The European Green Deal is a pact that looks to improve the well-being and health of citizens and future generations by providing a range of basic necessities, such as fresh air, clean water, healthy soil, healthy and affordable food, cleaner energy, future-proof jobs, and much more.
It bases much of this on the European Union (EU) becoming greener. Recently, the European Commission released a series of new rules focused on corporate responsibility that aims to strengthen the path toward its carbon-neutral goal.
How will these changes affect life in the EU? We review the upcoming EU rules on green claims and greenwashing and what they mean.
What Is the European Green Deal policy?
The European Union (EU) and European Parliament recognize that climate change and environmental degradation threaten all life in Europe and worldwide. To help get past these challenges and improve the chances of a clean, safe world for future generations, all 27 EU Member States agreed to the European Green Deal.
This environmental agreement will help convert the EU into a modern, resource-efficient, and competitive economy by ensuring:
- A reduction in net greenhouse gas emissions by 55% of 1990 levels by 2030
- Zero greenhouse gas emissions (GHG emissions) by 2050
- Economic growth becomes decoupled from resource use
- No person or place is left behind economically or ecologically
- EU’s energy independence
- Job creation and growth
- An improvement in the overall health and well-being of EU citizens
Financing for the European Green Deal will come from dipping into one-third of the 1.8 trillion euro ($2.022 trillion) investments from the NextGenerationEU Recovery Plan and the EU’s seven-year budget.
What Is the New EU Environmental Legislation?
Newly proposed legislation for the European Green Deal focuses heavily on green claims. Green claims are any claim an organization makes that it’s taking action to combat GHG emissions and to help slow climate change.
Currently, EU laws don’t regulate environmental claims, which leads to inconsistencies with regard to the handling of these claims among Member States.
The changes would also better define green claims. They would be defined as: “any message or representation, which is not mandatory under Union law or national law, including text, pictorial, graphic or symbolic representation, in any form, including labels, brand names, company names or product names, in the context of a commercial communication, which states or implies that a product or trader has a positive or no impact on the environment or is less damaging to the environment than other products or traders, respectively, or has improved their impact over time.”
This is all in an attempt to prevent greenwashing — when an organization focuses more on marketing itself as environmentally friendly than minimizing its environmental impact.
Let’s review the main proposed changes.
Rules for Methodology
To help ensure all green claims are valid and harmonious across the EU, EU Member States must validate environmental claims through science-based methodologies.
Accepted methodologies are expected to have to follow these basic guidelines:
- They must be based on widely recognized scientific evidence and state-of-the-art technical knowledge and account for relevant international standards. Claims are not allowed if no recognized scientific method exists or there’s insufficient evidence to assess environmental impacts and aspects.
- They must assess environmental impact throughout the product’s life cycle.
- They must account for the composition of products, the materials they use when producing products, the amount of emissions created during production, the use of the product, and the product’s durability, reparability, and end-of-life aspects.
- They must assess if achieving positive environmental impacts, aspects, or performance significantly increases any other negative environmental impact.
- They must be third-party accessible with a reasonable access fee, if applicable.
- They require regular review from a third party that can account for technical and scientific progress and the development of relevant international standards.
Rules on Green Claims
source
So, what will be considered valid green claims under these proposed rules? While nothing is official yet, the green claims directives will be as follows:
- They can only make environmental claims substantiated through an approved methodology that meets specific criteria, which we’ll cover later.
- They cannot make positive environmental claims if a product has a positive and negative environmental impact. They may publicize the positive claim, but they must also communicate the negative impact clearly and understandably.
- They must make the information on the assessment on which the environmental claim is based available
With regard to the final bullet point, the information on the assessment that should be made available includes:
- Information about the product or activities of the trader subject to the claim; Environmental aspects, environmental impacts, or environmental performance the claim covers
- Methodology used
- Underlying studies or calculations they used to analyze, measure, and monitor the claim’s environmental impact
- A brief explanation of how they improved environmental performance via a weblink, QR code, or equivalent
There also needs to be a review of the accuracy of their environmental claims every five years at minimum.
