Why the Green Claims Directive Withdrawal Made Greenwashing Riskier

DWS Paid $46 Million for Calling Itself an ESG Leader. Your Marketing Team Should Take Notes.

In April 2025, Frankfurt prosecutors fined Deutsche Bank's asset management arm DWS €25 million for giving capital markets a false impression of its sustainability credentials. The fine capped a saga that began in 2021, when former sustainability chief Desiree Fixler alleged that the firm's public statements about ESG integration bore little resemblance to its actual investment processes. DWS had marketed itself as a "leader" in sustainable finance and claimed that ESG was "an integral part of our DNA." Prosecutors concluded those statements did not correspond to reality. Two years earlier, the U.S. Securities and Exchange Commission had fined DWS $19 million for the same underlying conduct, making the total enforcement cost north of $46 million, a forced CEO resignation, a police raid on company headquarters, and years of reputational damage that no provision on a balance sheet can fully absorb.

The DWS case is not an outlier. It is the template. Across jurisdictions, regulators and courts are punishing companies for environmental claims that their own internal processes cannot substantiate. The question facing multinationals right now is whether their sustainability marketing is built on the same kind of structural gap that cost DWS its credibility and its money.

That question got more complicated, not less, when the European Commission announced in June 2025 that it intended to withdraw the proposed Green Claims Directive. Many sustainability teams exhaled. One less regulation, one less compliance deadline. That reaction was wrong, and companies that internalized it are now exposed.

The Withdrawal That Changed Nothing and Everything

The Green Claims Directive, proposed by the European Commission in March 2023, was designed to harmonize how companies substantiate environmental claims across the EU. It would have required science-based evidence, life-cycle assessment, and, critically, independent third-party verification before a company could make a green claim. That last requirement, known as "ex-ante" verification, became its political undoing. The European People's Party, the Parliament's largest bloc, argued the requirements were disproportionately burdensome. Italy withdrew its support. The Council cancelled the final trilogue session scheduled for June 23, 2025. The Commission announced its intention to withdraw, though it has not formally terminated the proposal, and Parliament committee chairs have signaled readiness to resume negotiations.

Here is the operational reality that matters: the withdrawal changed the procedural status of one directive. It did not change the enforcement landscape. The Empowering Consumers for the Green Transition Directive (ECGT), adopted in February 2024, is already law. EU member states must transpose it into national legislation by March 27, 2026, and it becomes enforceable from September 27, 2026. The ECGT introduces outright prohibitions on specific categories of environmental claims. Generic statements like "eco-friendly," "green," or "natural" are banned unless backed by recognized certification schemes or verifiable evidence. Product-level claims of "climate neutrality" or "CO2 neutrality" based on carbon offsetting rather than actual value chain reductions are blacklisted. Sustainability labels not grounded in independent certification are prohibited. None of these provisions depend on the Green Claims Directive. They are binding regardless of its fate.

The practical consequence is that companies operating in the EU now face a regulatory landscape that is harder to navigate than a single harmonized directive would have been. Instead of one set of substantiation rules, they face the ECGT's broad prohibitions layered on top of national enforcement under the existing Unfair Commercial Practices Directive, court rulings that are creating their own de facto standards, and member states that may transpose the ECGT with varying levels of stringency. For any multinational making environmental claims to European consumers, this fragmentation is the risk, not the withdrawal.

National Enforcement Is Not Waiting for Brussels

The enforcement actions that should keep sustainability and legal teams awake at night are not hypothetical future consequences of pending legislation. They are happening under existing law.

In August 2025, Italy's competition authority, the AGCM, fined Shein's European operator €1 million for misleading environmental claims. The regulator found that Shein's website sections promoting a "circular system" and product recyclability were either false or confusing. Its "evoluSHEIN" product line used the term "green fibers" without substantiating environmental benefits across the product life cycle or disclosing that the line represented a marginal fraction of total output. Most pointedly, the AGCM found that Shein's published targets to reduce greenhouse gas emissions by 25% by 2030 and reach net zero by 2050 were contradicted by the company's own data showing rising emissions in 2023 and 2024. The authority emphasized a heightened duty of care for companies in highly polluting sectors.

