The European Union (EU) could soon implement harsher regulations on what companies can get away with when they claim to be greener than they actually are, according to a leaked new EU draft greenwashing law seen by Bloomberg.
This practice of companies presenting false green claims has become known as “greenwashing,” although the term has no legal definition. Yet, according to Bloomberg, greenwashing may be one of the biggest risks to the future of ESG (environmental, social, corporate governance) investing.
As the leak now shows, the EU is working on a draft of new laws that they plan to put in place to tackle this problem, and make sure that companies who claim they are environmentally friendly stand by what they say.
The EU has recently identified some common greenwashing terms, including:
- “100% C02 compensated”
- “The greenest you can buy!”
- “50% reduction by 2030”
As Bloomberg explains, products with these labels often only refer to whether the company has carbon offset credits or not. If this is the case, it may well be that a company that is in fact damaging the environment enormously claims to be green because they look socially responsible in one place.
This lack of legal definition for “greenwashing” clearly causes problems with trying to hold companies accountable for doing it, if there is no legality related to it.
Although the EU are keen to clamp down on companies embellishing their green credentials, there are arguments that creating a definition for the term would not actually help to combat it, and that putting a label on the term would not tackle the problem at hand.
“Rather than seeking to define ‘greenwashing’ and thereby creating a new legal term, we recommend instead that EU authorities describe the conduct or circumstances of concern,” Investment Company Institute (ICI) said, suggesting that more focus needs to be put on the actions companies are participating in that are wrong.
“Seeking to adopt a general definition of greenwashing or enshrine it in legislation would be counterproductive,” the institute concludes.
Although the European Fund and Asset Management Association (EFAMA) have suggested that the EU should use rules that are already in place to tackle greenwashing, and that introducing a new definition only “increases complexity,” it could be argued that if rules are already in place, then why aren’t they working.
Undoubtedly, greenwashing is a current problem and without a legal term for it, no company will be held accountable for it.
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The EU’s new law plan may well change slightly before it is officially implemented, but one of the current regulations it aims to put in place is fact-checking reports provided by companies that are claiming they are eco-friendly.
If the law is implemented, EU companies will have to prove their claims against scientific methodologies such as air testing.
To tackle the problem with carbon offsets, and that of false green claims, companies will have to announce if their products are causing harm to the environment rather than hiding it behind the positive work they are doing.
It’s all very well talking about how many trees will be planted if you buy a certain product, but if a company is cutting down one hundred trees elsewhere, are they really benefiting the environment? The new laws should make it much harder to get away with this.
A question that can be posed however is why and how companies were ever able to get away with it in the first place.
Due to the lack of regulation and proof companies need to provide when they state they are “100% C02 compensated,” it is very easy for companies to lie or embellish on the sustainability of their products.
The European commission assessed 150 claims about environmental characteristics in 2020 and found 53% were providing “vague, misleading or unfounded information.”
According to Oxford University’s Energy and Climate Intelligence, even Apple made a net zero pledge in 2021, claiming: “We’re carbon neutral. And by 2030, every product you love will be too.”
Apple is one of the most famous companies in the world, and if they are stating that they are going to be carbon neutral, a lot of people will believe them.
This gives people false hope for the future, and when reports such as the European Commission’s assessment come out, it can lead to nothing but confusion for the general public, with people not knowing what to believe.
What we find disturbing is that #greenwashing appears to be becoming increasingly sophisticated. One of the main greenwashing tactics is greenshifting.
— Planet Tracker (@planet_tracker) January 17, 2023
Another problem that comes with greenwashing is that companies that genuinely are carbon neutral may not get the recognition they need, because nobody knows what to believe, and that there are currently no regulations on how to prove validity in green claims.
The new law should help to combat this, allowing honest companies to be more respected; for if companies know they can get away with making things up, then what’s the point in being genuine?
With the new EU law under construction, there is certainly hope for the future on regulating the lies of giant companies claiming to be green (like the infamous H&M’s case). However, with controversy over whether there should be a legal definition for greenwashing or not, it appears holding companies accountable will remain difficult for now.
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — In the Featured Photo: Painting our hands green. Featured Photo Credit: Alena Koval.