Rules on Comparative Environmental Claims
Organizations can make comparative environmental claims as a part of marketing efforts, but experts anticipate the new rules to crack down on such claims. Some of the proposals include:
- Organizations must utilize the identical methodology as the products or traders they compare themselves to.
- Organizations must generate or source the data to substantiate comparative claims equivalently to ensure comparability.
- Organizations must account for the most significant stages along the value chain for all products and traders compared.
Rules on Forward-Looking Claims
Organizations may also claim anticipated environmental benefits under the newly proposed green claims directive. However, authorities would require these future-looking claims to follow specific guidelines, including:
- They must include commitments and milestones that they need to achieve within clearly specified time frames.
- They must indicate a baseline year for all targets, the desired result compared to the baseline year, and the target year to achieve the claim. For example, they might say something like, “We commit to making a 50% reduction in emissions by 2035 compared to our 1990 levels.”
- They cannot include previously achieved targets.
Rules on Enforcement
The proposed rules will also include how they will expose non-compliant organizations. In the proposed rules, public authorities would require Member States to perform compliance monitoring:
- As part of their regular checks
- In cases where they have sufficient reason to believe an environmental claim may infringe upon the rules
- If complaints arise
If an organization makes non-compliant environmental claims, the proposed rule changes would require it to fix the issues quickly. Once the organization receives a non-compliance notification, it would have 10 business days to respond with substantiation.
If the organization doesn’t provide a timely or satisfactory answer, regulatory officials will require it to modify the offending claim or cease all communication of it immediately as consumer protection. The trader will have 30 business days to implement corrective actions.
This enforcement aims to ensure all environmental labels and claims are credible and trustworthy, allowing consumers to make more educated purchasing decisions.
What Are the Current EU Environmental Policies?
The current European Green Deal may not be as extensive as the proposed regulation changes. However, it still looks to take on climate change and help prevent the potential global existential crisis it causes.
To help with this, the European Commission has adopted many climate-focused initiatives and policies, such as:
- Reducing car emissions by 55% by 2030
- Reducing van emissions by 50% by 2030
- Reducing all new-car emissions to 0% by 2035
- Performing energy-efficiency-improving renovations on 35 million buildings by 2030
- Reaching 40% renewable energy by 2030
- Reaching 36% to 39% energy efficiency by 2030
- Restoring Europe’s forests, soils, wetlands, and peatlands to increase carbon absorption to 310 megatonnes (Mt)
What Is the New EU Sustainability Directive?
The EU requires large companies and all listed companies — listed micro-enterprises are excluded — to disclose what they view as risks and opportunities associated with social and environmental issues. They must also disclose their activities’ impact on people and the environment.
This disclosure helps investors, civil society organizations, consumers, and other stakeholders evaluate companies’ sustainability performance as part of the European Green Deal.
In January 2023, the new Corporate Sustainability Reporting Directive (CSRD) was enacted. This new directive modernizes and strengthens the social and environmental information companies must report. A broader set of large companies and listed SMEs — approximately 50,000 companies — must now report on sustainability.
To be affected by this new reporting directive, a company must meet at least two of the three following criteria: employ 250-plus people, have assets totaling at least 20 million euros, and have turnover totaling at least 40 million euros.
Companies will begin applying the new reporting rules in the 2024 financial year for reports published in 2025. Until then, the current Non-Financial Reporting Directive (NFRD) national law will remain in force, requiring affected organizations to report on environmental protection (Scope 3 emissions included), social responsibility, the treatment of employees, human rights, anti-bribery and anti-corruption, and company board diversity.
Once the Corporate Sustainability Reporting Directive (CSRD) begins in 2024, corporations will have to report on all information in the current NFRD plus:
- Double materiality, including the company’s sustainability and climate risk, and the impact the company has on society and the environment
- Material-topic-selection process for stakeholders
- More forward-looking information, including organizational climate targets and its progress toward the targets
- Information regarding intangible items, including social, human, and intellectual matters
- Reports aligning with the Sustainable Finance Disclosure Regulation (SFDR) and European Union’s Taxonomy Regulation
Upcoming EU Rules on Green Claims Seek to Elevate Corporate Responsibility
To accelerate the battle against climate change and global warming, the EU continues updating policies and proposals to the existing European Green Deal. The latest proposals focus on empowering European organizations to improve their climate-neutral reporting and to make this a common practice among more European companies.
