Let Green be your Guide: How to comply with new Product Claim Regulations

If your company makes environmental claims for products, be aware of upcoming changes in Green Guides from the US Federal Trade Commission and the EU Commission Directive on Substantiation of Explicit Environmental Claims.

Both regulatory schemes are focused on consumer understanding of common words used in advertising sustainability claims. The regulators plan to reduce confusion about terms that could convey multiple meanings, such as “sustainable,” “compostable,” and “recycled content.” Any brands that use those terms must be able to credibly support their claims.

The regulations will help marketers avoid making deceptive environmental claims, which could leave companies open to charges of “greenwashing” or even litigation.

Greenwashing perils

Greenwashing, or making unfounded sustainability claims, is a growing problem. An EU Commission study found that 53.3% of the claims examined were vague, misleading or unsupported, and 40% were completely unsubstantiated.

The commission found more than 230 types of “green” labels, and the sheer number contributed to undermining consumer trust, as labels differ widely in robustness and reliability, leading to widespread skepticism.

There is much confusion within the manufacturing industry and among consumers, and many claims can be misleading if not outright fabricated. Procurement pros must review the claims with suppliers to ensure compliance with the guidelines and avoid allegations of greenwashing.

For example, a beverage maker may claim a bottle is made with 25% less plastic than before, but the claim must be clarified for consumers. The brand may try to label the bottle as “eco-friendly” because it has less plastic, but it cannot be recycled. The FTC Guidelines might view that as a misleading claim.

The stakes can be high. The FTC separately fined US retailers Kohl’s and Walmart for misleading green claims. Kohl’s was hit with a $2.5 million civil penalty, while Walmart had to pay $3.5 million for improper labeling of textile products. Both retailers claimed textiles such as sheets, pillows, and blankets were made from eco-friendly bamboo when the products were made with rayon. There was some controversy that the rayon fibers could have been sourced from bamboo, but the FTC determined the companies blurred the distinction in the fiber source and used inaccurate marketing terms to fool consumers.

It’s difficult for manufacturers and regulators to stay ahead of evolving technology, guidelines, and consumer expectations that raise the bar for verifiably green products. New waste reduction, carbon capture, recycling, and resource conservation processes are coming into the market quickly, so companies are understandably looking for guidance to communicate that information to consumers responsibly.

Despite the emphasis on supply chain diversity and resilience, only 43% of procurement teams report sustainability KPIs to senior management, and only 23% report on supplier diversity, according to the From Insights to Impact: Driving High-Performance Procurement report from Procurious and SpendHQ.

Impending regulations

Here’s a look at what’s coming for US and EU regulatory schemes.

FTC Green Guides Updates

The FTC is in the process of updating the Green Guides for the Use of Environmental Claims, which were last updated in 2012. Earlier this year, the FTC sought public comment on the Guides, including whether to make them independently enforceable rather than simply an interpretation of the FTC Act.

The FTC asked for input on specific environmental claims, including:

Carbon offsets and climate change. The FTC asked whether the Guides should include more information about carbon offset and climate change-related claims and issues.

Recyclable terminology. Should the current threshold for making unqualified recyclable claims be changed, and should the Guides allow claims for products collected by curbside recycling programs but are ultimately not recycled?

Recycled content. Do consumers understand unqualified claims about recycled content, such as “pre-consumer” and “post-industrial” content, and whether alternate means of substantiating recycled content claims are necessary?

Guidance on commonly used terms. The Guides may include additional guidance regarding definitions of terms such as “compostable,” “degradable,” “ozone-safe,” ozone-friendly,” “organic,” and “sustainable,” and labels regarding energy consumption and energy efficiency.

Keep an eye out for updated Guides, and the FTC’s requests for public commentary lend some clues to what may be in store. Brands must consider the consumer’s perspective in using common terms in making sustainability claims in advertising. If your organization makes a claim, it’s critical to have data to back up those claims.

EU DIRECTIVE PROPOSAL

In March 2023, the EU Commission proposed the Directive on Substantiation of Explicit Environmental Claims to harmonize green claims throughout the EU by setting minimum standards. Under the directive, brands would follow guidelines on substantiating and communicating green claims, certifying environmental labeling programs, and verifying green claims.

Companies making claims such as “packaging made of 25% recycled plastic or transportation is carbon offset must be able to substantiate those claims before the products are allowed to be advertised with those claims.

If the EU Parliament and EU Council approve the directive, each member state must adopt it into law before it takes effect. Key elements of the directive include:

Substantiation of claims. Brands must conduct an assessment with 10 elements to support express environmental claims.

Verification. Each EU state must establish a third-party verifier to substantiate claims before they are communicated to consumers. The verifier can issue a certificate allowing brands to advertise across the EU without the need to verify claims in each member state.

Enforcement: Each state will designate at least one agency to enforce the directive. Each state can develop its own penalties, which must include fines, loss of related revenue, and a temporary exclusion from participating in public procurement processes.

The process to implement the directive may take up to four years. Still, in the meantime, companies should review the substantiation requirements and prepare to meet them before the enforcement take effect. This requirement is a crucial difference—scrutiny of claims often came after consumers or regulators complained about products already in the marketplace.

Even vague, aspirational claims are subject to scrutiny. Claims that companies are working to meet future goals such as recycling, using recycled materials, or green energy.

It’s critical for companies to understand their responsibilities in making green claims and the role procurement can play in verifying those claims from suppliers.

For more insights on procurement challenges, read the From Insights to Impact: Driving High-Performance Procurement report from Procurious and SpendHQ.

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