What are the top 3 developments in Germany concerning green claims and the associated risk of greenwashing?
With the growing environmental awareness of consumers, ecological aspects are becoming more and more important for the purchase of goods or services. Frequently encountered forms of environment-related advertising include companies advertising their own environmental protection measures (such as the production of paper products from recycled paper or the avoidance of unnecessary packaging waste/reduction of plastic) as well as advertising charitable donations they have made. As environmental protection is given a high priority by EU law (see Article 191 (1) TFEU) and national constitutional law (see Article 20a German Basic Law (Grundgesetz)), the objectives of environmental protection are being prioritised – not only in the EU but also in Germany.
1. A complex legislative and regulatory landscape provides the legal backdrop for the evaluation of sustainability claims in Germany
According to German practice, the permissibility of advertising (including green claims) to consumers is essentially determined by the harmonised Law against Unfair Competition (“UWG”). Advertising claims are either directly subject to the provisions of the UWG (e.g. with a view to avoiding misleading consumers) or to special statutory provisions and standards which must be taken into account. However, it is not always easy to keep track of the regulations regarding advertising claims and product designations due to the multitude of regulations, directives, legal provisions and laws on both a national and EU-wide level.
Insofar as specialised statutory provisions (e.g. applicable to sectors such as food, feed and cosmetics) also seek to regulate market conduct in the interests of market participants, compliance with their terms can generally be enforced under Section 3a UWG. At EU level, green claims and greenwashing are currently addressed by, amongst other things, the European Green Deal, which aims to ensure that “claims on the environmental performance of companies and products are reliable, comparable and verifiable across the EU”.
As part of the Circular Economy Action Plan, one of the most important “building blocks” of the Green Deal, the EU Commission recently presented proposals for amendments to EU consumer legislation intended to empower consumers to actively participate in the green transition by purchasing sustainable products.
As such, on 30 March 2022, the EU Commission published the draft directive on the adaptation of the "Empowering Consumers Directive" which provides adaptions to the Unfair Commercial Practices Directive (“UCPD”) and the Consumer Rights Directive. Since 26 October 2023, the result of the trialogue talks between the Commission, the Council and the European Parliament on the proposed directive are available. The updated draft directive is scheduled for reading in the European Parliament in the second third of November 2023. Among other things, the adaptions provide for significantly stricter regulations for the admissibility of environmental claims in advertising. For example, there will be new specific per se bans on the use of (unapproved) sustainability labels, (generic) environmental claims and claims based on greenhouse gas emissions offsetting. As things stand at present, it can be assumed that the Empowering Consumer Directive will be adopted in the course of the first half of 2024, before the elections to the new European Parliament.
Furthermore, the EU Directive on the “substantiation and communication of explicit environmental claims” (so-called “Green Claims Directive”, “GCD”) proposed by the EU Commission on 22 March 2023 is expected to provide more clarity for advertisers with regard to “green” claims. The current draft of the GCD provides, among other things, for a system of prior verification of all explicit environmental claims (so-called “ex ante verification”) as well as extensive information obligations in connection with the use of the environmental claims in commercial transactions following the conformity check. Independently created environmental labels will be banned in the future and a catalogue of approved labels is planned to be created. It is currently not certain if this directive will be adopted prior to the 2024 elections.
2. Increasing public interest in sustainability prompts consumer protection initiatives and court scrutiny of ‘climate neutrality’ claims
The topic of environmental claims has been receiving increased attention in Germany in recent years. As such, competition and consumer protection organizations, such as the German Centre for Protection against Unfair Competition (“Wettbewerbszentrale”) and the Environmental Action Germany (“Deutsche Umwelthilfe”), are also showing more and more interest in such claims.
One example are their recent actions against claims such as "climate neutral". The Wettbewerbszentrale took many cases to court and accused the companies of making misleading statements, such as "100% climate-neutral production" or "climate-neutral product", which would give consumers the impression that climate neutrality was achieved through emission-avoiding or emission-reducing measures – whereas, in reality, neutrality was (at least partially) achieved through the purchase of carbon compensation certificates rather than through any relevant neutralising measures.
Furthermore, the claims in question also did not meet the transparency requirements for advertising of this kind. The Wettbewerbszentrale took the view that consumers must be informed about the exact environmentally relevant measures which have actually been taken to justify claims of “climate neutrality”. At the end of 2021, the Regional Court of Constance confirmed the opinion of the Wettbewerbszentrale and stated that, when advertising climate neutrality, consumers must be comprehensively informed about whether the company contributes, at least in part, to reducing its carbon footprint through its own more environmentally friendly measures, or whether it merely purchases carbon compensation certificates (Regional Court Constance, judgment of 19 November 2021, file no. 7 O 6/21). This judgment is in line with a previous judgment of the Regional Court of Kiel (judgment of 2 July 2021, file no. 14 HKO 99/20).
As the case law and the legal environment are constantly changing, it is important for businesses to always stay up to date. For instance, in June 2022, the Higher Regional Court of Schleswig overruled a previous decision by the Regional Court of Kiel, stating that an advert claiming “climate neutrality" was not misleading since consumer understanding had developed over time, to a point where it would be clear to a consumer that the advertised product could not have been produced entirely emission-free, but that (partial) compensation via certificates must have taken place (judgment of 30 June 2022, file no. 6 U 46/21).
