What are the top 3 developments in Bulgaria concerning green claims and the associated risk of greenwashing?
The topic of green claims is gaining significant popularity across the world, as countries are being asked to explore different methods and approaches to their contribution to the transition to clean energy. This shift is pivotal in order for issues such as climate change and sustainability to be properly addressed. Accordingly, organisations have started to assess their environmental footprint and possible improvements with regards to their approach towards sustainability. Bulgaria itself has undertaken some steps to facilitate such environmental protection; it has brought in basic environmental protection legislation, and has also developed a national environmental strategy to mitigate adverse environmental consequences. Unfortunately, Bulgaria still lags behind when it comes to green claims and the associated risk of greenwashing. The development of a framework to deal with those issues has been slow; however, the Bulgarian authorities have now begun to concentrate their efforts on taking action in this respect.
Below, we briefly summarize the top 3 areas of development regarding green claims and greenwashing in the territory of Bulgaria.
1. National Ethical Standards govern environmental claims in marketing communications
The National Ethical Standards for Advertising and Commercial Communication in Bulgaria ("National Ethical Standards") envisage principles regarding marketing communications of environmental claims. According to the National Ethical Standards, the term “environmental claim” refers to "any statement, symbol or graphic that indicates an environmental aspect of a product, component, or packaging". The legal principles derive from different national and international standards, including the International Standard ISO 14021 on "Self-declared environmental claims".
The principles aim to facilitate honest and truthful presentation of claims in advertising. In Bulgaria, marketing communications should not contain any statement which can potentially mislead the ‘reasonable consumer’ regarding the environmental benefits of an advertised product, or the actions implemented by the trader aimed at protecting the environment. The rationale for this principle is not to diminish consumers’ concerns for the environment, or to exploit their environmental knowledge.
Additionally, claims such as "ecologically safe" or "environmentally friendly", should be kept to a minimum unless they can be validly proven. The National Ethical Standards also encourage the use of scientific findings or technical demonstrations only in instances where they are supported by trustworthy, reliable evidence. For instance, if an environmental claim refers to health or safety, it should be backed by suitably robust scientific evidence.
Environmental claims should also never be made in a manner that implies that they apply to more aspects of a product's life cycle, or more of its characteristics, than the evidence supports. In practice, this means that the stage or subject to which a claim refers should always be apparent from the outset. A life cycle analysis should support a claim of life-cycle benefits. For example, when a claim mentions the elimination of substances or things that influence the environment, it should be obvious what has been eliminated.
2. Increased alignment of directors’ duty of care standards with ESG factors
Under Bulgarian law, joint-stock companies’ directors must comply with the “duty of care” standard, i.e., to act in the best interest of the company and its shareholders. At first glance, it is rather challenging for the duty of care principle to be reconciled with the recent changes in corporate governance in favour of ESG considerations. This is because ESG considerations can result in additional costs or reduced financial gains, for example.
On the other hand, ESG could be reconciled with the duty of care standard only in the case that the relevant ESG considerations in concern result in a long-term value for the business. If ESG considerations are implemented with the aim of mitigating or eliminating risks such as revenue losses, a decline in customer base, reputational risks, etc., then they will be in line with the duty of care principle.
Such risk management activities are tightly connected with the responsibilities of directors, and thus they should be implemented within a company’s policies. Arguably, it is possible that a failure to take into account ESG considerations when dealing with such risks may result in a breach of a director’s duty of care. Additionally, such failure can negatively affect the company’s activities and reputation. This is due to the fact that more and more emphasis is now placed on proactive ESG initiatives and internal mechanisms for demonstrating a responsibility towards the environment and other issues of sustainability.
3. Non-financial reporting
In Bulgaria, public interest entities which are considered large under the Accountancy Act and whose workforce exceeds 500 employees are required to file a non-financial statement, including the information necessary to comprehend the development, performance, condition of the respective entity, and impact of its operation.
Any such non-financial statement should include information regarding, amongst other things, environmental and social issues. At present, the number of entities that are obliged to file such a report is insignificant, given the aforementioned two-pillar approach. Nevertheless, this is expected to change once the forthcoming Corporate Sustainability Reporting Directive (CSDR) is transposed into Bulgarian law. Within this new legal regime, greenwashing is set to be targeted even further (with the ultimate aim of ending instances of greenwashing altogether), and it is anticipated that higher environmental standards will be set for traders and consumers alike.
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