New German rules on “green” advertising

The Federal Court of Justice (BGH) in its decision of June 27, 2024 (Ref.: I ZR 98/23) prohibited advertising with the statement "climate-neutral" as misleading if no explanation is given whether the advertised climate neutrality is achieved by actual CO2 savings in the production of a product or merely by compensation.

It is not surprising that consumers consider aspects of environmental protection and sustainability in their purchasing decisions. "Green Claims", i.e., advertising statements with an environmental reference, are therefore found on more and more products. This also increases the number of competition law proceedings in which false or unprovable claims are subjected to judicial review.

Particularly active in this regard (in addition to individual disputes between competitors), are associations entitled to sue under the Act Against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb, UWG), such as the German "Wettbewerbszentrale", which has brought a claim about the admissibility of the claim "climate-neutral" by the fruit gum manufacturer Katjes through the instances to the German Federal High Court (Bundesgerichtshof - BGH).

Prior instance courts considered additional information provided via QR code to be sufficient The Higher Regional Court (Oberlandesgericht - OLG) Düsseldorf not only decided as the previous instance on the BGH decision on "climate-neutral fruit gums", but also prohibited the advertising of a jam as "climate-neutral". Previously, the OLG Schleswig had to decide on "climate-neutral garbage bags" and the OLG Frankfurt am Main on a "climate-neutral dishwashing detergent". No wonder there was an interest to get a uniform steer by the federal court and therefore a precedent.

Common to all decisions is that the courts do not consider the term "climate-neutral" to be misleading per se. The average consumer would rather know that climate neutrality means that CO2 emissions are balanced. This could be achieved - and the consumer would also know this - either by avoidance or by compensation.

The instance courts argued therefore, there was no deception by so called active deception (prohibited by German competition law, please see § 5 UWG). However, information about the compensation measures taken was seen as essential for the consumer in his purchasing decision. Anyone who advertises with the term "climate-neutral" must therefore make information how neutrality is achieved transparent and easily accessible. Accordingly, OLG Düsseldorf concluded regarding the jam advertised as climate-neutral that the company had not fulfilled its information obligations because no information about the compensation measures taken could be found via the advertising at all. The court therefore prohibited the advertising as (passive) deception by withholding information in accordance with § 5a UWG.

On the other hand, the decision of OLG Düsseldorf as the previous instance in the case of fruit gums, had decided in favour of the manufacturer. The advertisement with the statement "Since 2021, Katjes has been producing climate-neutral" contained both a web link and a QR code, which made the website of an agency accessible to the public which contained comprehensive information about the compensation measures taken. In this way, the essential information was provided, the OLG found. A (passive) deception was therefore ruled out from the court's point of view.

BGH considered the statement "climate-neutral" to be ambiguous and as potential cause of deception by active deception (§ 5 UWG). The term "climate-neutral" could be ambiguous because it can be understood both in the sense of CO2 non-emission, reduction, or mere compensation. These different interpretation options are also relevant for the consumer, as they do not represent equivalent alternatives. Rather, avoidance or reduction are preferable compared to mere compensation. It is therefore not enough if the consumer assumes a different way to achieve the alleged CO2 balance by reading the statement.

The court requested the clarification how CO2 neutrality is achieved had to be given in the advertising; explanatory notes elsewhere are not sufficient, contrary to the assessment of the previous instance. There was an increased risk of deception in environmental statements and accordingly an increased need for clarification about the meaning and content of the terms used. Previous OLG case law, according to which the term "climate-neutral" may be used in advertising without a clarifying note, provided that additional information on compensation measures was provided, is now outdated.

New obligations for companies and outlook

BGH has thus made a decision that is possibly painful not only from a company perspective in respect of the now increased liability and obligations, but also from a consumer perspective. The information obligations demanded by the instance courts have so far primarily served to make the advertising statements made verifiable for competitors and associations entitled to sue. On the other hand, in everyday life, it is rather unlikely that a potential buyer of a product will pull out his mobile phone before buying a product like fruit gums, garbage bags or other items for daily use, scan a QR code and inform himself comprehensively before his purchase decision whether the compensation was rather achieved through reforestation projects or the rewetting of bogs, what scope the respective programs the company has in place and which parts of the production process were included in the compensation. Rather, from a consumer perspective, the purchase of a product advertised as "climate-neutral" will simply feel better than the purchase of a non-climate-neutral product.

The possible prior solution is now rejected. BGH took into consideration the doubts expressed in science and case law about compensation measures. For example, other courts had considered reforestation projects to justify the statement "climate-neutral" to be unsuitable because these measures, due to the limited lifespan of trees, do not provide permanent compensation, but at most a temporary solution for a few hundred years. Since it takes several hundred thousand years for the CO2 emitted in the production of the advertised product to be broken down, the forest protection efforts named for compensation would have to be guaranteed in the same timeframe. Doubts about suitability, implementation, and scope of the projects mentioned as compensation have also been repeatedly raised in relation to climate certificates. However, these doubts can hardly be sufficiently pursued in competition proceedings due to the complex and time-consuming evidence situation.

While the Federal Court of Justice cannot resolve these doubts, it made clear that climate neutrality through compensation, compared to climate neutrality through avoidance, represents a minus which the consumer must be informed about in an advertising statement. In practice, this will mean that products can only be advertised as "climate-neutral" if it is clearly and directly stated in the advertisement that this is only achieved through compensation. Alternatively, the advertising may refer to the manufacturer's commitment in forest protection and other climate projects.

Apart from this German view, the EU legislator is also increasing the requirements for environmentally related advertising. There are two new directives in the pipeline, which are part of the so-called "Green Deal" of the European Commission and are intended to make advertising with environmental statements more transparent and easier to verify. The aim is to make products with actual environmental advantages more attractive to advertise, while preventing so-called "green washing". The respective new EU legislation consists of the so called "Green Claims Directive" which is still in the legislative process. The proposal includes, among other things, that every environmentally related advertising statement must be scientifically proven and approved by a testing agency in advance. If the proposal were to become law in a few years' time, climate statements would require comprehensive studies and evidence, and thus an effort that would particularly cause problems for smaller companies.

Regarding the statement "climate-neutral", however, the already adopted "Directive to Strengthen Consumers for the Ecological Change" (EU) 20224/825) also provides, that the advertising of products as "climate-neutral" or "CO2-reduced" may no longer be based on compensation measures in the future. So if production cannot be 100% CO2-free in practice, the advertising of products as "climate-neutral" is expected to be history from the date of implementation of the directive into national law, which is expected for 2026 in Germany and other EU jurisdictions.