Opinion: the impact of the forthcoming Green Claims Directive on voluntary carbon markets
The word “green” seems to have lost all meaning. For a number of years now, this has been a common reproach laid at the doorstep of the global eco-industry by those who care about an actually green economic transition, and who rightfully feel that drowning consumers in an (ironically) rapidly rising sea of green labels, statements, promises and unverifiable boasts has done more harm than good, both in terms of destroying consumer confidence in the green transition (with the average European consumer reporting a 1.57/4.00 trustworthiness of green claims regarding products (European Commission, 2023)), and in jeopardising good-faith efforts to clean up corporations’ act, which have seemingly been destined to get lost amongst the easy-to-disbelieve noise of it all.
I recently got a new card from my bank, the back of which proudly carries two signs – one claiming that the lump of plastic is made of 100% recycled PVC, and the other claiming that I am holding in my hand a certified carbon neutral product.
Pardon my disbelief.
My last card had a shelf life of three years, meaning that when the arbitrary expiration date came, I had to request a new lump of material, have it made for me, and receive two letters from the bank (one telling me my card was available, and the other, handed to me at my local branch, actually containing my card). I was kindly given access to a digital in-app card to use while my new token to climate cleanliness was being hewn out of the hellish polymer that is the reason for all of the modern world’s ills, but was made to wait for (you will not believe it) a paper letter telling me the security code needed to activate it.
More egregiously still, beyond my logical reasoning, I have little ways to actually verify whether or not I am being lied to. Obviously, I can Google the logo on the card (which I have done) to find out which criteria my new card meets to be able to actually call itself carbon neutral. But I can only do this actually having received the card, seen the logo and had my moment of righteous indignation - rendering the entire pursuit pointless. And even more pointlessly, does anyone actually expect Mr., Mrs. and Mx. shopper to independently verify whether the logo with a frog on their packet of tea bags actually means what it says it means? If you answered yes to the last question, I can only respect and admire your idealism and trust.
In reality, shoppers, drunk on the milk of human kindness, look at the packet, see the small picture of the happy farmer, and, entranced by the faceless corporation’s Cheshire cat smile, feel slightly better about themselves and spread their wallets for the eco-mark-up - which, according to management consulting firm Kearney, can be an average 85% (Gerhardt et al, 2020).
“Not on my watch!” cries out Mother Europe, descending from the bureaucratic heavens to slap corporations about the face with a new directive, which has been referred to as the green GDPR.
Under the soon-to-be Green Claims Directive, a proposal for which was agreed to by the European Parliament this June, “explicit green claims” will need to be verified and approved by member states’ domestic institutions before they can be used, much like trademarks (Council of the European Union, 2024). Understanding, like most of us do, that consumers will more often than not take green claims at face value, and that being seen to be green gives producers a competitive edge that can be used to justify higher prices (Voigt et al, 2023), the EU has decided that they will do the verifying for us.
This is a definite step forward, and one that we should be celebrating. However, beyond the banal realities of getting a certification scheme verified by the European bureaucracy, one aspect of the forthcoming directive is more interesting, and, to introduce an edge of urgency and drama, more relevant to the fate of our planet and life as we know it.
CARBON CREDITS
Having taken the resolve to Google what “Certified Carbon Neutral Product” means, it was revealed to me that, in pursuing the certification, the product manufacturer is obliged (by the independent certification scheme’s guidelines) to make every effort to reduce their own emissions, and then offset the rest by purchasing carbon credits.
What does this mean?
Well, for one, it means that the hunk of obligations which I hold in my hand isn’t actually carbon neutral, because the manufacturing process is not emissions-free, nor does it have to be. The bank (or more precisely the manufacturer that the bank bought the cards from) just has to make a good-faith effort to reduce their emissions, and afterwards, can just invest in the amount of emissions that another business successfully avoided by buying the carbon credits which the aforementioned greener business generated, and claim their reductions for their own. For the seller, the business that invested in environmentally progressive infrastructure and made meaningful changes to “green up” their business, this is great news. For consumers, maybe less so.
Think about it slowly.
The bank card I just received is carbon neutral because another, completely unrelated manufacturer or farmer successfully reduced their emissions.
Beyond the finer details of calculating and verifying baseline emission models, project emission models and additionality principles that are used to mint the credits, which might all turn out to be flat-out wrong (think Verra, think 400% and then think “CEO resigned” (Greenfield, 2023)), logically, this is pure dishonesty.
Thankfully, it will soon be banned.
Under the new green claims directive, explicit claims that a product has a “neutral, reduced or positive impact on the environment in terms of greenhouse gas emissions” which are based on carbon offsetting will not be certified, and will not be allowed to be used in the European markets (Council of the European Union, 2024).
Or so it may seem.
First of all, the green claims directive exclusively concerns eco-labels, slogans and the products and services which bear them. In a Herculean feat of illogical logic, producers and businesses are free to base claims that cover themselves and not their products on carbon offset purchases, since “climate-related claims, based on offsetting of greenhouse gas emissions, claiming that a trader has a neutral, reduced or positive impact on the environment in terms of greenhouse gas emissions are allowed, provided that the requirements of this directive are met” (Council of the European Union, 2024). In human terms, this means that Shell, Chevron and BP are free to call themselves as legal entities as carbon neutral as they want, as long as they successfully offset their emissions within the context of in-house net-zero goals. However, this stipulation likewise leaves the door open for service providers such as banks or law firms (market participants who have a naturally lower ceiling on how much they can neutralise their own carbon footprint beyond installing solar panels on their offices’ roof) to claim they’re carbon negative as long as they meaningfully invest in financing the green transition.
