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Freshfields Sustainability

| 5 minutes read

Greenwashing and litigation risks in Germany - the case of financial institutions

Increasing ESG regulation across Europe affects the compliance obligations of banks and other financial services providers. Greenwashing has been a particular priority for regulators and consumer groups. Below, we set out the potential litigation risks and mitigation measures in connection with greenwashing with a focus on the German market.

What has happened so far?

Following the publication of the European plan on “Financing sustainable growth”, the EU has implemented several regulations to achieve the goals set out in the Paris Agreement on climate change. A key aspect of the plan – which is addressed in the regulation on the establishment of a framework to facilitate sustainable investment (the Taxonomy Regulation) – is to redirect the flow of capital towards more sustainable economic activities. Banks and financial institutions are the main stakeholders responsible for implementing this process. Greenwashing has potential to undermine this goal.

The EU Taxonomy Regulation defines greenwashing as:

gaining an unfair competitive advantage by marketing a financial product as environmentally friendly, when in fact basic environmental standards have not been met.

As consumer interest in climate change grows, investment managers are increasingly developing financial products labelled “green” or “sustainable” to capture the growing market. If allegations of greenwashing become public, either due to media reports or regulatory disclosure, and the products do not perform well, it could lead to increased liability and litigation risks.

What are the potential liability risks in Germany?

A greenwashing liability risk in connection with financial products sold to consumers might arise under the application of the following legal concepts:

  • As of 28 May 2022 the German Act against Unfair Competition provides a right for consumers to claim damages if they entered into a contract due to misleading statements or missing essential information in the product description. In a series of judgments, German courts have already banned advertisements relating to different products following greenwashing claims brought by consumer protection associations. The judgments deal with the limits of advertising products and services as “eco-friendly”, “climate neutral” or “sustainable” under the German Act against Unfair Competition and, in particular, with the question of whether such adverts contain misleading statements or withhold essential information relevant to the consumer’s decision. The application of the German Act against Unfair Competition may lead to damage claims against banks or financial services providers which incorrectly advertise financial products as “eco-friendly”, “climate neutral” or “sustainable”.
  • Claims may also be brought against a bank or financial institution for breach of advisory duties by way of an implied advisory contract due to statutory law (German Civil Code). Advisory duties under the German Civil Code regarding financial aspects of the transaction  include  the duty to take the client's individual sustainability goals and other ESG-related factors into account when considering the suitability of the investment.
  • Further, an issuer might face liability under the German Securities Prospectus Act (Wertpapierprospektgesetz) if financial products do not adhere to the standards set out in the relevant EU regulations.
  • Finally, a potential liability under tort law might arise where advertising of financial products amounts to capital investment fraud. A claim might be raised by claimants if a bank or financial institution is publicly accused of intentional greenwashing.

What are the potential litigation risks in Germany?

The liability risks above give rise to a number of litigation risks for banks and financial institutions. In particular, individual mass claims are conceivable against the background of a possible downturn of the financial markets and a corresponding loss in value of ESG-related financial products.

  • Individual mass claim litigation risk

Hundreds or thousands of individual lawsuits create a considerable litigation risk for banks and financial institutions for alleged greenwashing. Comprehensive regulation and increasing social awareness about ESG-related issues could produce a growing demand for these claims. In the case of an economic downturn, any investor whose initial and primary goal has been a sustainable investment may become a potential claimant. This is especially true if the investor is facing a loss and discovers inconsistencies in the product information relating to ESG. A highly professional group of claimant representatives has emerged in recent years, further amplifying mass claims risks.

  • Proceedings under the Capital Investor Model Proceedings Act (KapMuG)

This proceeding covers claims for damages arising from false, misleading or omitted public capital market information. This includes claims arising from prospectuses or other contractual documents but also annual financial statements and other management reports. A KapMuG claim requires an application filed with the District Court to establish a model case procedure. At least 10 cases against the same defendant have to be based on the same cause of action and identical or similar facts. If the claim is accepted a lead claimant will argue the case on behalf of all claimants before the Higher Regional Court. Once the court has rendered a decision, the matter is transferred back to the originating District Court. The District Court will then decide the individual cases on the basis of the Higher Regional Court`s decision.

  • Implementation of the EU Representative Action Directive in Germany

According to the recently published draft, the new collective redress action in Germany provides a new remedy for claimants who will now be able to collectively seek damages and are no longer limited to declaratory relief. Only registered qualified entities – also based in other European countries – are entitled to file a collective redress action. Consumers and small businesses can join on an ‘opt-in’ basis. The procedure consists of three phases: The basic judgment sets out the specific conditions for the eligibility of the consumers concerned and the evidence to be provided by them. In the subsequent settlement phase, parties shall seek an amicable settlement. The court procedures end with a final judgment. In the absence of a settlement, a collective total amount will be set to be distributed by a custodian. The new collective redress action could be a game changer regarding collective redress in Germany.

How to mitigate liability and litigation risks?

Liability and litigation risks can be mitigated by adopting some of the strategies below:

  • Monitoring current developments in national and international ESG legislation and case law and proactively implementing necessary changes before mandatory changes are required by regulators or courts.
  • Implementing adequate compliance mechanisms that allow checking the ESG conformity of financial products and prevent greenwashing by using ESG checklists, standard forms and requirements as well as internal whistleblowing mechanisms.
  • Documentation of all steps that have been taken to continuously verify and monitor the ESG conformity of the financial products.
  • Implementing a communication strategy that allows for a quick and comprehensive corporate response in case of any public allegations regarding greenwashing. 


In Germany, the liability and litigation risks of banks and financial service providers in respect of greenwashing are steadily increasing due to complex regulation, professional and organised claimant representatives and increased public and regulatory scrutiny in relation to ESG issues. While claimants have been and are still focussing on individual mass claims, further procedural instruments, such as the new collective redress action, will soon be added to the claimants’ toolbox. Together with a possible downturn of the capital markets, this could result in a “perfect storm” requiring banks and financial institutions to plan ahead, consider possible mass claims scenarios and implement mitigation measures.


climate change, consumer, environment, europe, financial institutions, financing and capital markets, global financial investors, green bonds, litigation, shareholder activism, green energy, investment fund services