Greenwashing – Federal Court of Justice decision and new requirements for environmental advertising in the EU

After various regional and higher regional courts in Germany have examined the conditions under which companies may advertise the alleged “climate neutrality” of their products and services in recent years, the Federal Court of Justice (BGH) has now issued clear instructions. Companies must also prepare for fundamental new regulations concerning sustainability advertising as a result of two European Union directives.

Background

The judgement of the Federal Court of Justice (I ZR 98/23, 27 June 2024) was based on an advertisement by a confectionery manufacturer that advertised in a magazine with the statement “Since 2021, [manufacturer] has produced all products in a climate-neutral manner.”  The advert also included a label with the words “climate neutral” and “product”. Scanning the QR code included in the label took the reader to a third party website where further information on the product’s alleged climate neutrality was available. The German Centre for Protection against Unfair Competition took legal action against this advertising, arguing that it suggested an emission-free production. If the claimed “climate neutrality” was not achieved through actual emission savings in production, but only through offsetting activities (such as environmental protection projects), this should have been made clear in the advert itself – and not only on the website accessible via the QR code.

The lower courts in the form of the Regional Court of Kleve and the Higher Regional Court of Düsseldorf had deemed the advertising to be permissible and in particular based their decision on the fact that the consumer would understand the term “climate neutral” as an indication of a balanced carbon footprint. If this is not (only) achieved through savings in production, but also through offsetting methods, this must be disclosed. However, in the case of the advert in question, this was done on the website which could be accessed via the QR code in the advert. Therefore, the consumer was not misled.

Decision of the BGH

The Federal Court of Justice overturned the judgement of the Düsseldorf Higher Regional Court and prohibited the advertising by the confectionery manufacturer on the grounds that it was misleading within the meaning of Section 5 (1) of the German Act against Unfair Competition (UWG). Strict requirements apply to advertising with environmental claims, as the public has been increasingly aware of environmental issues for decades and the environmental compatibility of a product plays a special role in many people’s purchasing decisions. At the same time, however, vague terms such as “climate-neutral” or “environmentally friendly” would harbour a considerable potential for misleading advertising in such a scientifically complex topic. Accordingly, ambiguous advertising claims would have to be clarified.

In the case of the term “climate-neutral”, the public could understand this as a reference to the reduction of CO2 emissions during production as well as a subsequent CO2 compensation. The court emphasized a “principle of prioritising reduction over compensation”. The advertising company must therefore provide information about the exact background of the claimed climate neutrality.

The BGH stated that the confectionery manufacturer had not sufficiently met these requirements. In particular, the court took into account that the advertised climate neutrality explicitly referred to production (“Since 2021, [the manufacturer] has been producing all products in a climate-neutral manner.”). It was therefore not immediately apparent to the consumer that this was actually only about offsetting measures.

The manufacturer had also not fulfilled its duty to provide information by including a QR code which led to the website explaining the details of the claimed climate neutrality. Rather, the information had to be provided in the advert itself. The BGH did not accept the argument that this was not possible due to lack of space within the advert.

Overall, the Federal Court of Justice specifies the requirements for advertising with environmental claims and sets strict standards. When using ambiguous terms, companies should carefully check whether sufficient information is provided in the advertising or on the respective product. Caution is required in particular if the consumer is required to actively investigate, for example by visiting a website.

Outlook: EU reforms to combat greenwashing

The requirements for advertising with environmental claims specified by the Federal Court of Justice are likely to be only a provisional guideline for companies in Germany. This is because the European Union is currently working on new regulations that will set new standards as part of the “Green Deal” with the aim of more effective environmental protection. As a result, this will lead to stricter requirements for environmental advertising.

The EU Directive on Empowering Consumers for the green transition (EmpCo Directive) came into force in March 2024. Its provisions must be implemented in the member states by 27 March 2026. In particular, the directive stipulates that companies may only use sustainability labels (e.g. organic labels) that are based on an independent certification scheme or are determined by government bodies. This means that companies will no longer be able to certify the sustainability of their products themselves.

In addition, the EmpCo Directive stipulates that generic environmental claims may not be made if a claimed recognised excellent environmental performance cannot be proven. This makes it particularly difficult to advertise with bold and simple statements such as “environmentally friendly”. Furthermore, an environmental claim may not be made about an entire product or the company’s business operations if the environmental performance only relates to partial aspects or specific activities.

Another important provision concerns advertising with benefits of offsetting of greenhouse gas emissions. Such advertising claims will be prohibited if they claim a neutral, reduced or positive impact on the environment. This means that in future, statements such as “climate neutral” or “CO2 reduced” will be prohibited if they are merely based on compensation measures and not on the actual avoidance or reduction of greenhouse gases in the value chain. As a result, these regulations go beyond the requirements of the BGH.

Finally, the Directive prohibits claims related to future environmental performances (“We will be climate neutral by 2035”) if these are not based on clearly defined and verifiable commitments by the company that are set out in a transparent, detailed and realistic implementation plan.

The EmpCo Directive is supplemented by the Directive on the substantiation of explicit environmental claims and related communication (“Green Claims Directive”). The directive is currently only available as a proposal from the European Commission and has not yet been finalised.

The Green Claims Directive is intended to further improve the verifiability and reliability of environmental claims. To this end, detailed substantiation requirements are initially established for explicit environmental claims (such with verifiable content), on the basis of which companies must evaluate the claims internally. In addition, consumers must be provided with detailed information that makes the environmental claim comprehensible. In particular, the content of the claim must be explained and the scientific basis and specific steps for implementation must be set out. To ensure that these requirements for justification and communication are met, the directive stipulates that environmental claims must be approved in advance by an accredited independent body. Only after receiving a certificate of conformity may the claim then be used in advertising.

The directive also sets out further provisions on environmental labels. Accordingly, new public environmental labels may only be developed at the EU level. New private ecolabels must not only prove that they pursue more ambitious goals than existing schemes, but must also be reviewed and authorised in advance. In addition, essential information on targets, implementation and monitoring of compliance must also be provided.

Companies that violate the new requirements for justification and communication face high fines of up to four per cent of their annual turnover, profit disgorgement and exclusion from public procurement procedures.

Conclusion

Environmental advertising is an important tool for many companies to promote their products and services to environmentally conscious target groups. The requirements for the permissibility of such advertising claims were only rudimentarily regulated in Germany in the past and have only been more clearly defined by case law in recent years. On the EU level, fundamentally stricter rules for environmental claims and environmental labels are now emerging. Companies should be prepared for the stricter legislation and review and adapt their own advertising strategies and product labelling practice if necessary.