The Shein case is instructive because it illustrates a pattern that the DWS case also follows: the enforcement trigger is not a specific claim being technically incorrect in isolation. It is the gap between the overall impression created by a company's communications and what its operational data actually shows. This is the distinction that trips up companies with well-resourced marketing departments but underdeveloped data governance. A sustainability team may know that a net-zero target is aspirational and caveated. A consumer or regulator reading the company website encounters a different narrative.

In March 2024, the District Court of Amsterdam ruled that 15 of 19 advertising statements by KLM were misleading and unlawful. The airline's "Fly Responsibly" campaign had suggested that measures such as sustainable aviation fuel and carbon offsetting were making flying sustainable or becoming sustainable. The court found that these measures only marginally reduced environmental impact and gave consumers a false impression. The ruling applied existing EU consumer protection law, not any new directive. KLM had already withdrawn the challenged statements by the time the judgment was issued, so no injunction was imposed, but the declaratory ruling established a precedent that extends well beyond aviation.

In Australia, the Federal Court in March 2025 fined superannuation fund Active Super A$10.5 million for claiming to exclude investments in gambling, coal mining, and oil tar sands while continuing to hold securities in exactly those sectors. This was the third successful greenwashing enforcement action by Australia's ASIC, following penalties of A$11.3 million against Mercer Superannuation and A$12.9 million against Vanguard Investments for similar misrepresentations.

The combined weight of these cases points to a structural conclusion: enforcement does not require dedicated greenwashing legislation. Existing consumer protection, unfair commercial practices, and securities law frameworks provide sufficient basis for regulators and courts to impose serious financial penalties. The Green Claims Directive would have added a harmonized substantiation methodology. Without it, enforcement happens anyway, just less predictably.

If your team has not mapped which environmental claims your company currently makes and whether each one can be substantiated with verifiable, current data, the Regulatory Readiness Assessment is a free starting point for identifying where you stand against the regulatory frameworks that will apply in 2026.

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The Substantiation Gap: Where Marketing Meets Data Architecture

The common thread in every major greenwashing enforcement action is not bad intent. It is a structural disconnect between what a company communicates externally and what its internal data systems can defend. This gap has a specific architecture, and understanding it is the difference between a compliant sustainability program and an enforcement target.

First, the data sourcing problem. Most companies generate environmental data primarily for internal decision-making: choosing suppliers, setting reduction targets, tracking progress against commitments. This data is fit for purpose in that context. It may rely on industry averages, spend-based estimates, or modeled projections. But data that is adequate for sourcing a strategic decision is not automatically adequate for substantiating a public claim. A marketing statement that a product line uses "sustainable materials" or that a company is "on track" to meet a climate target requires a different standard of evidence. It requires data that can withstand external scrutiny, that is methodology-transparent, and that is current rather than annualized. Companies that treat internal planning data and external-facing claim substantiation as interchangeable are replicating the exact failure pattern that regulators are targeting.

Second, the governance disconnect. In most organizations, sustainability claims originate from or are approved by marketing, communications, or investor relations. The data underlying those claims lives in sustainability, operations, or supply chain functions. The legal and compliance teams that would need to assess whether a claim is defensible under the ECGT or national advertising law are brought in, if at all, after the claim has already been drafted. This sequence is backwards. Under the ECGT's framework, a claim that is banned, such as an offset-based "climate neutral" product label, is prohibited regardless of context. No amount of legal review after the fact can rehabilitate a blacklisted claim. The review process needs to be embedded at the point of claim origination, not downstream.

