Greenwashing across value chains – a-soon-to-be expensive exercise

The Regulation on the Imposition of Compulsory Fines and Violation Fees for non-compliance with four regulations has come into effect in Norway.

In brief

• Non-compliance can result in a fine with a rate up to 4% of the company's annual turnover, or 25 million NOK, with the highest amount to be applied
• The regulation concerns non-compliance with the Marketing Control– Cancellation –, Package Travel–, and Transparency Act 
• This development follows a broader international trend where both regulatory and supervisory work on greenwashing is ongoing

On 14 February 2023, the Regulation on the Imposition of Compulsory Fines and Violation Fees for non-compliance with the Marketing Control– Cancellation –, Package Travel–, and Transparency Act came into effect in Norway. Four regulations that have impact across sectors. The amount of the fine is determined by discretion, where the maximum rate can be up to 4% of the company's annual turnover, or 25 million NOK, with the highest amount to be applied. 

Was this so unexpected? Both yes and no. The backdrop to this can be traced back to the procedure back in 2020 and the hearing on the implementation of the EU's Omnibus Directive. The outcome was slightly unexpected as the process was originally mandated to amend the Marketing Control –, Cancellation –, and Package Travel Act, which were included in the hearing. As noted by the business community in Norway, having the same sanctioning rules for the Transparency Act as for the Marketing Control Act is not obvious. There was never issued a special hearing related to fees under the Transparency Act. However, it remains to be seen to what extent this will change practice in the imposition of fines.

In Norway, marketing of products with environmental claims is regulated under the Marketing Control Act. The Consumer Authority is tasked with the supervision of the market, enforcing consumer protection laws, and advising traders on how to observe the regulatory framework. Green claims in marketing must be documented, and the documentary requirement is more stringent for free-standing, general sustainability claims such as ‘environmentally friendly’, ‘green’ and ‘climate positive’ than for claims involving straightforward, precise product information. Significant guidance can be found both in the Consumer Authority's Guidance on Sustainability Claims used for Marketing Purposes and its guidance on climate neutral claims (in Norwegian). 

The instigation of the new regulation on the imposition on fines for non-compliance with the above-mentioned regulations follows a broader international trend. Additional national legislatures across the world — including in France and Germany — has in recent years also turned human rights due diligence into law, affiliated with a range of different fines. 

In the EU, both regulatory and supervisory work on greenwashing is ongoing. In November last year, the three European Supervisory Authorities published a Call for Evidence on greenwashing to gather input from stakeholders on how to understand drivers of greenwashing. The EU’s Proposal for a Directive on Green Claims has been a long time coming. The Commission notes that 40% of the environmental claims made about products are “unsubstantiated”. Therefore, the proposed directive will in practice result in strengthened consumer rights and a ban on greenwashing. Noteworthy is that this was already announced with the EU Green Deal put out by Commission President Ursula von der Leyen in 2019. 

The proposed Corporate Sustainability Due Diligence Directive (CSDDD) is also on its way towards realization in the EU. This directive will enhance the protection of the environment and human rights in the EU and beyond. As such, it will go further in mandating companies to address adverse impacts of their actions, including in their value chains inside and outside Europe, and sets out extensive sustainability due diligence requirements as well as introducing new corporate governance obligations.

The Norwegian Transparency Act is one of the most ambitious national laws on human rights due diligence, but it has a thematic relationship and partly overlap with the CSDDD, and once the directive is adopted, the two sets of rules need to be harmonized. Although the CSDDD has some way to go before being adopted, and further changes should be expected, it brings with it further complexity, and requirements also on environmental due diligence.