioritise honest communication around sustainability efforts.
Navigating greenwashing requires a robust strategy and attention to detail when developing and clearing green claims. Adopting a well thought out approach and seeking legal counsel where possible may prove invaluable in enhancing the longevity of a claim or campaign, while managing the risk of reputational damage.
To discuss any of the points raised in this article, contact Dan Smith, head of advertising and sponsorship, or Ben Stansfield, sustainability partner, at Gowling WLG.