The European Commission (the "Commission") has adopted a number of proposals for new green legislation to create a sustainable economy and achieve climate-neutrality by 2050. The majority of the proposals are part of the European Green Deal. The proposals include wide reaching obligations on businesses in respect of making green claims, product design and waste management which, if implemented, will have a significant impact on the retail sector. Whilst the details of the measures may be subject to change and in some cases, will be fleshed out in secondary legislation, the common theme throughout is that businesses will need to have an in depth understanding of its supply chain and reliable data on its products to comply. We have set out below a summary of the Commission's key proposals which will impact the retail sector.
Directive on Empowering Consumers for the Green Transition
In March 2022, the Commission adopted a proposal to empower consumers to make informed and environmental-friendly choices before they purchase products (the "Green Transition Directive"). The proposal would amend the Consumer Rights Directive and the Unfair Commercial Practices Directive.
How will the Consumer Rights Directive be amended?
In relation to the Consumer Rights Directive, the amendments would include putting place requirements for pre-contract information about durability and reparability. To complement these pre-sale provisions, the Commission has also proposed an "Eco-design for Sustainable Products Regulation" and a "Right to Repair Directive" which deal with durability and reparability issues in product design and after purchase. You can read more about the Eco-design for Sustainable Products Regulation and the Right to Repair Directive below.
How will the Unfair Commercial Practices Directive be amended?
The amends to the Unfair Commercial Practices Directive would mean blacklisting greenwashing practices such as banning vague claims where environmental excellence cannot be demonstrated ('eco', 'green' etc) and banning environmental claims about the entire product when they only concern parts of a product. To complement this, the Commission has now published a new standalone Green Claims Directive as detailed further below. This is intended to expand upon the general requirements of the Green Transition Directive by providing more specific rules about green claims.
How does this compare to the UK?
In March 2022, the Competition and Markets Authority (CMA) made similar recommendations to provide consumers with more information pre-sale so they can make sustainable choices, although the Government has not acted on these yet. The recommendations included amending current consumer legislation to require businesses to disclose environmental information to consumers (e.g. environmental impact, recyclability, reparability and durability) and adding misleading and/or unsubstantiated environmental claims to the list of banned practices under consumer law.
Green Claims Directive
The Commission published a proposal for a new standalone Green Claims Directive on 22 March 2023, which set outs new measures governing how green claims should be substantiated, communicated, and independently verified.
The objective of the Green Claims Directive is to protect consumers and businesses from greenwashing and boost the competitiveness of businesses genuinely able to make green claims about their products.
Who will the Directive apply to?
The proposed scope of the Directive is broad. It will apply to claims made voluntarily by retailers to consumers about the company, its products or services that state or imply a positive effect or no effect on the environment, is less damaging than others, or has improved its impact over time. For example, the following types of claims would be covered:
- claims that products are recyclable;
- claims that products or entities are “carbon neutral” or will be “net-zero” by a given year;
- the use of environmental labelling schemes; and
- claims related to future environmental performance of a product or entity, including by joining initiatives that are promoting practices which could be conducive to a reduced environmental impact would all be covered by the scope of the Directive.
The Directive will not apply to claims which are required by current Union or national legislation, for example in relation to marketing organic food and annual sustainability reporting.
The Directive will apply to businesses based in the EU and any business based outside the EU that make environmental claims directed at consumers within the EU. Companies that have fewer than 10 employees and generate less than €2 million annual turnover would be exempt from the rules.
What would the new requirements be?
The Directive sets out minimum requirements for communicating, substantiating and verifying green claims made to consumers in the EU. We have set out below some of the key provisions proposed under the Directive:
- environmental claims can only refer to environmental impacts, aspects or performance that have been properly substantiated;
- consumers should be provided with easy access to the information used to substantiate green claims including supporting evidence;
- state the extent to which green claims are based on carbon offsets and whether these relate to emissions, reductions or removals.
Businesses making claims must substantiate a claim. The proposal sets out the criteria which must be used to substantiate a claim and includes, for example:
- demonstrating that environmental impacts, environmental aspects or environmental performance that are subject to the claim are significant from a life-cycle perspective
- relying on recognised scientific approaches and evidence to calculate environmental impacts and taking a full-life cycle approach
- identifying whether a positive achievement leads to significant worsening of another environmental impact, for example if saving on water consumption leads to an increase in greenhouse gas emissions
- comparative claims made against other products or companies must be based on data generated or sourced in an equivalent manner and the most significant states in the products life-cycle must be compared
- reviewing and updating any information used to substantiate the green claim
- green claims must be substantiated by an assessment carried out by an independent, competent and accredited third party
- claims cannot be communicated and labels cannot be publicly displayed until they have been certified to comply
The Directive also proposes a ban on the use of self-certified sustainability labels and introduces new criteria to improve the transparency and reliability of existing labelling schemes.
The Green Claims Directive will now be subject to the approval of the European Parliament and Council. Once the Green Claims Directive enters into force, Member States will have to transpose it into their national legal systems within 18 months and apply it within 24 months.
