The EU’s drive against greenwashing will only work if it fixes the market, not the consumer

“Firms that invest in real sustainability are losing ground to firms that invest only in green marketing. Stricter rules on environmental claims are the right response, argues Nazife Merve Hamzaoğlu , but only if regulators address the structural failure of environmental signals, not the attitudes of consumers. Ask a European consumer whether they care about sustainability and the answer will usually be yes. Ask the same consumer, six months later, what they bought, and the answer is less flattering to the planet. The gap between stated environmental concern and actual purchasing behaviour – the so-called “attitude–behaviour gap” – has been the organising puzzle of sustainable consumption research for two decades. Part of what shapes that behaviour is the stream of environmental claims that firms attach to their products: the labels, pledges and slogans that promise sustainability. The standard interpretation has been to locate the problem in the consumer. Individuals, we are told, are biased, inattentive or inconsistent. The policy response, popularised by the nudge movement , has been to help them overcome these limits through better defaults – for example, enrolling households in green energy tariffs unless they actively opt out – clearer labels and more salient information. This interpretation is increasingly hard to defend. How credible a firm’s claims are may matter more than how attentive the consumer is. The European Union’s attempt to regulate environmental claims marks a quiet shift in approach. The EU’s standalone Green Claims Directive was proposed in 2023 but stalled in 2025 amid political resistance and was effectively withdrawn. But its underlying logic survives in the Empowering Consumers for the Green Transition Directive , adopted in 2024 and due to be enforced from September 2026. Instead of trying to fix the consumer, this body of regulation tries to fix the claim – the environmental assertion a firm makes about its product, from “climate-neutral” to “100% sustainable”. That shift is right. But whether it succeeds will depend on whether it addresses the structural reasons why sustainability signals fail in the first place. And the current design debate does not yet reflect those reasons in full. The problem is not the consumer Environmental quality is not something a consumer can verify. Buyers cannot see a carbon footprint, supply chain conditions or the actual recyclability of packaging. They rely on cues: labels, certifications, brand reputation, colour choices and green language. In the terminology of economics, environmental quality is a “credence attribute” – a quality that cannot be verified before, during or after use. The informational environment does the work that direct inspection cannot. The problem is that many of the cues consumers rely on cost firms almost nothing to produce. A self-declared claim of sustainability, a vaguely worded pledge, a product line rebranded as “conscious” or “responsible” impose minimal cost. Certifications, such as the EU Ecolabel or the FSC mark for timber and paper, are more rigorous, but they vary widely in stringency and proliferate to the point where consumers cannot easily compare them. When signals are cheap, firms that do not invest in real environmental improvement can imitate those that do. Consumers, unable to distinguish the two, stop paying a premium for either. The firms that invested lose their return and reduce investment in turn. The market converges toward an equilibrium in which everybody appears green but nobody actually is. This is not a story about consumer irrationality. It is a story about what happens when the informational structure of a market cannot sustain credible signals. Even a perfectly rational, fully attentive consumer cannot make accurate decisions when the available information does not distinguish truth from marketing. Why individual-level information does not solve the problem In recent research drawing on European survey data collected before the Paris Agreement I find an uncomfortable pattern. This was a period when “green growth” was still an elite policy idea rather than an institutionalised slogan. Across 27 European countries people who strongly believe that economic growth and environmental protection can be reconciled – that “green growth” will solve the climate problem – are less likely to take individual pro-environmental action, not more. The association survives standard controls for income, education and political ideology. The interpretation is not that green growth is a bad idea. It is that belief in a system-level solution appears to crowd out individual responsibility. If growth will fix it, why should I sort my recycling? This pattern – that more confidence in the system-level solution is associated with less individual action, not more – is awkward for the nudge framework. Nudges assume that the consumer is the binding constraint; the evidence suggests that the consumer is, at least in part, responding rationally to an informational environment that does not reward their attention. That reframes the policy question. If the problem is not in the consumer but in the signals the market sends, then consumer-facing interventions will continue to underperform regardless of how well they are designed. This is precisely why the regulatory shift embodied in the Empowering Consumers Directive matters: by targeting the claim rather than the consumer, it acts on the part of the system where the failure actually originates. The first-order policy target is the signal, not the receiver. Greenwashing is not a scandal, it is an equilibrium Greenwashing, the practice of conveying a false or misleading impression of a product’s environmental benefits, is typically discussed in moral terms, as managerial dishonesty or marketing cynicism. That framing obscures a more useful point. Under the conditions that characterise most sustainability markets – cheap signals, fragmented certification, heterogeneous consumer trust – greenwashing is what the market produces. It is not a deviation, it is the equilibrium. This changes the policy logic. If greenwashing were caused by a few bad actors, enforcement would mean catching them. If greenwashing is an equilibrium outcome, enforcement means changing the parameters that sustain the equilibrium. The difference is between policing and market design, and it is not cosmetic. Seen this way, the political resistance that stalled the standalone Green Claims Directive is not surprising. Changing the parameters of an equilibrium means imposing real costs on firms that currently benefit from cheap signals. And they resist. The fate of that regulation is itself an illustration of the argument. What the directive has to do The instinct behind the EU’s green-claims rules, to regulate the claim rather than nudge the consumer, is correct. Whether they work will depend on three design choices currently under debate. First,the cost asymmetry of credible signals must be raised. Self-declared environmental claims should be constrained. Certification requirements should verify inputs and outcomes, not just processes. A label that is expensive to obtain and difficult to mimic is the only kind of label that survives strategic imitation. Second,the certification landscape must be simplified. Dozens of overlapping private eco-labels do not add up to more information; they add up to less, because consumers respond to complexity by falling back on heuristics. A smaller number of state-recognised or publicly harmonised labels carries more weight than a proliferation of well-intended private ones. The directive’s harmonisation push is in the right direction but needs to be pressed further. Third,enforcement must be credible. The whole argument turns on brown firms expecting to bear real cost if they mimic. A directive without enforcement capacity does not disrupt the pooling equilibrium; it entrenches it, because firms that expected the rules to bite now know they will not. Regulatory capacity is the hinge. What this means for firms For firms that have genuinely invested in low-impact production, the directive is an opportunity rather than a threat. The current equilibrium punishes them because their investment does not translate into a defensible premium. A more credible signalling environment reverses that penalty. The firms most exposed to full implementation are those whose sustainability positioning has been more narrative than substance. For firms deciding where to invest, the discipline of the regulation will, in time, change which kinds of sustainability investment earn a return – the ones that can survive third-party verification. Beyond the consumer The attitude–behaviour gap is real, but it is a symptom. The disease is the informational structure of the market, which does not currently allow sustainability preferences, however genuine, to translate into sustainability outcomes. A generation of nudge-based policy has tried to close the gap from the consumer side. The returns have been modest. The EU’s anti-greenwashing rules represent a different bet: that fixing the signals will accomplish what fixing the consumer could not. It is the right bet. Whether it pays off depends on design choices that are still being made. This article gives the views of the author, not the position of LSE Business Review or the London School of Economics. You are agreeing with our comment policy when you leave a comment. Image credit: Vector Image Plus provided by Shutterstock. The post The EU’s drive against greenwashing will only work if it fixes the market, not the consumer first appeared on LSE Business Review .

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