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What to know about Europe's new anti-greenwashing laws

Supply chain transparency is crucial to building consumer trust in the face of greenwashing.

Green paint over a factory

European anti-greenwashing laws are here: What's changed, and how to comply. Image via Shutterstock/Firn.

Sustainability is everywhere: 17 percent of products on store shelves in the U.S. make at least one sustainability claim on their packaging. Unfortunately, not all of these claims will turn out to be true: in the past six months alone, regulators in the U.S., Britain, Norway, and the Netherlands have collected millions of dollars from companies found to be making false environmental claims — greenwashing. Making misleading environmental claims is so common in part because few standards exist for determining what makes a sustainability claim accurate.

A new spate of laws in Europe aims to change that by setting a new and higher standard for companies to make environmental claims. Two laws in particular aim to prevent greenwashing: the French Climate and Resilience Law, set to go into effect in 2023, and the European Union's proposed Unfair Commercial Practices Directive, slated for 2024-25. Taken together, the laws paint a much clearer picture of the processes companies will have to adopt in order to make any environmental claim without risk of greenwashing. What follows is an overview of the most significant new provisions in the laws, as well as techniques companies have already used to successfully achieve the new standards.

Companies must collect and show their own evidence

Companies have long relied on industry-average data to estimate the environmental impact of products. This practice has come under scrutiny when those averages are used to make consumer-facing claims. Industry averages are too inaccurate to help consumers make a choice between one brand's products and another's. The new anti-greenwashing regulations require companies to collect their own data to back up any environmental claims, and that the data be clear, objective and verifiable. That means companies seeking to make environmental claims will have to collect evidence to account for every kilogram of carbon, waste, water or energy that is part of a product's environmental marketing claims. Evidence can take many forms: fuel and utility bills, receipts for raw materials, shipping records and even waste disposal contracts.

Full cycle assessments of products will require a larger evidence scope

Sometimes an environmental benefit in one phase of a product's life — for example, using a recyclable material such as glass — might come at a greater cost in another phase, for example, by requiring more energy to manufacture that glass. Companies will only be able to claim a product is sustainable if they disclose the impact of the entire life of the product, from raw material to end of life. That means evidence will often need to be collected from suppliers at every stage of a product's life, including from the companies that provide recycling and remanufacturing services at the end of it.

More data means more verification

The market for sustainable products and services is booming, and so is consumers' willingness to pay a premium. That brings with it a higher chance of fraud — products being sold as sustainable when they're actually conventional. For years, the only way to prevent fraud in sustainable products was for companies or regulatory agencies to hire auditors to carry out occasional factory visits and document reviews. With the new requirement to collect evidence from the entire product lifecycle, there is simply too much data to be assessed manually.

For example, a major CPG manufacturer might have 5,000–15,000 direct suppliers, with each relying on a hundred more suppliers. It’s clearer than ever that companies are culpable for the consequences of their supply chains, but without a complete picture, businesses can’t deliver on their promises with irrefutable certainty. Companies are increasingly turning to software solutions that can monitor the supply chain on an ongoing basis, in an attempt to root out fraud before products reach store shelves.

Taken together, emerging laws tackling greenwashing constitute a much higher burden of proof for companies seeking to bring sustainable products to market. They also call for a much larger volume of data to be collected from a vast number of stakeholders. The recent government crackdowns only underscore the high cost of making misleading environmental claims. Hopefully, these laws will spur more collaboration with companies and their supply chain and result in claims consumers can trust.

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