Advertising with Green Claims

Few issues have been as ubiquitous in recent years as climate change. The crisis is in the news every day. No wonder, then, that the climate is also making waves in competition law: greenwashing – as the demand for environmental friendliness increases, so does the attraction for companies to advertise with such terms, and the potential for misleading.

Growing Demand for Sustainable Products

Consumers want to live green: According to recent studies, 88% of global respondents say they would buy sustainably if given the opportunity; 77% want to spend money only on brands with green and sustainable advertising within the next five years’ time (dentsu, The Rise of Sustainable Media, 2021). 73% of Gen Z are even willing to pay more for sustainable products (First Insight, The State of Consumer Spending: Gen Z Shoppers Demand Sustainable Retail, 2020). There is a shift in consumer expectations. Sustainable products and services are increasingly in demand with a high willingness to pay. Many companies are seizing this opportunity. Advertising sustainability is becoming a selling point.

Greenwashing and the Unfair Competition Act

In many cases, however, advertising promises are not kept. In 2021, the EU Commission analysed company websites for their environmental promises. 37% of websites advertise sustainable, environmentally friendly or carbon neutral companies and their products or services, but in reality they are not or only partially sustainable. 59% of sites contain unsubstantiated information, making the promises unverifiable. According to the analysis, a total of 42% of websites violate the Unfair Commercial Practices Directive (EU Commission, Screening of Websites for ‘Greenwashing’: Half of Green Claims Lack Evidence, 2021). The competition authorities and consumer associations in particular want to remedy these shortcomings and are committed to protecting consumers and the environment. As a result, greenwashing is increasingly becoming the subject of legal proceedings. These proceedings are based on Sections 5 and 5a of the German Unfair Competition Act (UWG). According to these provisions, business activities are misleading if they contain untrue statements or other statements that are likely to mislead, in particular with regard to the essential characteristics of the product or service. The relationship with the environment is one such essential characteristic, as it relates to the nature of the product.

Legal Development: Prohibition of Misleading Claims and Information Requirements

Environmental claims are in principle allowed. However, as in the case of health advertising, they are subject to strict legal standards—following a ruling by the Federal Court of Justice in the 1980s. The main reason for this is the emotional appeal of sustainability advertising. It arouses consumers’ concern for their own health and a sense of responsibility for future generations.

The risk of being misled is particularly high with terms whose meaning and content are (still) unclear: environmentally friendly, sustainable, organic, to name but a few. There is an increased need for clarification on the part of the target public. A clearly visible, informative label is therefore required. The stringency of this label will be determined on a case-by-case basis, depending on the type of product and the degree and extent of its environmental friendliness. In the case of relative sustainability, for example, the respective advantage of the product must be explicitly stated (Higher Regional Court Bremen, judgement of 23 December 2022, 2 U 103/22). Climate or CO2 neutrality is understood by the courts to mean a balance of CO2 emissions, which can be achieved either through avoidance or through compensation. In the case of compensation measures, it must be explained in the advertising whether, for example, CO2 certificates have been purchased or third-party climate projects have been supported. If a quality label is used, information on the test criteria must be provided (Higher Regional Court Frankfurt/Main, judgement of 10 November 2022, 6 U 104/22). As far as the scope of information requirements is concerned, it is generally true that consumers become more interested in details the more prominent an issue becomes in their minds. And climate change is currently omnipresent.

Recommendations and Outlook

Advertising with environmental claims is lucrative for companies. But caution is needed. To avoid misleading consumers, an informative reference to the more detailed circumstances to which the claim refers is usually required. Companies should therefore be specific about the benefits of their product or service. The reference must be consistent, clear, and easily readable. Eco-labels must also be accurate and verifiable.

In the future, companies should keep abreast of current legislative projects in this area. The EU Commission is committed to climate protection. There are proposals to amend the Unfair Commercial Practices Directive to empower consumers for environmental change through better protection against unfair practices and better information (COM/2022/143) and for a Directive on environmental claims (COM/2023/166). In addition, the financial market will be incentivised as it can direct capital flows towards sustainable investments to achieve sustainable and inclusive growth. The Disclosure Regulation (EU 2019/2088) in conjunction with the Taxonomy Regulation (EU 2020/852) are particularly relevant.