As new EU regulations take effect in September 2024, companies must rigorously substantiate their sustainability claims to avoid legal risks and enhance brand credibility.
With the new EU regulations on sustainability claims set to take effect on September 27, 2024, businesses face a significant shift in how they approach environmental communications. The Empowering Consumers for the Green Transition directive (ECGT) alters the landscape by placing the onus of proof on advertisers, rather than regulators, fundamentally impacting how sustainability claims are made and substantiated.
The directive revises the Unfair Commercial Practices Directive, which governs advertising practices within the EU. Under the new rules, advertisers must demonstrate that their claims are valid before they hit the market. This represents a critical change; previously, it was up to regulators to prove a claim was misleading. Moving forward, vague and generic claims such as "eco-friendly" or loosely defined carbon-neutral assertions will face immediate scrutiny, as they are categorized as unfair practices without grounds for a case-by-case defense. For businesses operating across member states, penalties for non-compliance could reach up to 4% of their annual turnover, a financial blow that’s hard to ignore.
The Financial Implications
Consider a company generating 500 million euros in annual turnover within Europe; a 4% penalty translates to a staggering 20 million euros for any cross-border claim infringement. While enforcement may vary across countries, the potential costs are significant enough that businesses can’t afford to be complacent. The expense of verifying and substantiating claims must also be factored in, especially since many large organizations struggle to maintain a current inventory of their published environmental claims. Multiple teams working on various platforms have often led to a disorganized and unverified collection of communications regarding sustainability.
Auditing these claims is a daunting task, often taking weeks of labor intensive work from legal and sustainability teams. Ironically, the cost of ignorance is likely to exceed the expense of a thorough review, especially when companies consider the impacts of having to retract claims under public pressure. Such withdrawals generally attract media attention, oftentimes damaging a brand’s equity at the worst possible juncture.
Benefits of Getting It Right
On the flip side, companies that proactively align their sustainability messaging with verified claims stand to gain significantly. Historically, vague claims like "eco-friendly" have coexisted alongside rigorously substantiated assertions, making it easy for businesses with weak justifications to gain visibility. However, the impending enforcement of these new regulations will compel firms to raise their standards — vagueness will no longer be viable, forcing companies to back their claims with hard evidence.
Successful companies will prioritize the legitimacy of their claims, not only for compliance but also to build brand differentiators that competitors cannot easily replicate. Brands that view the upcoming deadline as an opportunity to enhance their credibility, rather than merely as a compliance obligation, will emerge with fewer, but far more defensible claims.
Building a Credible Strategy
Establishing a credible sustainability communications program requires diligent inventory management of all live claims across diverse platforms. This foundational step often proves challenging as organizations discover they have more claims than anticipated. Each claim should then be classified according to risk levels, separating verified facts from vague assertions and outright prohibited language. It’s vital to map the evidence supporting each claim and recognize where gaps exist. From there, organizations should decide whether to strengthen, qualify, or eliminate claims entirely. Simple deletions are insufficient, as these claims often resurface in future campaigns. Instead, a thoughtful rewrite that maintains defensible language is the strategic choice.
To maintain the integrity of published claims, companies should implement systems to vet new statements before their release, ensuring that the inventory remains accurate. Artificial Intelligence (AI) can serve as a valuable tool in this process, helping to identify buried claims within extensive text and sorting them by risk, making the audit process much more efficient and potentially real-time.
However, companies must remain vigilant; AI cannot assess the validity of evidence or whether verification is sufficient. Responsibilities to ensure claims are correct and defensible still lie with human decision-makers. If an organization lacks the necessary assessments to support a recyclability claim, the only safe course is to conduct the assessment or withdraw the claim entirely. Relying on more nuanced phrasing without solid backing will not suffice.
Final Thoughts
With the deadline approaching, it might seem instinctual to downplay the urgency and simply revise language to soften claims. That approach seems misguided. Instead, organizations should think of their published claims as assets—and potential liabilities—that require appropriate valuation and evidence backing for the claims that remain. This strategy not only prepares companies for compliance but also positions them to be competitive in a tightening market.
In the evolving landscape of sustainability communications, companies that proactively assess their exposures will undoubtedly come out ahead, as the scrutiny on environmental claims intensifies.
Enrique Burgos is the founder of Haze, an AI compliance layer for sustainability communications, along with extensive experience in marketing and social impact advising.
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