Third, the temporal mismatch. Environmental performance changes. Emissions profiles shift year to year. Supply chain compositions evolve. A claim that was accurate when first published may become misleading as underlying conditions change. The AGCM's finding that Shein's emissions targets were contradicted by subsequent emissions increases illustrates this risk precisely. Companies that publish forward-looking environmental commitments, whether net-zero targets, reduction pathways, or circularity goals, need a process for validating those claims against current performance data on a rolling basis, not just at the point of initial publication. This requires a review cadence that most organizations have not built, and it requires data systems that can surface divergence between commitments and actuals automatically rather than waiting for a regulator to do it.

What September 2026 Actually Requires

The ECGT's September 2026 enforcement date creates a concrete deadline, but the scope of operational change it demands is broader than many compliance teams have recognized. The European Commission published detailed guidance in late 2025 clarifying how the new rules apply. Several elements deserve specific attention.

The directive's scope is limited to business-to-consumer commercial practices. Corporate sustainability reporting under the CSRD is generally not covered, because those disclosures are directed at investors, not consumers. However, a Spanish court's ruling in the Iberdrola v. Repsol case demonstrated that communications published on a corporate website, even one ostensibly directed at investors, can be assessed under consumer protection rules if they are capable of influencing consumer decisions. The boundary between investor-directed and consumer-directed communication is not as clean as many companies assume, and the guidance acknowledges that each communication must be assessed on a case-by-case basis.

The directive's blacklisted practices are enforced without any requirement to demonstrate consumer harm. A "carbon neutral" product claim based on offsets is prohibited regardless of whether any consumer was actually misled. This strict liability approach eliminates the most common corporate defense, that the claim was technically accurate in context. For companies currently using carbon credits to underpin product-level neutrality claims, the compliance response is binary: retire the claim before September 2026 or face enforcement. There is no middle path of adding caveats or disclosure language.

For claims that are not blacklisted but may be misleading depending on context, the directive requires enforcement authorities to apply a "transactional decision test," asking whether the claim caused or was likely to cause an average consumer to make a purchasing decision they otherwise would not have made. This test gives national authorities significant discretion, and the European Commission's guidance, while influential, is not legally binding. Member states may diverge on interpretation. For a multinational operating across multiple EU markets, this creates a compliance challenge that requires monitoring transposition and enforcement trends in each jurisdiction where the company makes consumer-facing environmental claims.

The UK is moving in parallel. Since April 2025, the Competition and Markets Authority has had the power to impose fines of up to 10% of global turnover for misleading environmental claims under the Digital Markets, Competition and Consumers Act, without needing to go through the courts. In Canada, amendments to the Competition Act effective June 2024 require companies to substantiate business-level environmental claims using internationally recognized methodologies, with penalties up to 3% of global revenue. California's Voluntary Carbon Market Disclosures Act, in force since January 2024, requires companies to document how they verified any carbon-neutral or net-zero claim, with daily penalties of up to $2,500 per violation.

A Decision Framework for Green Claims Under Regulatory Fragmentation

Given that enforcement is now multi-jurisdictional, standards-fragmented, and accelerating, companies need an internal framework that can absorb regulatory variation without requiring a full compliance rebuild for each new rule. The following structure is designed to be applied across functions, from marketing and communications to sustainability, legal, and procurement.

Start with a comprehensive claims inventory. Before any substantiation analysis can happen, a company needs to know what claims it is actually making and where. This means auditing not just formal marketing materials but website copy, product packaging, social media, investor presentations, press releases, job postings, and supply chain communications. The KLM ruling covered billboard advertisements, online banners, and promotional campaigns. The Shein enforcement covered website subsections that many companies would consider informational rather than promotional. The scope of what constitutes a "claim" under consumer protection law is wider than most marketing teams assume. A claim exists wherever an environmental assertion could influence a commercial decision. The output of this inventory should be a centralized register that captures the claim text, the channel, the geographic markets where it appears, and the internal owner.

