The proliferation of environmental claims in the market, often vague or misleading, has necessitated robust regulatory intervention to combat greenwashing and ensure consumer protection. A European Commission study in 2020 revealed that over 50% of assessed environmental claims in the EU were vague, misleading, or unfounded, leading to consumer deception and unfair competition. Furthermore, 40% of these claims lacked verified data or other supporting evidence, and about half of the hundreds of sustainability labels in the EU market had weak or non-existent verification. This widespread greenwashing erodes customer trust, weakens market position, and invites public backlash, making credibility a competitive advantage in a future where greenwashing is aggressively policed.  

In response to this pressing issue, the EU introduced the Green Claims Directive (GCD), which entered into force in March 2024 and must be implemented by EU member states by March 2026. This directive aims to ensure that environmental claims are reliable, comparable, and verifiable across the EU, thereby protecting consumers and fostering fair competition among businesses. Non-compliance carries significant penalties, including public "naming & shaming," fines of at least 4% of annual turnover, and bans from public tenders, alongside severe reputational damage.  

Key Prohibitions and Requirements of the Green Claims Directive

The GCD introduces several key prohibitions and requirements that fundamentally reshape corporate climate communication and carbon offsetting strategies, moving beyond superficial marketing to verifiable impact.

A critical prohibition is against misleading "neutral" or "positive" claims based solely on offsetting. The directive explicitly prohibits claims such as "carbon neutral," "CO2 neutral certified," "climate neutral," or "climate friendly" for a product if they rely exclusively on carbon offsets, unless the claim is based on the product’s actual lifecycle emissions reduction. This means companies can no longer simply label a product "climate neutral" by purchasing carbon credits; they must either avoid such claims or demonstrably prove that any "neutrality" is achieved through direct emissions reductions in the product’s full lifecycle. This is a paradigm shift designed to eliminate greenwashing and ensure that offsetting is a complement to, not a substitute for, direct decarbonization. The GCD aims to establish a level playing field for businesses by recognizing those who truly invest in sustainability and climate action over those engaging in superficial PR claims.  

Furthermore, the GCD mandates substantiation with robust scientific evidence for all environmental claims. Generic slogans like "eco-friendly" or "climate friendly" are no longer permissible without being backed by verifiable scientific evidence, reviewed by accredited third parties. Claims must also be specific, for instance, stating "packaging made of 30% recycled plastic" instead of a vague "green packaging". Companies must be prepared to provide detailed documentation for each claim, often following standardized methods and third-party certifications, such as Lifecycle Assessments (LCAs). Claims must be holistic, taking into account all major environmental impacts to give a fair and balanced assessment, and must go beyond what is already legally required, proving actual progress.  

A cornerstone of the new regulatory framework is transparency and separate disclosure of carbon credits. The Corporate Sustainability Reporting Directive (CSRD) and its European Sustainability Reporting Standards (ESRS) reinforce this by explicitly instructing that gross emissions must be reported without subtracting purchased carbon credits. The ESRS E1 standard on Climate Change specifically prohibits companies from counting carbon credits or avoided emissions towards their emissions reduction targets. This means a company's claimed reduction in emissions must come from actual operational changes (efficiency improvements, renewable energy use, process innovations, etc.), not from offsetting projects elsewhere. Any carbon credits purchased (e.g., to compensate for residual emissions or as part of a voluntary climate strategy) must be disclosed separately and transparently, rather than being hidden within net emissions figures. This ensures that engagement in voluntary carbon markets is done with full transparency and pushes companies towards high-quality credits and verified carbon removal projects. The GCD also encourages businesses to primarily use existing EU-approved environmental labels (e.g., EU Ecolabel, Nordic Swan Ecolabel) instead of creating new, company-specific ones, and mandates that all claims and labels undergo third-party verification by independent, accredited verifiers. This requirement for third-party verification and the emphasis on the "credibility and integrity" of carbon credits will professionalize the market and create a demand for robust audit trails, moving green claims from a marketing exercise to a compliance and audit function.  

The GCD's focus on product-level claims, rather than just corporate-level claims, suggests a growing regulatory push for granular sustainability information that directly influences consumer purchasing decisions. This will incentivize companies to embed sustainability throughout their product design, manufacturing, and supply chain processes, making the environmental footprint of individual products a competitive differentiator.

Building a Credible Carbon Offsetting Strategy Under the GCD

To build a credible carbon offsetting strategy under the GCD, businesses must adopt a multi-faceted approach that prioritizes genuine emissions reductions and transparent, high-quality offsetting.

