Green Claims & Greenwashing – A Legal Update

As António Guterres, UN Secretary-General, famously put it, “We must have zero tolerance for net-zero greenwashing.” It is therefore unsurprising, that there is a fast-growing body of rules governing green claims to incentivise genuine sustainability practices, improve the trustworthiness of green claims and to penalise greenwashing. Whilst greenwashing may have started from product-level claims in the retail sector, it has now evolved into firm-level claims that impact every single sector in the world.

This article provides a non-exhaustive outline of the current laws, codes and guidelines in relation to greenwashing in the European Union (“EU”), the United Kingdom (“UK”), Australia, and Singapore. This gives a general overview of how global businesses can navigate the current web of greenwashing rules.

I. European Union

A. Empowering Consumers Directive

The Empowering Consumers Directive (Directive 2024/825) aims to better protect consumers against unfair practices. The Directive took effect on 26 March 2024. Member states must apply the new rules by 27 September 2026. This Directive amends the Unfair Commercial Practices Directive (Directive 2005/29/EC) and the Consumer Rights Directive (Directive 2011/83/EU), which is currently in force in EU Member States. The Empowering Consumers Directive will apply primarily in the B2C (business-to-consumer) context, with some relevance to the B2B (business-to-business) context as well.

Generic Environmental Claims

The Empowering Consumers Directive sets a high bar for the use of “generic environmental claims”. 

“Examples of generic environmental claims include ‘environmentally friendly’, ‘eco-friendly’, ‘green’, ‘nature’s friend’, ‘ecological’, ‘environmentally correct’, ‘climate friendly’, ‘gentle on the environment’, ‘carbon friendly’, ‘energy efficient’, ‘biodegradable’, ‘biobased’ or similar statements that suggest or create the impression of excellent environmental performance. Such generic environmental claims should be prohibited when recognised excellent environmental performance cannot be demonstrated” (recital 9, Empowering Consumers Directive).

However, whether a term is a generic environmental claim is context-specific. If a sufficiently clear and prominent explanation accompanies the claim, it may be considered non-generic.

“For example, the claim ‘climate-friendly packaging’ would be a generic claim, whilst claiming that ‘100 % of energy used to produce this packaging comes from renewable sources’ would be a specific claim, which would not fall under this prohibition, without prejudice to other provisions of Directive 2005/29/EC remaining applicable to those specific claims” (recital 9, Empowering Consumers Directive).”

B. Green Claims Directive

The Empowering Consumers Directive will be complemented by the proposed Green Claims Directive. The European Parliament adopted its first reading position on the proposed directive on 12 March 2024.

The Green Claims Directive seeks to:

1. increase environmental protection and accelerate the green transition;
2. protect consumers and companies from greenwashing;
3. improve the legal certainty as regards environmental claims; and
4. boost the competitiveness of economic operators that make genuine efforts to go green.

The Green Claims Directive aims to regulate the substantiation and communication of green claims as well as regulate the proliferation of environmental labels. This is to ensure that consumers receive trustworthy, comparable, and verifiable environmental information.

This directive will set the minimum requirements for the substantiation and communication of voluntary environmental claims and use of environmental labels in business-to-consumer commercial practices (Article 1, Green Claims Directive). Green claims would have to be independently verified by an officially accredited, third-party verifier.

1. Communication of environmental claims

The proposed Green Claims Directive sets out that all environmental claims (Article 5):

• shall only cover environmental impacts, aspects or performance that are assessed in accordance with the substantiation requirements laid down in the directive and are identified as significant for the respective product or trader;
• shall include information on how consumers may appropriately use the product to decrease environmental impacts (where relevant); and
• shall be accompanied by information on the substantiation of claims (including information on the product or activities of the trader; aspects, impacts, or performance covered by the claim; other recognised international standards, where relevant; underlying studies and calculations; how improvements that are subject to the claim are achieved; the certificate of conformity and coordinates of the verifier).