Next, classify each claim by regulatory risk tier. Under the ECGT, certain claims are categorically prohibited. Any offset-based product-level neutrality claim falls in this tier. These must be retired outright, with no need for further analysis. Below that, generic unsubstantiated claims like "eco-friendly" or "green" carry near-certain enforcement risk in any EU jurisdiction and should be treated as high priority for revision or removal. The third tier includes specific, qualified claims, such as "this product contains 40% recycled content," that are permissible if substantiated but require verifiable supporting data. The fourth tier covers forward-looking commitments like net-zero targets or reduction pathways, which are permitted but require ongoing validation against current performance data. Each tier requires a different operational response, and collapsing them into a single compliance workstream is a mistake.

Then, pressure-test substantiation against an external defensibility standard. For any claim the company intends to keep, the question is not whether internal teams believe it is accurate. The question is whether the supporting data and methodology could withstand scrutiny from a regulator, a competitor filing a complaint, or a court applying the transactional decision test. "Defensible" in this context means that the claim is specific enough that a reasonable consumer would not draw an overstated inference from it, the supporting evidence is based on a recognized methodology rather than proprietary assumptions, the evidence is current rather than stale, the claim has been reviewed by someone with legal competence in the relevant jurisdiction, and there is an auditable trail connecting the published claim to its underlying data.

Finally, embed a review cadence that treats claims as living obligations. A defensible claim at the time of publication can become misleading if underlying performance deteriorates, if market conditions change the baseline, or if regulatory interpretation evolves. The DWS case spanned marketing statements made between 2020 and 2023. The AGCM cited Shein's rising emissions in 2023 and 2024 as evidence contradicting its published targets. An annual review cycle is not frequent enough for companies making active environmental claims. Quarterly review of high-risk claims, triggered reassessment when material operational changes occur, and automated monitoring for divergence between commitments and actuals are all reasonable controls. The organizational owner of this process matters as much as the process itself. It should not sit exclusively in marketing or sustainability. It needs a compliance function with authority to pause or modify claims when substantiation is inadequate.

The Quiet Risk: Greenhushing Is Not a Compliance Strategy

'A predictable corporate response to enforcement pressure is to say less. Some companies have begun withdrawing sustainability commitments, removing environmental language from investor materials, and scaling back public reporting. This reaction, sometimes called "greenhushing," creates its own set of risks. Under the CSRD (even post-Omnibus simplification), companies within scope still have mandatory disclosure obligations. Under the ECGT, the issue is not the volume of claims but their accuracy. Saying nothing about environmental performance does not satisfy investor or stakeholder expectations and may create its own form of legal exposure under securities law or fiduciary duty frameworks, particularly for companies that previously made forward-looking commitments and then silently abandoned them without disclosure.

The strategic alternative is not silence, but precision. Companies that shift from aspirational, broad-brush sustainability narratives to specific, data-backed claims about defined activities, in defined scopes, over defined time periods, reduce their enforcement exposure while maintaining commercial differentiation. The operational cost of building the data architecture and governance to support that precision is real. But it is substantially less than the combined financial, reputational, and operational cost of an enforcement action.

The analysis above surfaces a specific operational gap that most organizations have not closed: the distance between the environmental claims their commercial functions produce and the data their operational functions can defend. Closing that gap requires more than a legal review of marketing materials. It requires aligning data architecture, governance workflows, and substantiation standards across sustainability, legal, marketing, and procurement, and doing so against a regulatory timeline that is already running.

At Gasilov Group, our Regulatory Exposure Diagnostic maps every active environmental claim your company makes, classifies each one against the ECGT blacklist and national enforcement precedents, and delivers a prioritized remediation roadmap with specific data, governance, and process fixes. The engagement begins with a cross-functional claims inventory and risk-tiering workshop that produces an actionable register within the first two weeks.

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Written by: Gasilov Group Editorial Team

Reviewed by: Seyfi Gasilov, Partner, Corporate Strategy & Regulatory Governance

Brings more than twenty years guiding organizations through strategic growth, governance challenges, and cross border compliance with a combined legal and operational lens.

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Frequently Asked Questions (FAQ):

What is the difference between the Green Claims Directive and the Empowering Consumers for the Green Transition Directive?

