A draft European Union law will require companies to back up green claims with evidence.
The proposal will clamp down on companies promoting their products as "climate neutral" or "containing recycled materials" if such labels are not substantiated.
The draft document - seen by Reuters - aims to fight misleading environmental advertisements.
"By fighting greenwashing, the proposal will ensure a level playing field for businesses when marketing their greenness," said the draft, which could still change before it is published.
The attempt to stamp out greenwashing comes after a European Commission assessment of 150 claims about products' environmental characteristics in 2020 found that more than half - 53 per cent - provided "vague, misleading or unfounded information".
How does the EU plan on fighting greenwashing?
As awareness about the climate crisis grows, increasing numbers of businesses are co-opting the language of sustainability.
The draft legal proposal would fact-check these claims by imposing reporting requirements on different companies.
EU countries would have to ensure environmental claims are proven against a science-based methodology, such as a "product environmental footprint" framework that tracks environmental impacts across 16 categories including the air and climate change.
Under the proposal, companies that claim their product has a positive environmental impact must also disclose if this causes an negative impact in another area.
Claims based on promises of future environmental performance must be backed up by milestones the company will achieve by specific dates.
Companies whose claims rely on buying carbon credits to offset their own environmental impact would have to disclose this.
EU countries would need to establish a system to verify companies' claims, and impose penalties for non-compliance.
The draft document said the move would help consumers identify which products are truly eco-friendly and give proper credit to firms whose products have real environmental benefits.
The draft rules would cover all products and services sold in the EU, unless they are covered by comparable EU rules. "Green" investment products are already regulated the EU's taxonomy, a controversial labelling system facing legal challenges from the Austrian government and campaigners for allowing gas and nuclear energy to be labelled as green.