These upcoming EU rules on green claims and greenwashing may help Europe get on track and remain on a path to help reverse climate change. You can also do your part to help this process by offsetting your carbon footprint by purchasing voluntary carbon credit from Terrapass. We offer a wide range of options for businesses and individuals.
Choose the right option for you, and start offsetting your carbon footprint today.
Brought to you by terrapass.com
Featured image:
The post Upcoming EU Rules on Green Claims and What They Mean appeared first on Terrapass.
Key takeaways
- SBTi is the default reference point for corporate climate action: 51% of Fortune Global 500 companies now hold net-zero targets, up from 8% in 2020, and over 11,000 organizations worldwide have SBTi-validated targets.
- Net Zero Standard V2 redefines climate leadership as reducing emissions and mitigating ongoing emissions, not reduction alone.
- The new standard adds flexibility through five-year cycles, a “best efforts” standard, and an Asset Transition Method for companies whose path to net-zero doesn’t fit a straight-line trajectory.
- Voluntary carbon credits are formally recognized for the first time, with reduction and removal credits accepted from 2027, and removals required from 2035.
- Companies with 2030 targets keep using V1 for their current cycle and move to V2 in 2028; companies without targets can start using V2 on February 1, 2027.
Why every business needs to understand the SBTi Net-Zero Standard revision
The Science Based Targets initiative (SBTi) has become the default reference point for credible corporate climate action. Net-zero targets are now held by 51% of Fortune Global 500 (FG500) companies, up dramatically from just 8% in 2020, and more than 11,000 organizations worldwide have set SBTi-validated targets.
However, SBTi’s influence extends well beyond the companies formally participating in the program. Every business in the value chain of an SBTi participant will have to reduce its own carbon emissions, and businesses that aren’t SBTi participants themselves still look to the program for guidance on climate action.
In short, SBTi gives every business a credible blueprint for climate action, and companies that follow its principles can pursue climate action with confidence, whether or not they’re formally part of the program.
How will the Net Zero Standard revision affect business climate action?
SBTi participation is expected to grow. Despite strong target-setting participation among the F500, only 17% of companies use the SBTi Net Zero Standard V1 beyond target setting, largely because its rules have been seen as too rigid to apply in practice. Much of the Net Zero Standard revision has focused on creating more flexibility to enable higher participation. Medium and small businesses will also increasingly feel pressure for climate action, since SBTi mandates that its participants reduce carbon emissions across their value chains.
Net Zero Standard V2 also redefines climate leadership: leading climate action now means reducing emissions and mitigating ongoing emissions. Reducing your own emissions while ignoring the emissions you continue to release along the way is no longer considered leadership. Supporting voluntary carbon projects with high-integrity carbon credits is now backed by the leading authority on corporate climate action.
What lessons shaped the Net Zero Standard V2 revision?
The revision reflects a few learnings about what actually drives climate progress, and how SBTi built those lessons into the new standard.
| Net Zero Standard V1 Learnings | Net Zero Standard V2 Implementation |
|---|---|
| Making real short-term progress is more important and more difficult than making big long-term promises | Focus on short-term climate progress |
| Every company has a different path to net zero that doesn’t always fit generalized net-zero rules | Create asset transition plans based on each company’s unique asset lifecycles and capital planning |
| We need to mitigate our ongoing emissions to keep global carbon emissions in check | Reduce global carbon emissions by financing voluntary carbon projects with high-integrity carbon credits |
What are the key changes between the old and new Net Zero Standard?
Both versions of the standard are grounded in net-zero by 2050. However, the old standard treated climate leadership as simply reducing emissions, expected a long-term commitment to net zero, based emission reduction targets on generalized net-zero goals, revoked status from companies that fell behind on targets, and ignored voluntary carbon projects entirely.
