The US Should Follow the EU and Standardize Green Product Labels

In March, the European Commission, the EU’s executive arm, took a significant step towards greater business transparency and climate accountability through its proposed Green Claims Directive. It tackles greenwashing—the increasingly common business practice of overinflating or fabricating a product’s sustainability benefits.

If passed, it will require all companies making environmental claims to EU consumers to substantiate them with scientific evidence that is verified by independent third parties.

As we debate the merits of ESG in the US, our continental friends are pressing ahead with a plan to combat climate change and environmental degradation, while promoting regenerative economic growth. This directive, along with a host of new initiatives, will have overarching consequences for the global economy. The US needs to pay attention.

Consumer Tools

Consumers are increasingly concerned about sustainability when making purchasing decisions. There is increasing skepticism around what companies claim are the sustainability impacts of their products. In the EU, a 2020 study found 53% of environmental claims were vague or misleading, while 40% were completely unsubstantiated.

Similarly, in the US, there has been a rise in greenwashing lawsuits as companies invest in sustainability-focused branding without adequate substantiation.

The Green Claims Directive would arm consumers with more reliable purchasing information, level the playing field for companies touting sustainability bona fides by standardizing what types of claims can be made, and push greater accountability across global value chains. This will incentivize foreign companies to contribute to the green transition if they want to operate in the EU.

US Corporate Impact

In response to the guidance and to growing consumer demand for transparency around green claims, US companies trying to do business in the EU will need to measure and communicate the environmental impacts of their products in a way they have not done domestically.

US lawmakers should be sensitive to business and policy trends abroad and standardize sustainability labels in consumer products. This would reduce market inefficiencies while protecting businesses and consumers.

Food Industry Precedent

The US experienced a similar movement before: the rise of nutrition labeling on food products. In 1990, Congress passed the Nutrition Labeling and Education Act in response to an increasingly health-conscious population, following decades of misleading nutrition claims on food packages that made it harder for consumers to follow science-based nutritional recommendations.

Despite industry opposition around implementing the NLEA’s requirements, policy arguments that it would impede trade, doubts about an internationally harmonized framework for communicating such data, or fears that it would confuse customers—all perspectives we’ve seen around ESG—nutrition facts are now an expected component on food labels. The NLEA passed with bipartisan support, empowering consumers to make better purchasing choices and lead more healthy lives.

Studies since its passage have repeatedly shown that inclusion of nutrition facts on food labels can be an important tool for consumers. Specific requirements would explicitly inform consumers and help them easily compare products in a like-for-like manner so they can make healthier choices.

There is a neat parallel between rising demand in the 1980s for nutritional labels and increased calls today for transparency around sustainability. Back then, the consumer landscape was flooded with deceptive health claims, while today, it’s greenwashing.

Green Guides

When crafting their marketing, US companies may consult the Federal Trade Commission’s Green Guides, a non-binding set of best practices, last updated in 2012, on how to communicate sustainability claims. However, the document doesn’t have the force of law, is used unevenly, and doesn’t address the sheer diversity of claims now on the market. In advance of its updated issuance later this year, the agency requested public comment on whether there even is a continuing need for the Guides.

The answer, of course, is yes, with the added nuance that the Guides need stronger requirements for substantiating such claims and a more fulsome enforcement mechanism to prevent greenwashing. Beyond providing guidance, a stronger legal mandate is needed, along with a mechanism that governs use of sustainability claims.

EU’s Example for Congress

With the Green Claims Directive, the EU is trying to ensure customers have access to a transparent, verifiable claims around sustainability. Congress should take legislative measures to be on par, and pass more exacting requirements around what companies can claim around sustainability and how they back up such claims.

Without such a framework, disparate approaches to sustainability marketing will produce a never-ending cycle of greenwashing lawsuits. Consumers need protection from misleading information that impacts their purchasing decisions.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Ramya Ravishankar is general counsel at HowGood, an independent research company powering sustainability commitments of the world’s largest food brands.

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