Action groups step up greenwashing efforts as directive hits EU parliament

Members of the ENVI Committee in the European Parliament have rejected a crucial amendment on carbon offsetting in the draft Empowering Consumers in the Green Transition directive. The amendment would have clarified the law by introducing a ban on carbon offsetting claims, said environmental law charity ClientEarth. The EC proposed the directive last March. It is designed to provide better information on the durability and reparability of products to consumers. It also aims to bolster consumer protection against unfair commercial practices that prevent sustainable purchases, in areas such as: Greenwashing practices (misleading environmental claims). Early obsolescence practices (i.e. premature failures of goods). The use of unreliable and non-transparent sustainability labels and information tools. When announcing the directive, commissioner for justice Didier Reynders said: “While most consumers are willing to contribute, we have also seen an increase in ‘greenwashing’ and early obsolescence practices. To become the real actors of the green transition, consumers must have a right to information to make sustainable choices. They must also be protected against unfair commercial practices that abuse their interest in buying green.” But ClientEarth believes the directive is being watered down as it grinds through the European legislative process. Johnny White, lawyer at ClientEarth, said: “While it’s great to see an anti-greenwashing directive taking shape at EU level, it’s missing the mark so far. The current draft excludes a ban on the marketing fiction that is carbon offsetting. Greenhouse gas emissions can’t be neutralised with carbon credits alone. Carbon credits are donations towards climate-friendly projects – pretending they can ‘offset’ the climate impacts of the high-carbon items and services that companies sell us is confusing and misleading to consumers and small businesses alike.” “This marketing fiction can make the highest-carbon products seem ‘green’. It’s an existential threat to the green transition and it must not be given regulatory credibility in the anti-greenwashing directive,” he added. Regardless of the directive, leading European multinationals such as Shell, Total and KLM are facing legal action for allegedly greenwashing their CO2 claims. Even if the directive is watered down, risk managers and their legal colleagues need to take a close look at exposures. Last September, ClientEarth published a paper entitled Carbon offsets: an emerging legal risk that underlined the legal and reputational risks faced by multinationals that choose to massage the truth about their green credentials. “The fiction of carbon offsetting is attracting increasing legal risk – risk of non-compliance, shareholder action, litigation and regulatory enforcement. In the Netherlands, Shell has found itself reprimanded twice in succession, first for advertising ‘CO2- neutral’ car petrol, then for trying a different claim that carbon credits mean ‘CO2 compensation’,” explained ClientEarth. “On both occasions, the company was unable to persuade the Dutch advertising watchdog that the offsets advertising was substantiated by the evidence. The airline KLM is facing a court action, supported by ClientEarth, for breaching consumer law with its CO2 compensation marketing. In Germany a claim is being brought against a list of eight companies, including TotalEnergies, for misleading ‘carbon neutral’ claims. Legal academics say that using offsets in marketing claims breaches European consumer law standards,” continued the charity. ClientEarth’s report focuses on the legal and insurance implications facing companies from the campaign against greenwashing. “Given the legal and reputational risks associated with the reliance on offsets in corporate transition plans, and advertising based on claims of ‘CO2 compensation’ or ‘carbon neutrality’, company directors will need to consider if such strategies are compatible with their duties to act in the best interests of the companies they serve,” it states. “Risk of liability means companies will be considering the viability of insurance coverage for losses and for legal costs. Directors’ and officers’ liability insurers consider climate to be a “new and major issue”, with underwriters keeping a close watch on legal action for climate-related misstatements,” continues ClientEarth. “Insurers are even checking themselves whether directors’ corporate net zero strategies have been independently reviewed, because inadequate strategies are expected to drive liability risk. At the same time, insurers may exclude coverage for climate claims, inflating climate litigation risk because costs must be borne by the company itself, or its directors,” adds the charity.

Action groups step up greenwashing efforts as directive hits EU parliament

Liability insurers watching developments closely as cases mount

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