Additionally, the Directive proposes that comparative environmental claims relating to an improvement of the environmental impacts/aspects/performance of the product compared to that of another product from the same trader or from a competing trader that is no longer active on the market or from a trader that no longer sells to consumers, must be based on evidence demonstrating that the improvement is significant and achieved in the last five years (Article 6).

2. Environmental labelling schemes

Building on the Empowering Consumer Directive, which bans environmental labels based on self-certification, the proposed Green Claims Directive provides additional safeguards to improve the quality of ecolabelling schemes. The proposed directive requires environmental labelling schemes to comply with the following requirements (Article 8(2)):

• information about the ownership and the decision-making bodies of the environmental labelling scheme is transparent, accessible free of charge, easy to understand and sufficiently detailed;
• information about the objectives of the environmental labelling scheme and the requirements and procedures to monitor compliance of the environmental labelling scheme are transparent, accessible free of charge, easy to understand and sufficiently detailed;
• the conditions for joining the environmental labelling schemes are proportionate to the size and turnover of the companies in order not to exclude small and medium enterprises;
• the requirements for the environmental labelling scheme have been developed by experts that can ensure their scientific robustness and have been submitted for consultation to a heterogeneous group of stakeholders that has reviewed them and ensured their relevance from a societal perspective;
• the environmental labelling scheme has a complaint and dispute resolution mechanism in place; and
• the environmental labelling scheme sets out procedures for dealing with non-compliance and foresees the withdrawal or suspension of the environmental label in case of persistent and flagrant non-compliance with the requirements of the scheme.

Article 8 also introduces additional provisions targeted at the proliferation of labelling schemes, notably:

• a prohibition of the establishment of new national or regional environmental labelling schemes (thereafter environmental labelling schemes may only be established under EU law) (Article 8(3));
• a validation procedure for new schemes established by public authorities in third countries, requiring these schemes to be assessed and approved by the European Commission, to ensure that these schemes add value in terms of their environmental ambition, their coverage of environmental impacts, of product category group or sector, and their ability to support the green transition of SMEs as compared to the existing EU, national or regional schemes (Article 8(4)).
• a validation procedure for new schemes established by private operators from the EU and third countries, requiring these schemes to be assessed and approved by member states, to ensure that these schemes add value in terms of their environmental ambition, their coverage of environmental impacts, of product category group or sector, and their ability to support the green transition of SMEs as compared to the existing EU, national or regional schemes (Article 8(5)).

3. Ex-ante verification of environmental claims and labelling schemes

The substantiation and communication of environmental claims and labels will have to be third party verified and certified before the claim is used in a commercial communication (Article 10). The verifier, an officially accredited, independent body, will perform this ex-ante verification of claims submitted by the company wishing to use it. Thereafter, the verifier will decide whether to issue a certificate of conformity.

II. UK

A. Consumer Protection from Unfair Trading Regulations (“CPUT”) 2008

The CPUT governs business-to-consumer advertising and marketing in the UK. Regulation 5 of the CPUT prohibits false and misleading commercial practices and Regulation 6 prohibits hiding or obfuscating material information.

B. Advertising Guidance, CAP Code and BCAP Code

The Advertising Guidance on The Environment: Misleading Claims and Social Responsibility published by the Committee of Advertising Practice (“CAP”), which offers guidance on interpreting and applying rule 11 of the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (“CAP Code”) and rule 9 of the UK Code of Broadcast Advertising (“BCAP Code”), states that businesses should:

• not use unqualified “carbon neutral”, “net zero” or similar claims, and clearly explain the basis for such claims (rules 11.1 and 11.2, CAP Code; rules 9.2 and 9.3, BCAP Code);
• justify absolute claims with a high level of substantiation (rule 1.3, CAP Code; rule 9.4, BCAP Code);
  • include accurate information about whether (and the degree to which) they are actively reducing their own carbon emissions or relying on carbon offsetting;
  • ensure that claims based on carbon offsetting comply with standards of evidence for objective claims as set out in the Guidance, and include information about any offsetting schemes used; and
  • provide any necessary qualifying information about a claim sufficiently close to the claim for consumers to be able to see and understand the qualifications easily;
• justify comparative claims with verifiable evidence (rule 11.3, CAP Code; rule 9.4, BCAP Code);
• ensure that claims based on future projections are clear, based on accurate data, supported by a verifiable strategy to deliver the goal and, if relevant, suitably qualified (rule 11.3, CAP Code; rule 9.4, BCAP Code);
• base environmental claims on the full life cycle of the advertised product, unless the marketing communication states/qualifies otherwise, and must make clear the limits of the life cycle (rule 11.4, CAP Code; rule 9.5, BCAP Code);
• not suggest that their claims are universally accepted if there exists a significant division of informed or scientific opinion (rule 11.5, CAP Code; rule 9.6, BCAP Code);
• not imply in marketing communications that a product’s formulation has changed to improve the product in the way claimed, if the product has never had a demonstrably adverse effect on the environment (rule 11.6, CAP Code; rule 9.7, BCAP Code);
• not mislead consumers in marketing communications about the environmental benefit that a product offers; for example, by highlighting the absence of an environmentally damaging ingredient if that ingredient is not usually found in competing products or by highlighting an environmental benefit that results from a legal obligation if competing products are subject to that legal obligation (rule 11.7, CAP Code; rule 9.8, BCAP Code);
• include an indication of the product's energy efficiency class in marketing communications for specific energy-related products that include energy-related information or disclose price information (rule 11.8, CAP Code and rule 9.9, BCAP Code, read with the EU Directive (EC) No 2010/30/EU and the Energy Information Regulations 2011); and
• make product fiche information about products that fall under delegated regulations available to consumers before commitment (rule 11.9, CAP Code and rule 9.10, BCAP Code, read with the EU Directive (EC) No 2010/30/EU and the Energy Information Regulations 2011).

The CAP Code applies to environment claims in non-broadcast marketing communications in the UK, including online, via social media, and in print. The BCAP Code, on the other hand, applies to environmental claims in all advertisements (including teleshopping, content on self-promotional television channels, television text and interactive TV advertisements) and programme sponsorship credits on radio and television services.

C. CMA Guidance: Environmental Claims On Goods And Services (Green Claims Code)

The Guidance on Making Environmental Claims on Goods and Services (2021) published by the Competition & Markets Authority (“CMA”) aims to help businesses in the UK understand and comply with their existing obligations under consumer protection law when making environmental claims.

The guidance sets out 6 principles to follow when making sustainability claims in the UK:

1. Claims must be truthful and accurate.
2. Claims must be clear and unambiguous.
3. Claims must not omit or hide important information.
4. Comparisons should be fair and meaningful.
5. The full life cycle of products/services should be considered.
6. Claims must be substantiated.

Based on these principles, the Green Claims Code Checklist provides useful guidance on the questions that a business should be able to answer for its claims in the affirmative:

1. The claim is accurate and clear for all to understand.
2. There’s up-to-date, credible evidence to show that the green claim is true.
3. The claim clearly tells the whole story of a product or service; or relates to one part of the product or service without misleading people about the other parts or the overall impact on the environment.
4. The claim doesn’t contain partially correct or incorrect aspects or conditions that apply.
5. Where general claims (eco-friendly, green or sustainable for example) are being made, the claim reflects the whole life cycle of the brand, product, business or service and is justified by the evidence.
6. If conditions (or caveats) apply to the claim, they’re clearly set out and can be understood by all.
7. The claim won’t mislead customers or other suppliers.
8. The claim doesn’t exaggerate its positive environmental impact, or contain anything untrue – whether clearly stated or implied.
9. Durability or disposability information is clearly explained and labelled.
10. The claim doesn’t miss out or hide information about the environmental impact that people need to make informed choices.
11. Information that really can’t fit into the claim can be easily accessed by customers in another way (QR code, website, etc.).
12. Features or benefits that are necessary standard features or legal requirements of that product or service type, aren’t claimed as environmental benefits.
13. If a comparison is being used, the basis of it is fair and accurate, and is clear for all to understand.