The new standard treats climate leadership as reducing emissions and mitigating ongoing emissions. It shifts the focus to short-term progress through five-year cycles, and it bases emission reduction targets on both the net-zero goal and a company’s own asset decarbonization plan. A new Asset Transition Method lets companies set decarbonization targets through asset plans with committed, verifiable steps; an ambitious but achievable path based on a company’s starting point, financial resources, and technology, with multiple pathways to reflect the unique opportunities and constraints of different industries and companies.
Crucially, the new standard moves to a “best efforts” basis that creates real flexibility on progress against targets. Businesses that miss their targets can keep their status if they’ve used “every lever” within their control, and minimum progress rules will be set out in the SBTi Assurance Manual.
Finally, the new standard formally uses voluntary carbon projects to mitigate ongoing emissions. From 2027 through 2034, this mitigation is recognized, and both carbon reduction and removal credits are accepted. From 2035 forward, mitigation with carbon removal credits becomes required, with durability matching between the removal and the emission it offsets.
| Old Net Zero Standard | New Net Zero Standard |
|---|---|
| Grounded in net-zero by 2050 | Grounded in net-zero by 2050 |
| Climate leadership is reducing emissions | Climate leadership is reducing emissions and mitigating ongoing emissions |
| Make a long-term commitment to net-zero | Focus on short-term progress in 5-year cycles |
| Emission reduction targets are based on net-zero goal |
|
| Businesses who fall behind targets lose status |
|
| Ignores voluntary carbon projects |
|
When does the new Net Zero Standard take effect?
Companies with existing 2030 targets should continue using the old Net Zero Standard for their current cycle, and start using the new Net Zero Standard in 2028 to set targets for the next cycle (2030–2035).
Companies that don’t yet have targets can use the new Net Zero Standard starting February 1, 2027.
What are SBTi’s Category A and Category B companies?
The new Net Zero Standard splits companies into two categories, with different requirements attached to each.
Category A covers large companies from all countries and medium-sized companies from high-income countries. A company from any country qualifies if it meets at least one of: net turnover of €450 million or more, or 1,000 or more full-time employees. A company from a high-income country qualifies if its Scope 1 and 2 emissions are 10,000 tCO2e or more, or if it meets at least two of: balance sheet of €25 million or more, net turnover of €50 million or more, or 250 or more full-time employees.
Category B covers small companies from all countries and medium-sized companies from lower-income countries.
How do Scope 1 targets work under Net Zero Standard V2?
Scope 1 targets aim to transition companies to net-zero direct emissions by 2050 or sooner, and companies can choose from three approaches.
- Absolute emissions reduction follows a straight-line emissions trajectory from the target base year to the net-zero year.
- Emissions intensity reduction lets companies follow sector-specific pathways designed to reflect the reduction opportunities available in sectors like steel, cement, or chemicals.
- Asset transition is designed for companies whose capital stock turnover doesn’t follow a linear or sector pathway. These companies design a transition plan to operate existing assets efficiently and replace them with low-carbon assets, using predetermined milestones.
How do Scope 2 targets work under Net Zero Standard V2?
Scope 2 targets address emissions from purchased electricity through three pathways:
- Reducing electricity consumption,
- Reducing grid consumption by installing onsite or direct-line offsite clean energy generation, and
- Cleaning up the regional grid using market-based tools like PPAs, RECs, and GOs that drive clean energy development.
V2 introduces a dual Scope 2 framework requiring two separate targets, with an overall goal of 100% low-carbon electricity by 2040.
The location-based target addresses the carbon intensity of a company’s physical power use, and requires companies to show that their grid consumption is falling and/or that their physical grid use is getting cleaner; in other words, that their market-based solutions are actually making the grid cleaner.
The market-based (or zero-carbon electricity) target tracks a company’s use of low-carbon power generation contracts and Energy Attribute Certificates. It requires geographical matching of these certificates with electricity consumption based on deliverability regions (grid regions); annual matching is allowed, though hourly matching is encouraged. Category A companies with large electricity loads must report the percentage of their Scope 2 electricity consumption matched with low-carbon attributes on an hourly basis, and there’s an optional recognition framework for companies that meet hourly matching thresholds.
How do Scope 3 targets work under Net Zero Standard V2?
