EU Tightens Rules on Greenwashing: What Companies Need to Know

Dec 16, 2024

What is greenwashing? Greenwashing occurs when companies mislead consumers or investors about their environmental impact, presenting themselves as more eco-friendly than they truly are. For example, the company may be engaging in greenwashing if a product’s packaging uses unregulated terms like “clean” and “eco-friendly”—words that imply sustainability without actual certification.

This practice poses significant risks, especially as Environmental, Social, and Governance (ESG) becomes a priority for industry stakeholders. To maintain trust and avoid reputational damage, businesses must report accurately on their environmental efforts and back up their claims with data.

greenwashing

The Scope of the Problem

As organizations face growing pressure to demonstrate sustainability, some resort to greenwashing—either intentionally or inadvertently. For example, brands might overstate the eco-friendliness of their products or use vague terms like “green” without providing concrete proof. Reports FastCompany, nearly one in two of the world’s 2,000 largest publicly traded companies have set net-zero targets. However, only a small number have presented credible plans to achieve them, sparking uncertainty about the feasibility of these goals.

How the EU is Tackling Greenwashing

In response to these challenges, the EU is taking action. By implementing new legislation, the EU aims to ban greenwashing. Companies are now required to provide verifiable sources for their environmental claims, and generic labels like “eco” or “environmentally friendly” are no longer permitted unless backed by approved certification schemes.

The UK’s Financial Conduct Authority (FCA) has also joined the effort by extending the deadline for firms to comply with new greenwashing regulations, giving them until April 2025. These regulations, which took effect in May 2024, require firms to ensure that any ESG claims are accurate and not misleading. This extension provides companies more time to adjust to complex standards, particularly those requiring changes to investment labels or names.

How Companies Can Avoid Greenwashing

To avoid greenwashing, businesses must adopt transparent reporting practices. It’s essential to implement ESG metrics, collect data, and set achievable sustainability goals. Claims such as “carbon-neutral” should be supported by verifiable actions—not just through purchasing carbon offsets, which have been criticized for their limited impact.

The EU is also working on introducing standards like the “right to repair,” which promotes repairing products over replacing them, reducing environmental waste and improving product lifespan. By embracing thorough data collection and analysis, businesses can demonstrate real progress toward environmental goals.

The Consequences of Failing to Act

Ultimately, transparency and accountability are key. Companies that fail to report on their claims accurately risk fines, litigation, and long-term reputational damage. With the EU tightening regulations—such as banning unproven durability claims—the pressure is mounting for companies to legitimize their sustainability efforts. Embracing detailed ESG reporting allows organizations to maintain trust with investors, regulators, and consumers while contributing meaningfully to sustainability efforts.