III. Australia

A. Australian Consumer Law (“ACL”) (Schedule 2 to the Competition and Consumer Act 2010)

The ACL prohibits conduct in trade or commerce that is misleading or deceptive, and also prohibits the making false or misleading representations about goods or services in the course of trade or commerce, including misrepresentations in promoting goods and services.

The law applies even if a business did not intend to mislead, or no one has suffered any loss or damage (i.e. a strict liability law).

When deciding if conduct is misleading or deceptive, or if a representation is false or misleading, ACL will ask the question whether the overall impression created would be misleading to the ordinary and reasonable consumer. Essentially, this means that any business that makes claims in relation to their business activity, goods or services must ensure that the claim is true and accurate, and not likely to give consumers the wrong impression.

Accordingly, all green claims must be substantiated. A lack of evidence to substantiate the claim may be deemed to be misleading to consumers and thereby breach the ACL.

B. Australian Competition and Consumer Commission (ACCC): Guide for Making Environmental Claims

A Guide for Making Environmental Claims was published by the Australian Competition and Consumer Commission (ACCC) to help business meet their obligations under the ACL in relation to making environmental claims. In summary, the guide sets out 8 principles to help businesses steer clear of ACL breaches:

1. Environmental claims should be accurate, factually correct, and not misleading or deceptive, or likely to mislead or deceive.
2. Environmental claims should be backed by evidence that is independent and scientific. Representations about future matters must have reasonable grounds.
3. Important information should not be hidden or omitted as leaving out details which might contradict or qualify an environmental claim could create an incorrect impression.
4. Claims should be accompanied by conditions and qualifications.
5. Claims should not be overly broad without qualifiers.
6. Claims and their explanations should be in plain and specific language that is clear and easy for consumers to understand.
7. Visual elements should not give the wrong impression about a product’s environmental benefit.
8. Businesses should be direct and open about their sustainability transition.

C. Australian Association of National Advertisers (AANA): Environmental Claims Code

The Environmental Claims Code was published by the Australian Association of National Advertisers (AANA) and provides valuable guidance as part of the advertising self-regulatory system. The Code seeks to improve consumer confidence by ensuring that advertisers uphold rigorous standards when making environmental assertions.

The Code provides that environmental claims in advertising or marketing communication:

1. shall not be misleading or deceptive or be likely to mislead or deceive;
2. shall display any disclaimers or important limitations and qualifications prominently, in clear, plain and specific language; and
3. shall represent the attributes or extent of the environmental benefits or limitations as they relate to a particular aspect of a product or service in a manner that can be clearly understood by the consumer.

It should be noted that environmental claims must:

1. be relevant, specific and clearly explain the significance of the claim;
2. not overstate the claim expressly or by implication; and
3. not imply that a product or service is more socially acceptable on the whole.

In addition, environmental claims in advertising or marketing communication:

1. shall be able to be substantiated and verifiable. Supporting information shall include sufficient detail to allow evaluation of a claim;
2. shall meet any applicable standards that apply to the benefit or advantage claimed; and
3. containing testimonials shall reflect the genuine, informed and current opinion of the person giving the testimonial.

D. Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (proposed legislation)

Recently, on 27 March 2024, the Treasury published the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024. Schedule 4 of this Bill introduces new climate-related financial reporting requirements for in-scope entities, leveraging the existing financial reporting regime under the Corporations Act 2001. Under this Bill, in-scope entities will need to prepare a new ‘sustainability report’ for each financial year in addition to their financial reports.

The sustainability report for a financial year consists of:

• the climate statement for the year;
• notes to the climate statement;
• any statements prescribed by the regulations for the year; and
• the directors’ declaration about the compliance of the statements with the relevant sustainability standards.