Scope 3 targets share the same 2050-or-sooner net-zero goal, but companies set near-term targets only for material emissions sources in their value chain and areas where they have real influence. Long-term Scope 3 targets are generally not required.
Limited, justified exclusions are allowed for near-term targets, including categories that individually account for less than 5% of total Scope 3 emissions, and activities where a company lacks practical influence, like leased assets it doesn’t operationally control, or the processing of sold products. Optional exclusions are also available in specific categories.
Companies can choose from three approaches to near-term Scope 3 targets:
- An overarching emissions reduction target, which follows a linear contraction of emissions from the base year to residual emissions of 10% or less by 2050 or sooner;
- An overarching supplier/customer alignment target, benchmarked against a growing share of tier 1 suppliers and customers reaching net-zero by 2050 or sooner; or
- A category- or activity-specific target, tailored for companies with concentrated emissions in particular Scope 3 categories or high-emitting activities.
What is “ongoing emissions mitigation” under the new SBTi standard?
This is one of the most significant additions in Net Zero Standard V2. Accelerated climate contributions are needed to help the world achieve climate objectives, limit temperature overshoot, mitigate transition risks, and support the scale-up of climate solutions, and V2 formally recognizes that. Ongoing emissions mitigation runs as a parallel track to companies also reducing their own emissions.
The framework is initially voluntary, with recognition available at three contribution levels to encourage early action.
- Engaged companies address more than 1% of total Scope 1, 2, and 3 emissions.
- Advanced companies address more than 10% of total Scope 1, 2, and 3 emissions, including 100% of Scope 1 and 2 emissions.
- Leadership companies address 100% of total Scope 1, 2, and 3 emissions with a contribution budget of $80/tCO2e.
Carbon credits used for this purpose have to meet certain quality standards. They must be ex-post (issued after the mitigation has actually occurred), independently third-party-assured, emissions reductions or removals, measured in tCO2e, that occur within five years prior to the reporting year. They must be sourced from outside the company’s own value chain. Further minimum criteria will be set to align with high-integrity frameworks, with additional details on the recognition program expected in the second half of 2026.
Starting in 2035, carbon removals become mandatory for Category A companies. From that point, the carbon removal coverage requirement rises linearly from 1% of Scope 1–3 emissions to 100% by a company’s net-zero year. Within that, 10% of long-lived GHG emissions must specifically be covered by durable removals, also rising linearly to 100% by the net-zero year.
How must companies neutralize residual emissions?
At a company’s net-zero target year and thereafter, it must reduce its Scope 1, 2, and 3 emissions to zero or to residual levels, and neutralize all residual emissions using eligible carbon removals. Those removals have to meet two conditions: they must occur within the same reporting period as the residual emissions they’re neutralizing, and long-lived GHGs must be neutralized with long-lived removals, matching the durability of the removal to the atmospheric lifetime of the emission being addressed.
What is the SBTi implementation hierarchy?
Net Zero Standard V2 also lays out how companies should prioritize their actions for credible target delivery, in three tiers.
- Direct actions, at the activity level, are actions that reduce emissions at the source within a company’s own operations and value chain; things like efficiency improvements, fuel switching, and engaging suppliers and customers to reduce their emissions.
- Actions within shared systems, or activity pools that reduce the emissions of shared systems like electricity or gas grids. This includes market instruments that convey low-carbon attributes, such as PPAs, RECs, and GOs, all of which must meet minimum integrity criteria that SBTi will elaborate on in future guidance.
- Sector-level actions relate to the same type of activity occurring in a relevant geography or system, in a way that meaningfully reduces the emissions a company is responsible for.
How Terrapass helps businesses meet the new SBTi standard
As the rules around carbon credits become more rigorous, the quality of the credits behind them matters more than ever. Terrapass has expanded our global network of carbon projects: more project types, locations, prices, ICVCM CCPs, and UN SDGs, spanning super-pollutant destruction, nature-based solutions, and durable removals. We offer Green-e® Climate Certification and we only source from third-party-verified projects on ICVCM-Eligible registries.