Once the Directive comes into force, companies that fall within its scope will need to have in place a robust internal process for collecting environmental data and substantiating and communicating green claims, particularly given that failure to comply with the Directive could face investigations and be fined up to 4% of annual turnover. Whilst the specific provisions in the current Directive may change during the legislative process, companies can start to prepare by mapping its current process for substantiating and communicating green claims and identifying any gaps in its data, internal knowledge or communications policies
How does this compare to the UK?
In February this year, CAP and BCAP updated their guidance on greenwashing to include the use of carbon neutral and net zero claims in advertising. The updates reflect the key principles of the Competition and Markets Authority’s Green Claims Code, which provides guidance on making environmental claims about goods and services. The updated advertising guidance advises avoiding unqualified claims, having a verifiable strategy for future goals, being clear regarding reducing vs offsetting and provide evidence for offsetting. You can read more about the updated guidance in our article here. On 23 June, the guidance was updated again to reflect recent ASA rulings and CMA guidance. A new section was added entitled “Claims about initiatives designed to reduce environmental impact”. The updated section contains a number of new guidelines about green claims, for example it states that absolute environmental claims (such as “sustainable” or “environmentally friendly”) must be supported by a high level of substantiation.
Further, the Competition and Markets Authority (CMA) is currently carrying out two greenwashing investigations, one about Fast-Moving Consumer Goods (e.g. food, drink, cleaning products, toiletries and personal care items), and a second one about fashion products at ASOS, Boohoo and Asda. At this stage, the CMA has not reached a conclusion on whether consumer law has been breached. However, the investigation about fashion products will likely conclude this year and the CMA is also considering whether to open further greenwashing investigations.
As stated above under the "Directive on Empowering Consumers for the Green Transition", the CMA has also recommended that the Government considers legislating to ban misleading and unsubstantiated environmental claims by amending the Consumer Protection from Unfair Trading Regulations 2008. Whilst the Government has not acted on this yet, it has announced plans in the Competition, Digital Markets and Consumers Bill to give the CMA power to fine businesses who breach consumer protection laws. Fines could be up to 10% of global annual turnover, for more information about these proposals please see our article here. If these plans become law, they could increase the CMA's powers to tackle greenwashing.
Eco-design for Sustainable Products Regulation
In March last year the Commission adopted a proposal for a Regulation on eco-design requirements, which establishes a framework to set eco-design requirements under secondary legislation for specific product groups to improve their circularity, energy performance and other environmental sustainability aspects. Among other things the proposal establishes the Digital Product Passport (DPP) as explained further below.
What and who will the Regulation apply to?
The Regulation will apply to almost all physical goods placed on the EU market with a few limited exceptions including food and medicinal products and places obligations on an equally broad range of economic operators including manufacturers, importers, distributors, retailers, fulfilment services provides and online marketplaces.
What are the key provisions?
The Regulation sets out that the Commission shall, in secondary legislation, establish eco-design requirements for all stages of a products life cycle in relation to a number of factors including, for example:
- possibility of remanufacturing and recycling;
- environmental impacts, including carbon and environmental footprint;
The Commission published a consultation and questionnaire to collect views on which categories of products to prioritise under the Regulation which closed in April 2023. Prior to the consultation the Commission identified certain potential priority areas which included end use products such as textiles, footwear, furniture and cosmetics.
Digital Product Passport
Under the proposal, products within scope will be required to have 'digital product passport' which will enable consumers and other stakeholders in the supply chain to access information about the sustainability credentials of a product. Products which do not have a digital product passport may not be placed on the market.
The Regulation sets out broad general requirements relating to the digital passport, for example, it must be searchable and refer to the product model, item or batch number. However, the specific information to be included for specific products will be set out in delegated legislation.
Consumers, economic operators and other relevant actors shall have free access to the product passport based on their respective access rights.
Unsold Consumer Goods
The Regulation includes measures to prevent and stop the destruction of unsold consumer goods which are defined as "any consumer product that has not been sold or that has been returned by a consumer in view of their right of withdrawal …"
As a first step, large businesses which discard unsold consumer products directly, or on behalf of another economic operator, will have to disclose on its website:
- the number of unsold consumer products discarded per year, differentiated per type or category of products
- the reasons for the discarding of products
- the volume of discarded products delivered for re-use, remanufacturing, recycling, energy recovery and disposal operations
The proposal also keeps open the possibility to ban the destruction of unsold products altogether in the future, where the destruction of unsold consumer products falling has a significant environmental impact. However, on 22 May 2023, the governments of the Member States agreed that a destruction ban on unsold clothing should apply immediately once the Regulation and relevant secondary legislation comes into force, rather than waiting for the EU executive to carry out an assessment that could have lasted three years. Medium-sized companies, (with fewer than 250 staff and with annual turnover of lower than €50 million or balance sheet below €43 million), would have a transition period of four years, while the smallest companies, (with fewer than 50 staff and an annual turnover or balance sheet below €10 million), would be exempt.
How will the Regulation be enforced?
Each Member State will be required to design an authority to monitor and enforce compliance with the Regulations including requiring the removal of a produce from market where remediation is not achieved. Individual Member States will be required to establish further penalties for breach of the Regulation.
