Since consumers are paying more attention to climate-friendliness and sustainability when it comes to purchasing decisions, companies are using green marketing strategies, both in relation to specific products or services and in relation to the company itself. Not surprisingly, companies are increasingly facing greenwashing accusations from consumers, NGOs, consumer protection associations and public authorities with the aim of holding companies to account for misinformation.
German NGOs challenging corporate advertising and climate pledges
A recent example is German NGO Deutsche Umwelthilfe (DUH) with plans to make consumer protection from misleading advertising and climate pledges a central focus of their work. According to a press release of 18 May 2022, DUH plans to target initially eight companies for allegedly misleading advertising claims that products (including air travel, fuels, food and cosmetics) are “climate-neutral” by sending cease-and-desist-letters. Since at least five of the companies have refused to submit to the terms of the cease-and-desist-letters, DUH has recently announced it will initiate court proceedings in due course.
DUH is not the only organization taking action. A raft of decisions from German courts dealt with greenwashing claims brought by several consumer protection associations under the German Act against Unfair Competition (UCA), in particular whether adverts for “climate-neutral” products contain misleading statements (Section 5(1) UCA) or withhold essential information relevant for the consumers’ choice (Section 5a UCA).
Misleading advertising for “climate-neutral” bin bags?
In a judgment dated 2 July 2021 (docket no 14 HKO 99/20), the Kiel Regional Court ruled that a manufacturer of bin bags may not advertise its products with the addition “climate-neutral” below its brand name if in fact only a certain product line is climate-neutral. The Wettbewerbszentrale, an association for the promotion of fair competition, successfully sued for omission because of unfair practice. The Kiel Regional Court considered the placement of the slogan “climate-neutral” in connection with the company’s brand logo suggested to an average consumer that the company would exclusively produce climate-neutral goods and therefore was misleading.
On 30 June 2022, the Schleswig Higher Regional Court applied a more generous standard and overruled the judgment on appeal (docket no 6 U 46/21). According to the Schleswig Higher Regional Court, the slogan “climate-neutral” printed on a household article next to a company logo does not suggest that the manufacturer exclusively produces climate-neutral goods but only refers to the particular product. Unlike advertising a product as “environmentally friendly”, the term “climate-neutral” had a sufficiently clear meaning for the consumer as to an even CO2 balance, which is not the same as completely avoiding CO2 emissions during the production process. The court therefore denied that the use of the term “climate-neutral” was misleading. Moreover, the court found that information on how climate neutrality is achieved was not essential for the purchase decision and therefore did not need to be provided on the packaging. Rather, a reference to a website on which further information was available was sufficient.
Misleading advertising for “climate-neutral” heating oil
A supplier of heating oil was sued by the same association for advertising its product as “climate-neutral premium heating oil”. The Konstanz Regional Court found on 19 November 2021 (docket no 7 O 6/21 KfH) that the defendant withheld material information from its customers by not providing any information on how climate neutrality of the heating oil was achieved. The Konstanz Regional Court considered that advertising a product as “climate-neutral” is subject to certain requirements and information obligations due to the special emotional advertising power of environment-related statements, the complex scientific relationships, and the mostly low level of knowledge of the public. Manufacturers must therefore state whether and to what extent they achieve the claimed climate neutrality through their own measures, or compensation projects.
Misleading advertising for “climate-neutral” food products
Likewise, the Oldenburg Regional Court (docket no 15 O 1469/21) decided on 16 December 2021 in respect of a claim about “climate-neutral” meat. An average consumer would assume that CO2 emitted during the production and distribution of the product is either compensated for by climate projects, or that CO2 is not emitted at all. It could not be assumed that a consumer understands the term “climate-neutral” exclusively in the meaning of an even CO2 balance through compensation. Therefore, it should be communicated that the manufacturer intended to achieve the claimed climate neutrality through its support of climate-protection projects.
The Mönchengladbach Regional Court also considered the use of the term “climate-neutral product” on a jam jar to be misleading (judgment of 25 February 2022, docket no 8 O 17/21) because an average consumer would not understand this statement to mean that the CO2 emitted in the production process is compensated by subsequent means. Although the concept of climate neutrality through compensation was generally known, a consumer would link the statement to the specific product and thus directly to the manufacturing process.
The Kleve Regional Court (docket no 8 O 44/21, dated 22 June 2022) on the other hand came to a different conclusion regarding a fruit gum manufacturer that advertised its “climate-neutral” products in a specialized journal for the food industry. The court dismissed the action against the fruit gum manufacturer since it was not misleading to a professional audience if the production process was not emission-free, but climate neutrality was achieved through compensation. It can therefore make a significant difference who the addressee of the advertisement is.