We also help clients with impact beyond carbon: EACs, RECs, and GOs including Green-e® Certified credits that support leading renewable energy projects; water credits that support water restoration projects; and custom environmental product needs like RNG and SAF. Wherever your organization is on its sustainability journey, we help clients around the world address climate risk, advance their environmental and social goals, and get the most out of their sustainability budgets.
FAQ: SBTi Net-Zero Standard revision
What is the SBTi Net-Zero Standard?
It’s the framework the Science Based Targets initiative publishes for companies that want validated, credible net-zero targets tied to limiting global warming.
What is changing in the SBTi Net Zero Standard V2 revision?
The biggest changes are more flexibility (five-year cycles and a “best efforts” standard), a new Asset Transition Method for companies whose emissions don’t follow a straight-line path, and formal recognition of voluntary carbon credits for mitigating ongoing emissions.
When do companies need to switch to the new SBTi standard?
If your company already has 2030 targets, you keep using V1 for your current cycle and move to V2 in 2028. If you don’t have targets yet, you can start using V2 as of February 1, 2027.
Can companies use carbon credits to meet SBTi targets?
They can. Under V2, high-integrity carbon reduction and removal credits count toward mitigating ongoing emissions from 2027 through 2034. Starting in 2035, only removal credits count, and they need to be durability-matched to the emissions they offset.
What’s the difference between Category A and Category B companies under SBTi?
Category A is large companies everywhere plus medium-sized companies in high-income countries, based on thresholds like revenue, headcount, or emissions. Category B is small companies everywhere and medium-sized companies in lower-income countries.
What happens if a company misses its SBTi target?
Under the old standard, falling behind could cost a company its SBTi status. Under V2’s “best efforts” approach, a company can hold onto its status as long as it’s used every lever within its control, with minimum progress rules coming in the SBTi Assurance Manual.
Sources: This post is based on Terrapass’s internal analysis of the SBTi Corporate Net-Zero Standard V2.0. Facts and figures were checked against SBTi’s official V2.0 announcement, SBTi’s Corporate Net-Zero Standard V2.0 — Chapter 6: Ongoing Emissions Responsibility, Trellis’s coverage of the standard, Trellis’s reporting on Ongoing Emissions Recognition costs, Sylvera’s analysis of what comes next, Anthesis Group’s Fortune 500 net-zero commitments research, and Climate Impact Partners’ seventh annual FG500 analysis, as reported by CarbonUnits.com.
The post SBTi Net-Zero Standard V2: What the Revision Means for Every Business appeared first on Terrapass.
For most businesses, the emissions that matter most sit outside their own walls. Scope 3 emissions, everything generated across your value chain, from the suppliers who make your inputs to the customers who use your products, typically make up the majority of a company’s total carbon footprint. Under the Corporate Sustainability Reporting Directive (CSRD), those value-chain emissions now have to be measured and disclosed with a rigour that spend-based estimates alone struggle to satisfy. This guide sets out how to improve Scope 3 data accuracy for CSRD: the calculation methods open to you, how to move from estimates to verified supplier data, and how to govern that data so it holds up to audit.
A carbon credit is a commitment that extends well into the future. The tonne of CO₂ compensated for today from a nature-based carbon project must remain out of the atmosphere for good, which means the forest behind the credit has to remain standing long after the transaction is complete. For any buyer, this raises a defining question: What ensures that the forest endures?
-
Climate Change11 months ago
Guest post: Why China is still building new coal – and when it might stop
-
Greenhouse Gases11 months ago
Guest post: Why China is still building new coal – and when it might stop
-
Greenhouse Gases2 years ago嘉宾来稿：满足中国增长的用电需求 光伏加储能“比新建煤电更实惠”
-
Climate Change2 years ago嘉宾来稿：满足中国增长的用电需求 光伏加储能“比新建煤电更实惠”
-
Climate Change2 years ago
Bill Discounting Climate Change in Florida’s Energy Policy Awaits DeSantis’ Approval
-
Renewable Energy9 months agoSending Progressive Philanthropist George Soros to Prison?
-
Carbon Footprint2 years agoUS SEC’s Climate Disclosure Rules Spur Renewed Interest in Carbon Credits
-
Greenhouse Gases1 year ago
嘉宾来稿：探究火山喷发如何影响气候预测