1. Prioritize Direct Emissions Reductions: The core of a credible strategy is to focus on minimizing emissions first. This involves direct emissions reductions through efficiency improvements, renewable energy use, and process innovations within the company's own operations and value chain (Scopes 1, 2, and 3 emissions). This will drive investment in operational efficiency, renewable energy sourcing (Scope 2), and supply chain decarbonization (Scope 3). Companies should communicate how they plan to reduce their carbon footprint or how much they have already managed to cut emissions, as reducing emissions should be the primary means of lowering a carbon footprint.

2. Strategic Use of High-Quality Carbon Removals: For residual or hard-to-abate emissions that cannot be eliminated through direct operational changes, strategic use of high-quality carbon removals is crucial. Companies should invest in projects that meet stringent standards like the EU’s Carbon Removals Certification Framework (CRCF). The CRCF outlines four overarching quality criteria:  

• Quantified Net Removal Benefit: The activity must result in a net CO₂ removal that is clearly measured and quantified.  
• Additionality: The removal must go beyond what would have happened anyway under existing laws or business-as-usual scenarios.  
• Long-Term Storage: The CO₂ must be stored for the long term (decades to centuries), with measures to minimize leakage back into the atmosphere.  
• Do No Significant Harm: The removal activity must not cause other environmental or social problems and should ideally provide co-benefits. Using CRCF-certified (or equivalent) removals will lend significant credibility to any claims of contribution to climate goals via removals.  

3. Transparent Communication: Companies must clearly communicate specific climate actions undertaken, distinguishing between direct CO2 reduction and CO2 compensation through credits. Providing traceable information, such as QR codes linking to claim details, is recommended. All claims must be clear, detailed, and accessible.

4. Audit and Upgrade Climate Claims: Marketing teams and climate officers need to audit all product and corporate-level green claims for compliance with the GCD. Retire or rephrase any unsubstantiated claims, and develop internal guidelines for marketing teams on approved claims. Pursue credible third-party eco-certifications where relevant to back up statements. This not only avoids legal risk but also enhances brand integrity.  

5. Integrate Climate Strategy with Corporate Governance: CSRD compliance necessitates a robust internal climate data collection and management system and integration of climate strategy with corporate governance. Annual sustainability reports will need to include comprehensive information on GHG emissions (Scopes 1, 2, and 3), energy use, climate-related targets, progress on those targets, and the financial impacts of climate risks. This shifts HR from an administrative function to a strategic partner, as workforce investment data becomes integral to sustainability narratives shared with investors.  

6. Continuous Monitoring of Regulatory Developments: Stay updated on EU and national regulatory changes, as Member States have until March 2026 to implement the directive. Identify diverging requirements (e.g., EU and US) and align green claims accordingly.

AFS Energy's Role in Ensuring Credible Offsetting

AFS Energy plays a critical role in helping clients ensure credible offsetting and navigate the complexities of the new EU climate rules. The firm guides clients on the "Do's and Don'ts" of the voluntary carbon market, emphasizing transparency and integrity. AFS Energy assists businesses in developing robust, compliant offsetting strategies that prioritize direct emissions reductions and transparently integrate high-quality carbon credits in line with GCD and CSRD requirements.  

The firm connects clients with verified, high-impact carbon removal projects that meet stringent EU standards (e.g., CRCF-aligned), ensuring the credibility and integrity of the offsets. This comprehensive support enables clients to make credible sustainability claims with confidence, mitigating greenwashing risks and enhancing brand reputation. AFS Energy's platform offers real-time insights, simplifies complex trading processes, and mitigates risks with advanced tools, ensuring compliance with regulatory changes and providing clear audit trails for accountability. Their expert team provides personalized advice and support, assisting traders with understanding new regulations, refining strategies, and optimizing performance. This integrated approach, covering both direct emissions reduction strategies (through EACs/Biomethane) and high-integrity offsetting, positions AFS Energy as a holistic solution provider.  

In conclusion, the EU Green Claims Directive is a transformative regulation, compelling corporate climate action to move beyond superficial public relations to verifiable, science-backed impact. By embracing transparency, prioritizing direct emissions reductions, and strategically utilizing high-quality, transparently disclosed offsets, European businesses can not only avoid penalties but also build genuine trust with consumers and stakeholders, thereby achieving meaningful and credible climate goals. This creates a competitive advantage for providers like AFS Energy who can guarantee high-quality, verified credits and transparent processes.