Cracking down on Greenwashing: EU and FCA Unveil New Regulations

The FCA and EU are set to implement new anti-greenwashing regulations across the UK and European Union member states to halt misleading marketing and environmental assertions. These claims have become all too common across widely visible sectors, including FIFA’s “Carbon Neutral World Cup” that actually was the world’s most polluting World Cup ever and Verra’s carbon credits failing to benefit the climate at all  

In March this year, the EU voted on a new green directive to clamp down on greenwashing offenders (originally proposed in March 2023), introducing significant fines on annual turnover, or having revenues confiscated if they are found to be noncompliant. The focus of the directive implements more strict rules around product labelling and cracking down on misleading environmental claims. 

According to the directive reasoning, “In 2020 the European commission found that 53% of examined claims in the EU were vague, misleading or unfounded, and 40% were unsubstantiated.” Additionally, the study found that “½ of all green labels offer weak or non-existent verification. [And] there are 230 sustainability labels and 100 green energy labels in the EU, with vastly different levels of transparency” (view the legislative briefing here). Thus, it’s not hard to see why consumer trust has eroded so significantly due to the dishonesty of these corporations. Currently, over 50% of consumers across all industries believe brands are misleading them with false environmental claims. These new rules will push companies towards a standard of environmental reporting and labelling substantiated by their transparency. 

With more information to come later this year, the directive lays the foundation for commercial businesses to be more transparent and forthcoming in their marketing – which is aimed at empowering consumers and holding businesses accountable to their carbon reduction pathways and life cycle analyses.  

The directive emphasises improving company disclosure habits and ensuring reduction pathways are properly validated by expert 3rd parties. The rigour that we apply to reporting ensures that our clients mitigate many of the associated risks of greenwashing by being as transparent and accurate as possible, ensuring that their data is robust, and their decarbonisation goals are realistic. Our COO, Matt Paver goes into more detail about the importance of accurate, transparent carbon reporting in his blog here.

Similarly, in early February, the UK Financial Conduct Authority updated the Sustainability Disclosure and Labelling Regime, applying anti-greenwashing rules primarily to all firms regulated by the FCA as well as UK asset managers and retail investors in the UK.  

With a more specific target audience than the EU directive, the new regime from the FCA focuses on the financial sector. This regulation supports firms making clear, verifiable, and complete claims regarding their sustainability disclosures and future reduction plans and is going to start clamping down from May 2024.  

In addition to giving consumers more power to act on their environmental convictions, the EU Anti-greenwashing Directive and FCA Sustainability Disclosure and Labelling Regime will help companies mitigate sustainability-related risks. Not withstanding fines, the risks include; competitive disadvantage, increased investor scrutiny and shrinking markets. This is either due directly to the increasing EU or FCA regulation, or indirectly due to loss of consumer trust. Companies must also prove that any additional environmental label they place on their products falls outside the legal requirements.  

A study conducted by the Harvard Business Review determined that sustainability is a clear driver behind buying habits for Gen Z and Millennial consumers, who are on track to have the greatest purchasing power by the end of the decade. Thus, the new legislation will instil confidence in consumers that they will be able to make environmentally conscious decisions; and that investors will be held accountable for environmental disclosures.   

Carbon Responsible remains ahead of both mandates with audit-quality emissions reporting and decarbonisation analysis. Businesses who will be affected by both the FCA and EU directives should think now about improving their emissions disclosure before regulations again tighten or they fall afoul of regulators. While we may have been in an era prior to 2024 where most companies got credit for trying, these new regulations certainly introduce an era of renewed scrutiny.   

Please contact us if you require guidance surrounding the evolving regulatory landscape.