Recently, the EU Council and the EU Parliament reached agreement on the European Commission’s proposal for a Directive on “Empowerment Consumers for the Green Transition (ECGT). While we wait for the final agreed legal text, the direction is clear.
This proposal amends two existing directives, the Consumer Rights Directive (CRD) and the Unfair Commercial Practices Directive (UCPD). Many companies, which have no obligations themselves yet, start to reduce their greenhouse gas emissions and want to be able to fully offset the remaining emissions, and doing so, tackle their overall climate impact with carbon credits from reduction projects elsewhere. And by investing in projects, the voluntary CO2 market helps other countries to achieve their CO2 targets.
There has been a lot of discussion lately about whether you can call a company or product “climate neutral” and about the quality of the carbon credits used. Internationally, there is a push to use “contribution” as claim. But that seems not sufficient: the climate problem requires the that the climate impact NEEDS to be neutralized. And that must be made possible with reductions and high quality offsets for the remainder. So it’s good that something is being arranged for that.
We need to prevent “greenwashing”; that is not reducing the emissions and using bad offsets. But we also need to avoid “greenhushing”; that is that companies are afraid to go public with their climate action, due to fear of criticism in the media.
We need to prevent “greenwashing”; that is not reducing the emissions and using bad offsets. But we also need to avoid “greenhushing”; that is that companies are afraid to go public with their climate action, due to fear of criticism in the media.
With the implementation of the upcoming new European regulations, national authorities can set guidelines for accepted claims and compensation. Companies across industries – from cheese and coffee, to holiday travel and festivals – can then be confident that their efforts to reduce and offset carbon emissions through verified carbon projects are serious and that this claim can be placed on their product.
The aim of the directive is to involve consumers more in the implementation of the Green Deal (buying green products) and to force companies to improve the information on the labels of the products and services they sell. Consumers must be able to gain insight into the climate impact of the products they buy. This means understanding the product’s greenhouse gas footprint, the greenhouse gas reductions achieved over time, and how remaining greenhouse gas emissions were offset through verified offsets. All this information must be verified by EU-approved verifiers to prevent greenwashing and must be made public in clear terms.
Clarity about the agreement
The full agreed legal text will be finalized for plenary vote in the European Parliament and adoption by the EU Council and Parliament. It will come into effect after publication. Member States will then have 24 months to implement it. Some environmental organizations wrongly called in the media for a complete ban on climate-neutral claims and the use of CO2 offsets. Reason is the wrong press release of the European Parliament on a “ban of claims on the basis of offsetting”, while the Council release mentions a ban on claims “based on ‘unverified’ offsetting”. So, we will expect also requirements for endorsement of offsetting programmes and claims. The proposal states that compensation is possible, with verified credits. The Council spokesperson, Tarradellas Espuny, confirmed to me that carbon neutral claims and compensation,’ if independently verified. remain possible.
Dutch Practice: The Netherlands Authority for Consumers and Markets (ACM) concluded last year that consumers find claims about CO2 compensation unclear. According to ACM, claims are only acceptable if companies provide clear and concrete explanations of their claims and are ‘independently certified, clear how much CO2 is compensated, how this is calculated, how the CO2 is compensated, in which projects’. The Advertising Code Committee states in various statements that the climate-neutral claim itself is permitted, as long as the information about emissions and compensation projects is clearly stated on the product. And the judge in the case of Milieudefensie against Shell allows that in order to achieve a 45% CO2 reduction, part of the scope 3 emissions may be compensated. With the implementation of the upcoming new European regulations, the ACM can further tighten the guidelines on accepted claims and compensation.
Coherence with European regulations
Compensation is one of the recognized instruments needed to achieve global climate goals. Companies across sectors can be confident that their efforts to reduce and offset carbon emissions through verified carbon projects are consistent with taking full responsibility for their climate impact and mitigation and that this claim can be on their product. The fact that CO2 compensation has been accepted, in addition to the absolute reduction of greenhouse gas emissions to 0, is also in line with other European and international rules. Standards Organization ECOS therefore calls on them to speed up their adoption:
1. The Corporate Sustainability Reporting Directive (CSRD), valid from 2024, regulates how large and listed companies must report their climate impact and their “plan to adapt to the Union’s climate neutrality target by 2050” and report : “The level and magnitude of greenhouse gas emissions and removals attributed to the company, including the extent to which the company uses offsets and the source of those offsets. To achieve a climate-neutral economy, greenhouse gas accounting and compensation standards must be aligned. Users need reliable compensation information that addresses concerns about potential double counting and overestimations.”
2. The European Sustainability Reporting Standards (ESRS) specifies the sustainability information that a company must disclose in accordance with the CSRD. There is:
- “If as an organization you compensate and have to report according to CSRD, then it is mandatory that you are on track with your reduction. You can choose to compensate voluntarily, but it must be clear that you are not compensating for reasons of footprint reduction. And if you as an organization are going to compensate, it is strongly recommended to invest in technical CO2 removals.”
- If the company discloses a “net-zero” target, it must “explain how residual greenhouse gas emissions (approximately 5-10% of greenhouse gas emissions, unless there is justified sectoral variation) will be neutralized by, for example, removing greenhouse gases in its own activities and value chain.”
- Where the company has made public claims of “greenhouse gas neutrality resulting from the use of carbon credits, it must explain the credibility and integrity of the credits used, including by reference to recognized quality standards.”
3. Green Claims Directive (GCD), proposed by the European Commission in March 2023 to help prevent greenwashing. It requires that all green claims, such as climate neutral, must be fully substantiated and verified by EU-approved verifiers. This also means that the content must be transparent and public. Essentially, this means that any green claim must be fully explained and proven, ie. sharing the footprint, the reduction performance, the nature of the compensation project, and so on.
4. European Carbon Removal Certificates Framework (CRCF): develops how voluntary carbon removal certificates can be generated and used in the EU. Discussions in the EU Expert Group are still ongoing.
5. Also relevant is the work of the international Integrity Council for the Voluntary Carbon Market (IC-VCM) and the Voluntary Carbon Markets Integrity Initiative (VCMI), endorsed by governments, companies and NGOs, to improve the quality and transparency of global voluntary carbon market.
- The IC-VCM published criteria for assessing categories of carbon credits and methodologies: the so-called ‘Core Carbon Principles Label’ (CCP) for carbon credits that can be used.
- The VCMI launched their VCMI Claims Code of Practice for organizations in June 2023. For products this will be published in November.
6. The Sustainable Finance Disclosure Regulation (SFDR), applies to all financial market participants and financial advisors in the EU and sets out clear disclosure requirements. The aim is to improve the information to investors on the sustainability impacts of the investment policy and investment decisions of financial market participants, reduce greenwashing and direct capital towards the shift to a net-zero economy. Though the SFDR was not intended to create labels, it is being used as a labelling regime.
The SFDR classifies the sustainability of investments (Art 6 grey, Art 8 light green, Art 9 dark green). The class just defines the detail of reporting but is in practice used as a green label, but the investment itself has not been certified as green or net zero. The European Commission is therefore currently carrying out a comprehensive assessment of this framework, looking at issues such as legal certainty, usability and how the Regulation can play its part in tackling green-washing.