Regulators crack down on corporate carbon neutrality claims

Consumer watchdogs around the world are giving increasingly short shrift to offsetting-based company claims that their products are ‘carbon neutral’

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Greenpeace activist protest at a pension fund in Luxembourg (Photo: Sara Poza Alvarez/Flickr)


Companies are increasingly being warned against greenwashing the climate impact of their products and services – and governments are starting to follow.

The European Parliament last week supported new rules that would make it harder for companies to make misleading claims about the climate impacts of their products.

The draft law, which updates previous directives on consumer rights, aims to help the public make more sustainable choices and encourage companies to offer them more durable products.

It bans companies from using terms such as ‘climate neutral’ if they cannot be backed by detailed evidence. It also aims to ban environmental claims that are based solely on carbon offsetting schemes, which have come under growing criticism for misleading consumers and failing to represent actual cuts in carbon.

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Legal action is already being taken over climate marketing claims under existing EU consumer law.

A case against the TotalEnergies oil company in France was admitted by the court yesterday.

Another against KLM in the Netherlands recently resulted in the airline pulling advertising bearing the slogan ‘Fly Responsibly’ in the country.

But the proposed rules more clearly explain what companies can say about their products. They are also tougher than those in a draft Green Claims Directive tabled by the European Commission earlier this year, which was criticised for failing to meaningfully address misleading environmental statements.

Hiske Arts, a campaigner with Fossielvrij NL, which brought the case against KLM, said the new law would be a “great step forward to protect citizens from greenwashing by large polluters”.

The changes are clearly in step with national regulators, which in many EU countries are already cracking down on such claims.

False impression

Earlier this year, European dairy company Arla Foods was banned from using the term “net zero climate footprint” when marketing its products in Sweden.

The Swedish Patent and Market Court agreed with the country’s consumer watchdog that Arla had misled consumers by giving the impression that making and transporting its products did not create any carbon emissions or that the company had fully offset those impacts.

Lindsay Otis, a policy expert on global carbon markets for Carbon Market Watch, said this was a key case. “The court really highlighted the difficulties that consumers are often faced with when critically evaluating the plausibility of these claims,” she said, “and they pointed out the lack of permanence in forest-based offsetting projects.”

Shell has also been repeatedly called out over the past couple of years by the Netherlands’ advertising watchdog for a campaign that promotes its sustainability efforts.

The Advertising Code Committee ruled four times in 2022 that the company’s advertising of carbon offsets misleadingly implied it was fully offsetting the greenhouse gas emissions from driving.

And Ryanair had to adjust its carbon offset compensation scheme following an investigatory sweep of the aviation industry by the Netherlands’ Authority for Consumers & Markets.

Consumer decisions

Otis stressed that corporate advertising influences consumer decisions. “If consumers are given incorrect information they potentially think they’re making green decisions when in reality it’s not really the case”, she said.

Analysis of corporate climate plans by Carbon Market Watch and the New Climate Institute shows nearly all rely heavily on offsetting.

Their report, published in February, says offsetting remains the “dominant and relatively easy option for companies to wipe away large chunks of their overall climate impacts at low cost and with appealing short-term marketing value” which is a “major stumbling block” for the credibility of those plans.

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Carbon Market Watch’s report found that many companies still see huge marketing value in making these statements.

But it says that could change if governments and courts regulate more strictly or if consumers and investors send a signal that they are unwilling to pay a premium for claims that rely heavily on contentious offsetting practices.

The UK could be moving in that direction. Earlier this year, the Advertising Standards Authority (ASA), issued guidance warning marketers to be clear about whether and how much the products they advertise are actively reducing carbon emissions or are basing claims on offsetting.

The ASA has since banned adverts by German and Abu Dhabi-based airlines Lufthansa and Etihad for making unjustified claims about the sustainability of flying in the UK, and is now understood to be considering stricter enforcement of terms such as “carbon neutral”, “net zero” and “nature positive” in product marketing.

Meanwhile, New Zealand’s Advertising Standards Authority partially upheld a complaint against energy firm Firstgas over an ad campaign about “zero carbon gas”.

They agreed that it was misleading because it implied that consumers did need do “absolutely nothing” to avoid adding carbon to the atmosphere and suggested the company’s proposed change to zero carbon gas was imminent.

Over the water, the Australian Competition and Consumer Commission (ACCC) began investigating suspected corporate greenwashing last October. It found a large number of “concerning” claims, many of which referred to emissions reduction, offsets or carbon neutrality.

“It can be difficult for consumers to understand the differences between these terms,” the ACCC concluded. “Many businesses also did not explain how their emissions reductions and offsets were calculated, the steps being taken to reduce their carbon footprint, or the types of offsetting projects being funded.”

The ACCC has already been asked by campaigners to scrutinise claims that airline Etihad and car manufacturer Toyota have made misleading claims about their climate impacts and strategies, and says it will be investigating others too.

Helping marketers

In the US, the Federal Communications Commission (FCC) recently closed an extended public consultation on reviewing its Green Guides, which aim to help marketers avoid making environmental marketing claims that are unfair or deceptive.

The current guides already provide guidance on carbon offset and renewable energy claims, but the FCC invited views on whether it should provide extra information on claims such as ‘net zero’, ‘carbon neutral’ and ‘carbon negative’.

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South Korea is also getting tougher on misleading corporate climate claims. A draft law would give the Ministry of Environment power to fine companies up to three million won ($2,270) for misleading the public about their environmental impacts. If passed, it would be the first such law in Asia.

The country’s Fair Trade Commission has already been asked to investigate claims by activists from Solutions for Our Climate that SK Lubricants is using an unreliable carbon offsetting project to advertise its products.

Jihyeon Ha, head of legal at Solutions for Our Climate, said penalising corporate greenwashing is a necessary step towards achieving net zero.

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But she warned that the South Korean government is “giving mixed signals” about corporate climate responsibilities by downgrading an industrial emissions reduction target in its latest carbon neutrality roadmap.

“The government needs to take further steps if they want companies to actually begin shifting their business practices to decarbonisation”, she said.

Otis said it was too early to say if the global crack down on greenwashing was effective but government intervention was essential.

As such, she urged the European Commission and the European Council to approve the rules and institute a complete ban on offsetting claims. “If the other institutions do not shift their position during upcoming negotiations, it will undermine the EU’s ability to genuinely crackdown on this kind of greenwashing,” said Otis.

A recent report by a United Nations taskforce into corporate greenwash said that offsets should only be used as a last resort, if a company’s own emissions can not be reduced.

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