More and more companies are taking action against climate change, but it is not always clear what concrete steps they are taking. There are a large number of parties pretending to be greener than they are. Companies have long been able to freely adopt green labels and build a not always honest story around them. As a result, action on sustainability is often linked to 'window dressing' and 'greenwashing'.
The European Commission is therefore taking steps to tackle the so-called greenwashing. With the new legislation, also known as the 'Green Claims Directive', the EC wants to create clarity on the actual company efforts to tackle the climate problem, the actions that are left behind and which path is taken in the meantime. The legislation should mainly provide direction by (i) targeting false environmental claims and (ii) countering the spread of unsubstantiated public and private environmental labels. In this blog, we provide a brief introduction to the genesis of the upcoming legislation and an overview of the key take-aways.
Greenwashing
Climate action is crucial for meeting our climate goals. Countless companies seem to benefit from the increasing demand for environmentally friendly goods and services. All while the claims companies make about their positive impact are often highly inflated compared to the actual impact. This misleading approach, also known as greenwashing, not only jeopardises our climate goals but has also led to confusion and distrust about sustainable initiatives among consumers.
There are several reasons why companies are accused of greenwashing. For instance, claims are made that are misleading or made bigger to gain a competitive advantage in order to respond to growing consumer demand for more sustainable products. The use of vague language and loosely defined terms also makes it easier for companies to make claims without providing concrete evidence. Companies are also sometimes unknowingly guilty of misleading green claims. For tips on avoiding greenwashing and ensuring clear communication, click here.The reality is that there is a lack of clear regulations and guidelines, leaving room for different interpretations.
Greenwashing pollutes the sustainable transition
That greenwashing leads to confusion and distrust among consumers is not surprising. Consumers rely on information being accurate and transparent to make informed choices. Companies are now still given the freedom to label their products as 'climate neutral' or 'better for the world' without giving any additional details on what this exactly means. This undermines trust and hinders consumers' commitment to genuinely sustainable initiatives. It also discourages socially responsible companies from continuing their sincere efforts. To illustrate, a study by the European Commission in 2020 revealed that about 50% of evaluated environmental claims in the EU provided vague-, misleading- or unsubstantiated information about product characteristics.
The biggest drawback of greenwashing is however that it significantly hinders the achievement of the Paris Agreement climate goals (maximum 1.5 degrees temperature increase). Misleading environmental claims can divert attention from sustainable initiatives, delaying the transition to sustainable business practices. It also hampers the growth and competitiveness of companies by failing to distinguish between truly sustainable products and those that merely claim to be sustainable. If you are interested in learning how to become a genuine sustainable company, check out our blog.
Green Claims Directive
To further address this growing problem, the European Commission is introducing the ‘Green Claims Directive’. This (yet to be accepted) legislation should tackle greenwashing by (i) targeting false environmental claims and (ii) stopping the spread of unsubstantiated public and private environmental labels. The legislation also aims to support companies in their pursuit of more sustainable operations by providing appropriate reporting procedures and clear guidelines.
With the help of emerging European Union legislation, transparency around sustainability are finally set to take off. The proposed changes to European legislation are mainly aimed at taking consumers by the hand in the current wilderness of green labels and claims.
Part of the legislation also looks to help companies report more honestly on their steps towards sustainability. For instance, it should give more guidance on what companies are doing regarding their carbon emissions, their reduction plans and offsetting carbon emissions. The proposal recognizes that offsetting CO2 emissions is a legitimate way to combat greenhouse gas emissions and achieve a more sustainable world. Nevertheless, it sets stricter requirements on how emissions offsetting is used. We have listed some of the key points of the proposal:
- It stresses that companies should disclose CO2 offsets transparently and accurately and avoid misleading or exaggerated claims.
- Emission reduction should be prioritised before relying on CO2 offsets as a mitigation strategy.
- Companies making CO2 offset claims should provide transparent information to consumers about the projects they support (think type of project, location and number of tonnes of CO2 offset).
- Recognised standards and methodologies should be used to assess and quantify the environmental benefits of CO2 offset projects, ensuring credibility and integrity.
- The importance of carefully selecting, monitoring and verifying CO2 offset projects is highlighter. This is to ensure that the projects contribute effectively to emissions reduction and sustainable development.
An important development is that the legislation forces companies to be more transparent about what part of their environmental claims relates to their own operations (value chain) and what part depends on the purchase of CO2 certificates. In this way, companies are prevented from making green claims that rely solely on offsets without explicitly reporting on them.
The role of offsetting
Despite the above, the directive recognises the essential role of carbon offsetting as a means of reducing greenhouse gas emissions and promoting sustainable development. For instance, in addition to a focus on mitigation measures, it encourages companies to consider CO2 offsetting as part of their overall environmental strategy and supports the deployment of reliable and verifiable offsetting mechanisms. After all, it is not possible to completely eliminate emissions; we will always continue to emit CO2, including in business operations. Many companies have already reduced their emissions as much as possible but, in addition, want to take responsibility for the emissions they cannot avoid. By funding high-quality climate projects, companies can support initiatives that reduce greenhouse gas emissions elsewhere, while taking responsibility for emissions they cannot reduce. Check out our projects for examples of such initiatives.
Our view on the Green Claims Directive
Companies should use carbon certificates (Carbon Credits) as part of a broader sustainability strategy. When used correctly - combined with reduction- offsetting is a crucial part of the solution to fighting climate change. When used incorrectly, it can do more harm than good.
We therefore encourage to take our carbon offsetting principles into account:
- 1. Set a science-based target on how to bring emissions to 'net zero'. Map out the different steps for reducing emissions over time and use high-quality CO2 certificates to offset (residual) emissions you cause along the way.nbsp;
- 2. Take responsibility for all residual emissions by investing in climate projects, including outside your own value chain. Recent research by Trove Research shows that companies that put an internal price on all their (residual) CO2, reduce emissions twice as fast as those that do not.
- 3. Use CO2 certificates from projects that restore ecosystems and promote sustainable development among local communities.
- 4. Commit to transparent communication and look at broader climate goals. Consumers should be given clear and transparent information about the projects they support at all times. Offsetting is not a substitute for reducing CO2 emissions, but funds global efforts to reduce CO2 emissions.
- 5. Calculate and report on offseted emissions accurately so that environmental impacts can be measured consistently and reported on.
Conclusion
Over the years, a lack of regulation and guidance has allowed companies to make unsubstantiated sustainability claims, which has not helped the sustainable transition.
The upcoming Green Claims Directive (expected from 2024) should give companies more guidance and help counter misleading green claims. The legislation outlines a framework for clear reduction and compensation strategies and how companies should truthfully report on these. Finally, it also provides guidance on the kind of climate projects that can be used to offset (residual) emissions as effectively as possible.
We advise companies to deploy CO2 certificates as part of a broader sustainability strategy.After all, offsetting helps in the transition to a cleaner world by contributing to the large-scale development and financing of green projects. It is essential to be transparent about the start and end point of your company's sustainability journey, as well as every step taken along the way.
Interested in sustainable business practices? Explore how you can align your workforce towards sustainability and why it is a good idea.