Misleading advertising for sustainable investments
The financial sector also faces greenwashing allegations by consumer associations. On 10 January 2022 (docket no 36 O 92/21 KfH) the Stuttgart Regional Court considered advertising statements of an investment fund manager to be misleading. The fund manager had offered a CO2 calculator that supposedly allowed customers to calculate their carbon footprint. This value was then compared with a “CO2 offset” of 3.5 tonnes of CO2 per 10,000 EUR of invested capital. The claim for omission of these statements brought by Verbraucherzentrale Baden-Württemberg was granted. The statements on the CO2 reduction of 3.5 tonnes would be understood by the public as absolute and fixed values, though these were only target values, which could be significantly undercut. This was misleading according to the Stuttgart Regional Court.
This is the first judgment by a German court dealing with advertising claims in relation to sustainable investments, but more are likely to follow. At the end of September 2022, Verbraucherzentrale Baden-Württemberg filed a greenwashing action against the largest German fund manager, DWS, at the Frankfurt Regional Court for allegedly misleading advertising for sustainable investments in connection with the DWS Invest Climate Tech Fund. The oral hearing is scheduled on 10 March 2023.
Comment and outlook
German courts generally apply strict criteria to the inadmissibility of greenwashing claims under the UCA. In most cases, the companies have been stopped from advertising their products and services as “climate-neutral”.
This is not a completely new development but is based on earlier case law on environmental advertising from the late 1980s onwards. In 1995, the German Federal Court of Justice emphasized that a strict standard had to be applied against the background of emotional advertising power, the low level of knowledge of the public and the complexity of environmental protection issues. Since the use of the term “environmentally friendly” in advertising does not have a defined conceptual meaning, it is generally necessary to name the respective environmental advantage to avoid misleading the consumer, the Federal Court of Justice found (judgment of 14 December 1995, docket no I ZR 213/93).
The same formula is now applied to climate-related adverts and most courts found that advertising a product as “climate-neutral” has an insufficiently clear meaning for consumers. Businesses are therefore best advised to be cautious about their climate-related advertising claims and should be prepared to prove the accuracy of such claims. Further explanatory information about how climate neutrality is actually achieved should be given to consumers, e.g., by providing information on the packaging, in a brochure, or via a link to a separate website
This development is not limited to Germany. Across Europe, NGOs challenge corporate climate pledges and advertising claims in courts based, inter alia, on competition and consumer protection laws. For example, in July 2022, ClientEarth – together with Fossielvrij Netherlands and Reclame Fossielvriji – has filed a greenwashing lawsuit against Dutch airline KLM for misleading adverts. Another case is currently pending before a French Court. NGOs Greenpeace, Friends of the Earth and Notre Affaire à Tous, supported by ClientEarth, filed a lawsuit against TotalEnergies with the Paris judicial court to challenge Total’s net zero marketing. In both cases, the NGOs argue that the companies violated the Unfair Commercial Practices Directive as implemented in Dutch and French law.
Greenwashing allegations are not only an issue for (civil) courts. Regulatory action on greenwashing allegations increases from a wide range of authorities. Most prominently, DWS and Deutsche Bank are under investigation by the U.S. Securities and Exchange Commission, German BaFin and public prosecutors following whistle-blower allegations made by DWS’s former sustainability officer about overstating DWS’s sustainable investments (for the bigger picture, including the US, see our recent blog post on mitigation of greenwashing risks).
Greenwashing is also on top of the agenda of the European Commission: On 30 March 2022 the European Commission published a proposal amending the Unfair Commercial Practices Directive and the Consumer Rights Directive to enable consumers to make more informed purchasing decisions. The Commission’s proposal essentially extends the list of unfair commercial practices to those associated with greenwashing and amends the list of product characteristics about which businesses must not deceive a consumer to include ‘environmental or social impact’, ‘durability’ and ‘reparability’ (see our colleagues’ blog post on the EU’s proposed ban on greenwashing).
Stricter legislative and regulatory environment will presumably lead to more greenwashing claims in the future. While these have so far focused on the omission of misleading advertising statements, claims for compensation could become more relevant in the future. As of 28 May 2022 the UCA provides a right for consumers to claim for damages if they have been prompted to take an economic decision that they would not have taken without the unfair commercial practice. This could possibly lead to class actions and mass claims if a larger group of consumers is affected. The implementation of the Representative Actions Directive in Germany and other EU Member States provides a new legal instrument for collective redress also covering claims under the UCA and the Unfair Commercial Practices Directive.