Secondly, whilst offset-based claims will be banned, contribution claims will not. In real terms, the two are hard to distinguish. Under the planned directive, offset claims are defined as “an explicit environmental claim related to climate, where the trader claims to have balanced out a share of its emissions by purchasing climate credits”, whereas contribution claims are defined as “an explicit environmental claim related to climate, where the trader claims to have contributed to climate action by purchasing carbon credits, but without using those carbon credits for balancing out a share of its emissions.” (Council of the European Union, 2024)
So, claiming that your product is carbon neutral because you neutralised your emissions by investing in green practices will (rightfully) be banned, but making essentially the same claim because you invested in a green farm will not be? Well, what’s the difference?
All carbon credits are generated and purchased by investing in green practices, and, according to the letter of the law, any and all credit purchases can be used to make explicit environmental claims. The one real restriction being placed on credit-backed claims is that products cannot explicitly claim to be carbon neutral or emissions-free, instead, they may “only” claim to be green, environmentally friendly, “nature’s friend” and every other eco-buzzword under the sun.
GHG accounting practices that incorporate carbon offset purchases remain equally unaffected, because the directive concerns products and services, but not traders. Per the proposed directive, green claim verification requirements “shall not apply to sustainability information involving messages or representations that may be either voluntary or mandatory pursuant to the Union or National rules for financial services”, and “should not apply to environmental information reported by undertakings that apply European sustainability reporting standards on a mandatory or voluntary basis in accordance with Directive 2013/34/EU” (Council of the European Union, 2024). While the freshly baked Corporate Sustainability Reporting directive (and specifically ESRS standard E1) does focus specifically on the role of carbon offsets and credits in sustainability accounting by empowering the principle that offsets and credits must be considered within the broader context of an undertaking’s net-zero goals and cannot be on their own the basis for a green strategy, it does not yet make up a part of the broader pan-European explicit green claims legislative block. It also fails to set more-or-less concrete requirements for how much of its own emissions an undertaking must neutralise before it can start investing in offsets.
Finally, green loans and other sustainable financial instruments (which is what carbon offset purchases and accounting are actually used for) remain unaffected by the new directive, because they are also otherwise regulated by other European standards and rules.
So, will the new green claims directive bring down the green facsimile, held up by dishonest GHG accounting practices and carbon credits which, despite being held to admittedly increasingly technically stringent third-party methodologies and standards, are some of the main issues killing the thinking public’s confidence in a truly green economic transition?
No. However, thankfully, it does improve on the continent’s status quo in terms of green claim restrictions. Both within and without the European Union, green claims are becoming a legislative hot-ticket issue, with the verifiability of ecological claims making up part of French, British and other nations’ consumer laws, and the UK’s Competition and Markets Authority already producing legally binding eco-guidance for aberrant brands, namely ASOS, Boohoo and George by Asda (Cochrane, 2024). The French Code of the Environment likewise bans explicit green claims which cannot be substantiated and verified - with the requirements of all proof being readily available to consumers and offsets being considered within the context of an undertaking’s net zero goals and trajectories (Code de l'environnement, 2023, Article L229-68) . The soon-to-be EU green claims directive goes further in harmonising as yet divergent practices on a continental scale (with avoiding market fragmentation, as always, being a stated goal of the legislative development (European Commission, 2023)), and establishing ex-ante review and verification of green claims (i.e. verifying claims before they can be made public), as opposed to the current CMA and DGCCRF practice of sitting around and waiting for the violations to uncover themselves before bureaucrats can spring into action.
Furthermore, whereas in France and Britain, offsets can be used as the legally required proof when substantiating green claims, the green claims directive goes further in outright banning (certain) offset claims and shifting to a participatory model. Therefore, whilst the forthcoming directive, naturally, doesn’t solve all the problems of our modern world, it is a meaningful step forward.
Voluntary Carbon Markets have the potential to be a significant force for good, with credit sellers (that is, small to medium enterprises that make measurable, proactive measures to deliver cleaner solutions) being guaranteed meaningful funding opportunities for innovative industrial practices that could reach 238 USD per ton by 2025 (Bloomberg NEF, 2024) and consumers, in theory, being empowered to make greener choices and knowingly participate in a carbon neutral economy. However, in a reality where 53% of green claims give “vague, misleading or unfounded information” (European Commission, 2024) and where many of these claims are founded on offset purchases that could well be overvalued and underverified (Greenfield, 2023), voluntary carbon markets have unfortunately also enabled bad-faith buy-side actors to steer such claims and financial mechanisms away from their original purpose and instead utilise them to keep up an increasingly green facade that, in the face of the no-longer-burgeoning climate crisis, is simply irresponsible.
Reforms such as these, which stress the need to empower consumers to make truly green choices, and which, more importantly, make it imperative that carbon credit purchases are to be considered as only the topstone of a broader good-faith effort to reduce one’s emissions, are more than necessary to ensure that voluntary carbon markets are being used as intended, have the greatest net-positive impact they can, and no longer hinder trust in green industry.
Council of the European Union (2024) Proposal for a Directive of the European Parliament and of the Council on substantiation and communication of explicit environmental claims. Available at: https://data.consilium.europa.eu/doc/document/ST-10940-2024-INIT/en/pdf (Accessed: 8 November 2024).
European Commission (2023) Exploratory Memorandum of a Proposal for a Directive of the European Parliament and of the Council on substantiation and communication of explicit environmental claims (Green Claims Directive). Available at: https://environment.ec.europa.eu/publications/proposal-directive-green-claims_en (Accessed: 8 November 2024).
Comments