This year, the Düsseldorf Higher Regional Court (OLG) had to rule on two appeal cases concerning the claim of "climate-neutral" (judgments of July 6, 2023, file no. I-20 U 72/22 and I-20 U 152/22), one concerning the advertising of a "climate-neutral jam" and the other of a "climate-neutral fruit gum":
The Düsseldorf Higher Regional Court confirmed the recent decision-making practice of the German appeal courts (in particular, the Frankfurt Higher Regional Court and the Schleswig Higher Regional Court), to the effect that it said the average consumer understands climate neutrality in the sense that it means the balancing of the carbon emissions of a product, and that the consumer is aware that this can be achieved through both emission-reducing and also emission-compensating measures.
However, the court also stated, the advertiser has certain information duties with regard to achieving climate neutrality. The way in which climate neutrality is achieved provides the essential information that the consumer needs to make an informed purchase decision. In its decisions, the Düsseldorf Higher Regional Court emphasised the importance of climate protection for consumers and the considerable influence that climate-related claims can have on purchasing decisions.
Whilst in the case of the jam manufacturer, where the reference to further information on how to achieve climate neutrality was missing and, therefore, the duties to provide information had been breached, in the case of the fruit jelly manufacturer, a QR code/link to a website with further information was considered sufficient. In the proceedings concerning the fruit jelly manufacturer, an appeal is now pending before the Federal Court of Justice (file no. I ZR 98/23). It remains to be seen how the German Federal Court of Justice will rule on what is probably the first case it has received which relates to the claim “climate neutral”.
In two further actions concerning an advertisement with the claim "climate neutral" in connection with references to the selected compensation projects, inter alia a forest protection project in Kenya, the Karlsruhe Regional Court (judgement of 26 July 2023, file no. 13 O 46/22 KfH) and the Berlin Regional Court (judgment of September 19, 2023, file no. 102 O 15/23) found that climate neutrality could not be achieved solely by compensation with the help of forest protection projects, as this would not be sufficient to permanently and reliably compensate for the greenhouse gas emissions caused by the product.
The strict standards developed by the German courts also apply to other climate-related claims. In its judgment dated 26 July 2023, the Karlsruhe Regional Court viewed that the term “environmental neutrality” would be understood by the target pubic in a specific sense, namely as a “product with a balanced environmental footprint”, and, therefore, to the effect that after the environmental impacts have been reduced and any remaining environmental impacts have been compensated, no (negative) impacts on the environment would remain. As the products in dispute do not have a balanced environmental footprint because they only fulfilled some of the categories related to the overall environmental impact, advertising with the claim that they are “environmentally neutral” is exuberant and, therefore, incorrect. The losing party has appealed against this ruling, so an appeal decision on the subject is to be expected.
As is evident from the above examples, advertising claims relating to a product’s environmental benefit have to be carefully considered, and legal advice may be necessary in order to avoid an accusation of misleading advertising in the changing legal framework.
3. Increasingly severe legal consequences, heavy fines and a German peculiarity, the “recall risk” – what do advertisers have to fear from greenwashing?
The UWG lays down the legal consequences to be expected for cases of greenwashing. Greenwashing is regularly classified as misleading, and in some cases may violate market conduct rules under the UWG. In addition to civil law consequences, administrative orders and criminal law consequences are also possible. In the past, it was already the case that the possible legal consequences could not be taken lightly. More recently, the legal consequences have become much more severe, and it is expected that the incentive to attack misleading practices such as greenwashing will considerably increase as a result of current changes in the law.
Until recently, the main legal consequence of an infringement under the UWG was the injunctive relief which could be claimed by competitors and certain associations. Sales prohibitions and the discontinuation of marketing activities are therefore common court rulings. In recent years, however, the legal consequences have been aggravated by case law which has established that the duty to cease and desist also includes a duty to recall.
Fines and claims for damages by competitors have played a subordinate role in practice up to now. However, legal amendments introduced as recently as 2022 further significantly tighten the legal consequences and could provide increased incentives for the prosecution of violators, whilst also extending the pool of potential claimants. For the first time, consumers themselves can now file individual claims for damages under the UWG if they were induced to make a business decision that they would not otherwise have made, due to an unlawful business act, such as a misleading statement. A claim may be brought if misleading greenwashing leads to a purchase decision and the consumer suffers a loss due to the differing quality of the product. Moreover, the implementation of the Directive on representative actions in Germany is imminent which means that, in future, it will also be possible to enforce claims for damages by way of a representative (or ‘class’) action. This represents a major extension of the possibilities for collective redress.
Another new feature of the UWG is the possibility of issuing administrative fines (among other sanctions) for misleading information. In this respect, it is an additional requirement that the infringement is widespread, has a Union dimension, or both. The legal consequences can be severe: although the maximum fine which can be imposed in principle is €50,000, if the company has generated an annual turnover of more than 1.25 million euros in the year preceding the official fine decision, a higher fine of up to 4 percent of the annual turnover can be imposed.
In addition to measures under the UWG, specific legal prohibitions may also be enforced by specialised authorities based on specific types of misleading statements, such as in food or cosmetics law. Especially in the case of on-pack claims, authorities can, for example, order distribution bans, withdrawals from the market or recalls. Furthermore, some special laws also provide for criminal offences and administrative offences. The planned GCD also stipulates that Member States must adopt a system of penalties that ensures that the penalties provided for are effective, proportionate and dissuasive. The maximum sanction is quite significant and should amount to at least 4 percent of the trader's annual turnover in the Member State (or several Member States) concerned.
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