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Keeping you in-the-know on environmental, social and governance developments

Back in March, we wrote about the EU’s proposed Green Claims Directive and the heightened level of scrutiny expected for company sustainability claims. Last week, the European Parliament took another step toward cracking down on greenwashing – voting to adopt the Directive Empowering Consumers for the Green Transition Through Better Protection Against Unfair Practices and Better Information (“the Directive”). I know – it is a mouthful: no one ever accused the European Commission of brevity in their naming conventions.

The “Carbon Neutral” Claim Ban

The Directive has been in the proposal stage since March 2022 and Parliament’s approval of the legislation included several amendments. The most important of these is a total ban on carbon neutrality claims. Unfortunately, nothing is ever easy so these come in several forms.

First, companies would be banned from making claims related to future environmental performance (i.e. “Our company will be carbon neutral by 2050”) if those claims either:

  • based solely on their use of carbon offsets, OR
  • without “clear, objective, quantified, science-based and verifiable commitments.”

Secondly, companies would be prohibited from making claims related to their products (i.e. “Our shoes leave no carbon footprint”) if companies are “claiming, based on carbon offsetting, that a product has a neutral, reduced, compensated or positive greenhouse gas emissions’ impact on the environment.”

What this means in practice is unclear at the moment. Right now, the legislation is still pending passage and key terms like “science-based and verifiable commitments” have yet to be defined. If either ban makes it into the final version of the Directive, many of the finer points will likely be clarified through guidance and regulations. What is clear is that Parliament’s version of the legislation will make it more difficult for companies relying on offsets to claim carbon neutrality.

Previously, the European Commission stated that it would not ban carbon-neutral claims as long as those claims were properly qualified to inform buyers about the company’s use of carbon offsets. Last year’s version of the law allowed for such claims provided that the use of offsets was clearly demonstrated in the same language as the claim itself. However, the most recent version of the Directive goes one step further and enacts a blanket ban on the use of carbon offset schemes to promote “carbon neutral” products. This move is being heralded as a win by NGOs who view carbon neutrality claims as misleading to the public.

The push and pull between the Commission and Parliament raise serious questions about how politically popular this measure is and its chances of being included in the final version of the law. On its face, it appears out of step with the Commission’s strategy across other legislation. Even the proposed Green Claims Directive allows for such claims as long as a company’s use of offsets is properly disclosed.

What is The Legislation?

You would be in good company if you initially assumed this proposal was the same as the Green Claims Directive, after all both aim to accomplish similar goals and are complementary sets of legislation. One of the main differences in the two pieces of legislation is that the Green Claims Directive establishes a new statutory scheme for evaluating companies’ environmental claims, whereas the Directive at hand amends two other pieces of existing consumer protection legislation:

  1. The Unfair Commercial Practices Directive; and
  2. The Consumer Rights Directive.

In its own words, the Directive seeks to “contribute to a circular, clean and green EU economy by enabling consumers to make informed purchasing decisions and therefore contribute to more sustainable consumption. It also targets unfair commercial practices that mislead consumers away from sustainable consumption choices.”

What This Means

Offsets are not a perfect means of carbon footprint reduction. Serious questions exist about the veracity of many offsets. We’ve written about the controversy surrounding them before and they are generally only recommended for use after companies have taken all other reasonable steps to mitigate emissions.

I have some concerns about the blanket ban proposed in the Directive. We are not on track to limit the rise in global temperature to 1.5 degrees Celsius -indeed recent data shows we are almost certain to exceed that in two years’ time. Even so, we need every available tool at our disposal. Carbon capture and sequestration technology is not developed enough to significantly contribute to global emissions reductions at this time. However, they could play a significant role in the future provided that technological and nature-based solutions continue to develop and trend towards verifiable and auditable emissions reductions.

Blanket neutrality claims that rely on offset purchases clearly present a major greenwashing concern. But if we ban properly qualified carbon neutrality claims based on valid offsets, we may risk eliminating much of the value that offsets presently provide to the companies that purchase them. With less money flowing into imperfect offsets, do we inadvertently delay the development of effective offsets? On the other hand, are consumers (or others) savvy enough to parse through properly qualified neutrality claims based on offsets and select those which they find credible? In any event, EU legislators will weigh these factors before making a final decision on the Directive.

For more information on carbon offsets and statutory labeling schemes visit our Subject Areas: Climate / Emissions / Offsets and Compliance / Enforcement / Litigation.

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The Editor

Zachary Barlow is a licensed attorney. He earned his JD from the University of Mississippi and has a bachelor’s in Public Policy Leadership. He practiced law at a mid-size firm and handled a wide variety of cases. During this time he assisted in overseeing compliance of a public entity and litigated contract disputes, gaining experience both in and outside of the courtroom. Zachary currently assists the editorial team by providing research and creating content on a spectrum of ESG… View Profile