The European Commission has officially confirmed its intention to withdraw the much-anticipated Green Claims Directive. The news came in a press briefing held on Monday.

This followed an announcement on June 20, 2025, following months of political opposition and business concerns. The directive, first proposed in March 2023, aimed to establish robust, harmonized rules for companies making environmental claims about their products and services, with a view to combating widespread greenwashing.

In the press briefing, the Commission’s chief spokesperson Paula Pinho explained: “One of the priorities of this Commission is to reduce the administrative burden for small companies, and, in particular, for microenterprises. This is an essential part of our simplification agenda.” She also pointed to similar rollbacks on sustainability reporting and due diligence made under the EU Omnibus Simplification Package earlier this year.

The Directive that almost was

The Green Claims Directive sought to create a level playing field and enhance consumer trust by requiring companies to:

• Substantiate claims: Back up any green claims with robust, scientifically verifiable evidence.
• Obtain independent verification: Have their environmental claims checked by an accredited third-party verifier before being used in marketing.
• Limit reliance on offsets: Restrict the ability to base green claims solely on carbon offsetting schemes.
• Standardize labels: Tackle the proliferation of vague and unverified environmental labels.

The withdrawal of this directive, particularly so close to its final negotiation stages, has surprised many and sparked debate about the EU’s commitment to its ambitious Green Deal.

Harriet O’Brien, ESG consultant at Danesmead Advisory, said: “While it is disappointing to see anti-greenwashing legislation cancelled, in this case its not that surprising. Requirements such as ex-ante verification would have meant even small companies had to get environmental claims independently verified before publishing them, which might have led to more not less greenhushing as companies seek to avoid any scrutiny.

“Despite this, full cancellation of the directive rather than adjustment seems extreme, and the EU would do well to emphasise that there are still rules in place to catch greenwashing under different directives (for example, the Unfair Commercial Practices Directive and the Green Transition Directive).”

Why the retreat?

The Commission’s stated reasons for withdrawing the directive primarily revolve around concerns about the administrative burden it would place on businesses, particularly small and medium-sized enterprises (SMEs). This aligns with a broader political shift within the EU towards regulatory simplification and boosting economic competitiveness.

Some reports also suggest disagreement among member states and political groups on the scope and specific provisions of the directive. Last week, POLITICO reported that the center-right European People’s Party (EPP) had sent a letter to the environment Commissioner, Jessika Roswall, asking the EU executive to withdraw its proposal, threatening not to support any deal coming out of the negotiations.

What does this mean?

For financial services firms, the withdrawal of the Green Claims Directive does not signal an end to the fight against greenwashing, but rather a shift in emphasis and a fragmentation of the regulatory landscape.

Greenwashing

The crucial point for financial services firms is that the absence of the Green Claims Directive does not remove the existing legal obligations to prevent greenwashing. Several other pieces of EU legislation, and importantly, national consumer protection laws, remain in force and will continue to be used to combat misleading environmental claims including:

• Green Transition Directive: This directive, already adopted in February 2024, will begin to apply from September, 27, 2026. It significantly amends the Unfair Commercial Practices Directive (UCPD) to explicitly prohibit specific greenwashing practices. This includes banning generic environmental claims without substantiation, claims based solely on carbon offsetting without full disclosure, and the use of uncertified sustainability labels. Financial products and services fall squarely within the scope of consumer protection.
• Sustainable Finance Disclosure Regulation (SFDR): This regulation continues to impose strict disclosure requirements on financial market participants regarding the sustainability characteristics and objectives of their financial products. Misleading claims about a fund’s ESG credentials under SFDR would still constitute greenwashing and attract regulatory action. With the Green Claims Directive out of the picture, regulatory attention on the SFDR is likely to intensify. Regulators will be keenly looking for any disconnect between stated ambitions and actual investment practices.
• National consumer protection laws: Member states retain strong consumer protection laws that can be, and are being, used to prosecute greenwashing. Recent cases, such as the Dutch court ruling against KLM for misleading environmental claims, demonstrate the effectiveness of these national frameworks. This means financial firms operating across the EU could face a patchwork of different interpretations and enforcement actions.
• Corporate Sustainability Reporting Directive (CSRD): While focused on non-financial reporting, CSRD will require detailed, audited sustainability disclosures from a wide range of companies, including many financial institutions, on how sustainability issues, like climate change, affect their business, and how their operations affect the environment and society. Inaccurate or misleading information within these mandatory reports could still lead to enforcement action, even if not directly under a “green claims” directive.

Reputational risk and compliance

The withdrawal of the EU’s Green Claims Directive is undoubtedly a significant development, removing a piece of legislation that aimed to provide a clearer, more harmonized approach to combating greenwashing. However, it is crucial for firms not to interpret this as a green light for laxer standards. The underlying regulatory and reputational pressures to demonstrate genuine sustainability remain strong.

Even without a dedicated Green Claims Directive, the reputational risk associated with greenwashing remains extremely high for financial services firms. Investor and public scrutiny of ESG claims is only increasing. Any accusation or finding of greenwashing, regardless of the specific legal basis, can severely damage a firm’s brand, client trust, and market standing.

Firms must continue to be diligent, transparent, and proactive in their ESG communications, relying on existing legislation and maintaining robust internal controls to protect themselves from the persistent threat of greenwashing accusations. The fight against misleading environmental claims continues, albeit on a less harmonized, but no less determined, front.