The climate statements must be prepared according to the relevant sustainability standards issued by the Australian Accounting Standards Board (“AASB”).

IV. Singapore

There is no specific greenwashing law or code applicable in Singapore at the time of this article’s publication.

A. Consumer Protection (Fair Trading) Act 2003

The Consumer Protection (Fair Trading) Act 2003 (“CPFTA”) is the sole legislation which applies to green claims and the CPFTA is aimed at protecting consumers against unfair practices generally. Section 4 of the CPFTA prescribes that it amounts to an “unfair practice” for a supplier to:

1. do or say anything, or omit to do or say anything, which causes a consumer to be deceived or misled;
2. make false claims;
3. take advantage of a consumer if the supplier knows or ought reasonably to know that the consumer (i) is not in a position to protect his own interests, or (ii) is not reasonably able to understand any matter related to the transaction.

The court may order the following remedies for victims of unfair practices (s 7(5) CPFTA):

1. restitution of money or property, or other consideration given by the consumer;
2. damages for loss or damage suffered as a result of the unfair practice;
3. specific performance by the supplier;
4. repair or replacement of parts for goods by the supplier; or
5. variation of the contract.

An aggrieved consumer has the right to sue the supplier for unfair practices and claim up to $30,000 or such other amount as the Minister may prescribe (s 6(6), CPFTA).

The CPFTA empowers the Competition and Consumer Commission of Singapore (“CCCS”) to deal with (suspected) breaches of section 4 in various ways, including investigating into the supplier (s 19, CPFTA), requiring documents to be produced (s 20, CPFTA), and entering premises with or without a warrant (s 21, 22 CPFTA).

B. Misrepresentation Act and Common Law Doctrine of Misrepresentation

Where a consumer has been induced to enter a transaction because of a false statement of fact, such as a greenwashing claim, made by the trader and has thereby suffered a loss, the consumer may bring a claim under common law or the Misrepresentation Act (“MA”).

Under the common law doctrine of misrepresentation, damages may be awarded to victims of greenwashing claims if the claims amount to fraudulent misrepresentation or negligent misrepresentation and loss can be proved. If fraudulent misrepresentation is established, all losses flowing directly from the transaction is recoverable. In contrast, if negligent misrepresentation is established, only losses that are reasonably foreseeable are recoverable. Where a greenwashing claim was innocently made (not negligently/fraudulently), the usual common law remedy is a recission of the contract.

Alternatively, a customer may bring a claim for misrepresentation under section 2(1) of the MA. Under s 2(1) MA, the party who made the misrepresentation is liable for the loss of the counterparty, notwithstanding that the former did not act fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.

Under s 2(2) of the MA, where misrepresentation has been made otherwise than fraudulently, the court or arbitrator may declare the contract subsisting and award damages instead of recission, if it would be equitable to do so.

C. Securities and Futures Act 2001

The Securities and Futures Act 2001 (“SFA”) regulates the activities and institutions in the securities and derivatives industry. Section 199 of the SFA prohibits, inter alia, making false or misleading statements which are likely to (i) induce the subscription of securities, (ii) induce the sale or purchase of securities, or (iii) affect the market price of securities. A person who makes such a statement would be liable if they do not care whether the statement was true or false, or if the person knew or ought to have known that the statement was false or misleading.

D. Singapore Code of Advertising Practice

The Singapore Code of Advertising Practice (“SCAP”) promotes high standards of ethics in advertising. Although the SCAP does not have the force of law, non-compliant advertisers may be sanctioned by the Advertising Standards Authority of Singapore.

The SCAP advocates for “truthful presentation” and states that advertisements should not mislead in any way by inaccuracy, ambiguity, exaggeration, or otherwise (Chapter II, clause 5.1). Crucially, advertisements should not misuse research results or quotations from technical and scientific publications, present statistics in a way that implies greater validity than they really have; or misuse scientific terms in a way that makes claims have any scientific basis which they do not really possess (clause 5.3, SCAP).