The Green Claims Directive, proposed in March 2023, would have established a harmonized substantiation and third-party verification framework specifically for environmental claims and labels. Its legislative process was suspended in June 2025 when the Commission announced its intention to withdraw the proposal. The ECGT, adopted in February 2024, amends the broader Unfair Commercial Practices Directive to prohibit specific greenwashing practices, including generic environmental claims and offset-based product neutrality labels. The ECGT applies from September 27, 2026, regardless of the Green Claims Directive's status. A significant practical difference is that the Green Claims Directive would have created a pre-market verification requirement (claims would need approval before publication), while the ECGT relies on post-market enforcement by national consumer protection authorities.

Can companies still use carbon offsets in their environmental marketing after September 2026?

The ECGT prohibits using offsets to claim that a specific product or service is "climate neutral," "carbon neutral," or has a "reduced carbon footprint." This is a blacklisted practice, meaning enforcement does not require proof that any consumer was actually misled. However, the prohibition applies specifically to product-level claims based on offsets. Companies can still communicate about their participation in carbon credit programs at a corporate level, provided those communications do not create the impression that specific products are environmentally neutral as a result. The German Federal Court of Justice (BGH) has separately ruled that companies using both emissions reductions and compensation must clearly distinguish between the two, because consumers assign different value to each. Any corporate-level offset communication should specify the offset mechanism, the verification standard, and the relationship to the company's overall emissions trajectory.

Does the ECGT apply to business-to-business environmental claims?

The ECGT's new prohibitions are formally limited to business-to-consumer commercial practices. B2B communications fall outside the directive's scope. However, two qualifications are critical. First, individual member states have the option to extend the ECGT's requirements to B2B practices during transposition. Second, even absent transposition, B2B environmental claims remain subject to the Misleading Advertising Directive and its national implementations, which already prohibit misleading commercial communications between businesses. A company making environmental claims in supplier communications, trade publications, or industry conferences is not exempt from scrutiny. The European Commission's guidance further notes that communications published on corporate websites may be assessed under consumer protection rules if they are capable of reaching and influencing consumers, even if the intended audience is professional.

How should companies handle environmental claims that were accurate when published but may no longer reflect current performance?

This is one of the highest-risk scenarios in greenwashing enforcement. The AGCM's action against Shein specifically cited the divergence between published emissions targets and subsequent actual emissions increases. Companies should implement a triggered reassessment process: any material change in emissions trajectory, supply chain composition, product formulation, or operational footprint should automatically flag existing public claims for review. Forward-looking commitments, such as net-zero targets, should be validated against current-year performance data at least quarterly. Where performance has diverged materially from the trajectory implied by a published commitment, the company faces a choice between updating the claim, adding qualification, or withdrawing it. Leaving a stale or contradicted claim in circulation is the scenario most likely to attract enforcement attention, because it demonstrates that the company either did not monitor the accuracy of its own statements or chose not to correct them.

What enforcement penalties can companies expect for greenwashing violations across major jurisdictions?

Penalty regimes vary significantly and are escalating. In the EU, the ECGT delegates penalty-setting to member states, but the proposed Green Claims Directive (if revived in any form) envisioned fines of at least 4% of annual revenue. Several member states have already established maximum fines that exceed this threshold. In the UK, the CMA can now impose fines of up to 10% of worldwide annual turnover under the Digital Markets, Competition and Consumers Act, effective April 2025. In Canada, the Competition Act allows penalties up to C$10 million for first offenses, C$15 million for repeat violations, or 3% of annual worldwide revenue, whichever is greater. In Australia, ASIC has imposed penalties ranging from A$10.5 million to A$12.9 million in its three successful greenwashing actions since 2024. In the United States, the SEC has fined asset managers up to $25 million for ESG-related misrepresentations, and California's VCMDA imposes daily penalties of up to $2,500 per violation for unsubstantiated carbon neutrality claims. Beyond direct fines, enforcement actions carry secondary costs: reputational damage, increased regulatory scrutiny, potential securities litigation, and the operational burden of remediation programs imposed by consent orders.