The Commission published a consultation and questionnaire to collect views on which categories of products to prioritise under the Regulation which closed in April 2023. The Commission has stated that it is aiming to adopt a communication on the outcome in Q1 of 2024.
Once the Regulation is formally adopted, the majority of its obligations will not come into force until delegated acts with product specific rules are brought into force. The Commission has indicated that stakeholder consultations will take place before this secondary legislation is drawn up. Businesses impacted by the proposals should look out for opportunities to participate in consultations on the secondary legislation.
Right to Repair Directive
On 22 March 2023, the Commission published a proposal for a Directive on common rules for promoting the repair of goods.
What has been proposed?
Under the current Sale of Good Directive, a consumer can seek a remedy from the retailer where a product is not in conformity with the contract of sale ('legal guarantee') by choosing between a repair or a replacement. The proposed Directive would amend the Sales of Goods Directive so consumers can only have goods replaced when this is cheaper than repair. However, the Directive does not provide further detail on how the repair cost should be calculated. The seller would be responsible for the repair obligation.
The amendment would apply to all products subject to the legal guarantee under the Sales of Goods Directive, which includes all tangible products, including those with digital elements.
In addition, the proposal sets out an obligation on producers to repair certain defects on receipt of a request from a consumer where the legal guarantee does not apply. This obligation relates to products which are already covered by applicable "reparability requirements" for a category of goods covered by legislation listed in an Annex to the Directive which include, for example, white goods.
The proposal underwent an eight week feedback period which closed on 25 May 2023. The Directive will now be subject to the approval of the European Parliament and Council.
This is likely to require considering how products are designed for repair, revisiting supply contracts to address provisions for repair, strategic planning to ensure spare parts are available and putting in place procedures for how repairs are carried out – for example, whether to offer repairs in-house or through a network of independent repairers.
Waste Framework Directive Amendment
In May 2022 the Commission consulted on amending the Waste Framework Directive. The Commission is considering introducing regulatory measures to:
- reduce waste generation which could include introducing targets for waste reduction
- reinforcing the polluter pays principle by expanding extended producer responsibility schemes to other categories of products (such as textiles).
Following a consultation on the proposed measures in 2022, the Commission has indicated that it will adopt a communication on the proposal during the second quarter of this year.
Separately, at the end of last year, the Commission adopted a proposal for a Regulation on Packaging Waste which would amend current legislation in this area. The proposed regulation would establish requirements for the entire packaging life cycle, from raw material to final disposal (concerning environmental sustainability and labelling), to allow its placing on the market and set out requirements for substances in packaging: the presence and concentration of substances of concern would have to be minimised. A debate was held on this proposal earlier this year and we are awaiting publication of the EP Committee report. In the UK, the Extended Producer Responsibility for Packaging scheme will likely be operational from 2024, for more information about this, please see our article on new reporting requirements for the scheme, these reporting requirements will start on 1st October this year.
In addition, the Environmental Protection (Plastic Plates etc and Polystyrene Containers etc) (England) Regulations 2023 introduced this year will ban many single-use plastic items from 1st October 2023. In scope items include single-use plastic cutlery, balloon sticks and expanded and foamed extruded polystyrene (EPS/XPS) food and drinks containers (including cups). It also applies to plates, bowls and trays (except where these are supplied to another business or used by businesses as packaging). Microbeads, plastic straws, plastic cotton buds and plastic drink stirrers have already been banned in the UK.
Corporate Sustainability Due Diligence Directive
In February 2022, the Commission adopted a proposal for a Corporate Sustainability Due Diligence Directive (the Proposed Directive) which aims to ingrain human rights and environmental considerations into business policy and encourage sustainable and responsible corporate behaviour. The Proposed Directive aims to do this by imposing a sustainability due diligence duty on large EU companies as well as non-EU companies with substantial EU activity. This would require such companies to address any negative human rights and environmental impacts within their operations, their subsidiaries and value chains (i.e. direct or indirect business relationships) both inside and outside Europe. To read more about this proposal, please see our article here.
Deforestation-free Products Regulation
The Deforestation-free Products Regulation introduces mandatory due diligence rules for companies that want to place specific commodities on the EU market, even if they are not established in the EU. The commodities in scope include those associated with deforestation, forest degradation and illegal logging for example soy, beef, palm oil, wood, cocoa and coffee, and some derived products, such as leather, charcoal and chocolate. The new rules mean due diligence must be carried out to ensure that products have not been produced on land deforested or degraded after 31 December 2020 and that they have been produced in accordance with national laws. Further, due diligence statements will need to be submitted by operators and non-SME traders prior to marketing or exporting such commodities. The Regulation comes into force on 29 June 2023. Operators and traders will have until 30 December 2024 to implement the new rules, but small companies and micro-enterprises will have until 20 June 2025.
Similar provisions will also be introduced in the UK, the Environment Act 2021 received Royal Assent in November 2021 and contains provisions that will ban large businesses from using forest risk commodities unless local laws have been complied with. It will also require large businesses to establish and implement a due diligence system in relation to such commodities, including submitting annual due diligence reports. These provisions are not yet in force, we are waiting for more details to be set out in secondary legislation by the Government.
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