Specifically, Chapter IV, Appendix L of the SCAP provides rules specific to environmental claims:

1. The basis of any claim should be explained clearly and should be qualified where necessary. Unqualified claims can mislead if they omit significant information.
2. Claims such as “environmentally friendly” or “wholly biodegradable” should not be used without qualification unless advertisers can provide convincing evidence that their product will cause no environmental damage. Qualified claims and comparisons such as “greener” or “friendly” may be acceptable if advertisers can substantiate that their product provides an overall improvement in environmental terms either against their competitors’ or their own previous products.
3. Where there is significant division of scientific opinion or where evidence is inconclusive this should be reflected in any statements made in the advertisements. Advertisers should not suggest that their claims command universal acceptance if it is not the case.
4. If a product has never had a demonstrably adverse effect on the environment, advertisers should not imply that the formulation has been changed to make it safe. It is legitimate however, to make claims about a product whose composition has been changed or has always been designed in a way that omits chemicals known to cause damage to the environment.
5. The use of extravagant language should be avoided, as should bogus and confusing scientific terms. If it is necessary to use a scientific expression, its meaning should be clear.

E. SGX Guidelines

SGX has published 27 core metrics relating to environmental, social and governance (“ESG”) factors to provide guidance for (i) issuers in providing ESG information, and (ii) investors in assessing ESG claims. Essentially, the core metrics set out the parameters for a common and standardised set of ESG metrics, creating better alignment between users and reporters of ESG information. These ESG metrics are quantitative in nature, applicable to most sectors and grounded in the present reporting landscape.

Whilst these metrics do not deal strictly with greenwashing, the SGX has implemented climate reporting requirements in a phased approach. This gives credence to the need to be transparent in setting ESG goals, and in reporting on the degree to which these aims are met. We believe that such requirements will go a long way to inculcate accountability and help combat greenwashing by issuers and global asset managers.

F. Upcoming CCCS Guidelines

On 5 February 2024, it was queried in the Singapore Parliament as to the steps which CCCS will be taking to provide companies with clear guidelines on how to market their products so as to avoid unintentional greenwashing and unfair practices. In response, the Minister of Trade and Industry affirmed that the CCCS is in the midst of developing a set of guidelines to help companies make fair and accurate claims about the environmental attributes of their products. These guidelines are aimed at steering companies away from unintentional greenwashing that may constitute unfair practices under the Consumer Protection (Fair Trading) Act.

The CCCS guidelines being developed are likely going to help combat the following greenwashing problems identified in a study commissioned by the CCCS:

• use of vague and exaggerated environmental claims;
• use of technical and therefore confusing and misleading jargon;
• highlighting of mandatory or standard product features which are not meaningful;
• referring to non-genuine environmental certifications or mischaracterising the type of certification obtained; and
• use of misleading branding and imagery.

What can businesses do

In a nutshell, the laws and guidelines in relation to greenwashing are aimed at addressing the following problems:

1. unsubstantiated, misleading and exaggerated green claims;
2. unsubstantiated, misleading and exaggerated claims about future targets;
3. unsubstantiated, misleading and exaggerated comparative claims; and
4. use of unaccredited green labels.

To address these problems, rules have been or will be formulated to:

1. prohibit the use of generic, unqualified and unsubstantiated green claims;
2. limit the permissible use of comparative claims and claims about future targets;
3. regulate the use of green labels and green label schemes.

There is no substitute for genuine conscionability and accountability in undertaking a sustainable business and selling a green product or service. Every little bit counts, and if business community can sensibly strategize, measure, verify, report and continue to track and improve, we think that the spectre of greenwashing claims will diminish.

This article is produced by our Singapore office, Bird & Bird ATMD LLP. It does not constitute legal advice and is intended to provide general information only. Information in this article is accurate as of 6 May 2024.