The claim is now illegal, and the credits are still on the books

A corporate carbon book is usually justified by a sentence. "Carbon neutral." "Net zero." "Climate positive." The credits were purchased so that the sentence could be printed on a package, an aircraft livery or an annual report. From 27 September 2026, in the largest consumer market in the world, that sentence is prohibited under all circumstances. The asset remains on the balance sheet. The justification for holding it does not.

This is the uncomfortable position the European Union has engineered, and it has done so in a way that removes the obvious escape routes. The Directive on Empowering Consumers for the Green Transition (Directive 2024/825, generally shortened to ECGT) amends the Unfair Commercial Practices Directive and adds a specific entry to the blacklist of practices that are unfair in every case. That entry captures environmental claims about a product that are based on the offsetting of greenhouse gas emissions. A claim that a product is carbon neutral, climate neutral or climate positive because the seller has bought credits to compensate for its emissions is, after the application date, unlawful on its face. There is no balancing test, no de minimis threshold and no defence that the underlying credits were of high quality.

A hard ban with the soft option removed

To understand why this matters so much to a board, it helps to see what was supposed to accompany it. The European Commission had proposed a separate instrument, the Green Claims Directive, which would have created a structured substantiation and verification regime for environmental claims. For a general counsel that proposal was, in effect, a map out of the woods. It promised a defined path: substantiate the claim, have it verified, and stand on the verification. In June 2025 that proposal was withdrawn. What remains is the ECGT prohibition without the procedural safe harbour that was meant to sit beside it.

The practical consequence is counter-intuitive. The withdrawal of the softer instrument did not reduce regulatory exposure, it raised it. The categorical ban on offset-based product claims stays in force, while the route to defending a more general green claim through verified substantiation has become less certain. Enforcement risk goes up, not down, because the hard edge is still there and the cushion that would have made other claims defensible has been taken away. A legal team that had been planning to manage claim risk through a substantiation process now finds that, for the specific category of offset-based claims, there is nothing left to manage. The claim simply cannot be made.

The financial weight behind the prohibition is not symbolic. Penalties under the consumer-protection framework can reach four per cent of a trader's annual turnover in the member states concerned. For a large consumer-goods group or an airline, a percentage of turnover is an order of magnitude that demands the attention of the audit committee and the chief financial officer, not only the sustainability team. A claim that was previously a marketing decision has become a quantified downside that belongs on the legal risk register.

01 · The litigation is no longer hypothetical

Regulators set the rule. Courts and claimants are already enforcing the principle behind it, and they are winning. In March 2024 the Amsterdam District Court delivered what is widely regarded as the first successful airline greenwashing ruling, holding that fifteen of nineteen challenged statements by KLM were misleading. Among the statements the court found objectionable was the suggestion that purchasing offsets neutralises the emissions of a flight. The court's reasoning struck directly at the mechanism on which offset-based neutrality claims depend, which is precisely the mechanism the ECGT now bans outright. A judicial finding and a legislative prohibition have converged on the same conclusion.

In the United States the trajectory is similar. The class action against Delta Air Lines, brought over its description of itself as the world's first carbon-neutral airline, survived a motion to dismiss in December 2024. Surviving dismissal is not a final verdict, but it is the procedural moment at which a case stops being a press release and becomes a discoverable, defendable, expensive piece of litigation. The theory of harm, that consumers paid a premium or made choices in reliance on a neutrality claim that offsets could not support, has been judged sufficient to proceed.

The industry itself has read the signal. Following engagement with the European Commission, twenty-one airlines agreed to drop offset-based neutrality claims. That is not a regulator winning a contested argument, it is a sector conceding the point in advance of the deadline. When defendants in the same category as the litigation and the legislation begin retiring the claims voluntarily, the question for any remaining holder is no longer whether the claim is defensible but how quickly it can be withdrawn without drawing attention.

The claim was a marketing asset. The litigation has turned it into a discoverable liability, and the regulation has turned the liability into a quantified one.

02 · Where the exposure actually lands

Here is the shift that boards have been slow to internalise. When a public claim becomes unlawful, the inventory bought to support it does not disappear. It sits on the balance sheet as an asset that can no longer be deployed for its original purpose. The sustainability function purchased the credits. The marketing function printed the claim. But the exposure created by a now-prohibited claim, and by the public statements that surrounded it, lands on the desk of the general counsel and the chief financial officer.

The general counsel inherits the litigation and enforcement exposure: the historic statements, the consumer-facing claims, the regulatory filings that referenced neutrality. The chief financial officer inherits the asset and disclosure question: a holding whose intended use is now illegal in a major market, recorded under a framework that increasingly requires it to be tested and disclosed honestly. The Corporate Sustainability Reporting Directive and the European Sustainability Reporting Standard E1 require disclosure of the credits a company holds and the claims it makes about them. The book cannot be quietly carried at its original logic, because the disclosure regime now asks the company to describe both the holding and the claim, and the claim is the thing that has just become unlawful.

This is the reframing that a finance and legal audience needs to take from the regulation. The carbon book is no longer a sustainability instrument that happens to have a cost. It is a legal and disclosure exposure that happens to be denominated in carbon credits. The people who own legal and disclosure exposure are the general counsel and the chief financial officer, and they have inherited a position they did not build and may not fully understand.

03 · The questions a board should be asking now

The defensible posture is not to panic and dump the holding, nor to hope the deadline slips. It is to know, with precision, three things. First, what claims has the company actually made, in which markets, and which of them touch the offset-based prohibition. Second, what is in the book that was bought to support those claims, and what is its honest current standing. Third, what is the diligence trail that would defend the company if a regulator or a claimant came calling, and where are the gaps in it.

Most organisations cannot answer the second and third questions cleanly today. The book was assembled over years, through brokers and bilateral purchases, against a claim logic that the law has now invalidated. The records that would show what was bought, why, on what diligence, and how it has performed since are scattered or absent. That is the difference between a company that can stand in front of an enforcement inquiry and one that cannot. The litigation record shows that the inquiry is no longer a remote possibility. The KLM judgment, the surviving Delta class action and the twenty-one airlines retreating from their claims are all evidence that the enforcement environment has already arrived.

The independence point is decisive here. A diligence trail assembled by the broker who sold the credits, or by the sustainability team whose past decisions are now in question, is not the trail a general counsel wants to rely on in front of a court. The party that built the exposure cannot credibly be the party that certifies it is contained. What the legal and finance functions need is an independent, finance-grade record of what the book contains, how each holding stands, and what diligence supports it, produced by someone with no stake in the original purchase and no position in the credit itself.