Green Claims: German ‘Climate-Neutral’ Product Case

Making claims about carbon reductions or “carbon neutrality” may seem an attractive way to distinguish a company for its sustainability work, but such claims are becoming riskier to make. The last several years have seen a significant increase in litigation and regulatory requirements regarding such claims in the European Union, United Kingdom, United States and beyond.  Continuing that trend, on 27 June 2024, the German Federal Court of Justice handed down a Judgment in a case concerning environmental claims.  It is likely to have significant ramifications – particularly for companies making climate-related or carbon/greenhouse gas/emission – related claims in Germany.  This German case is just one example of why any company considering such claims should carefully examine the regulatory, enforcement and litigation landscape in all relevant jurisdictions, while also being sure to carefully construct and substantiate the claims.  

In its Judgment, the First Senate of the German Federal Court of Justice (the Bundesgerichtshof – “BGH”) – the highest court in Germany responsible for, amongst others, Competition Law – overturned two lower Court rulings, and held that a confectionery manufacturer had acted in breach of German Law concerning misleading commercial acts by claiming all its products were “…produced in a climate-neutral manner [since 2021]” and labelling the products “climate-neutral”.  The BGH held that, given the specific facts, these terms were not sufficiently ‘accurate, unambiguous and clear’ and were unfair and liable to mislead consumers, as, amongst other things, they were not sufficiently explained in the advertising itself.  The company must now cease and desist from making such claims in the future, or it will face fines and its directors could face imprisonment.       

Background

In February 2021, a manufacturer of fruit gum and licorice products advertised its products in a trade magazine (Lebensmittel Zeitung) in Germany.  The advertisement stated that “Since 2021, [company] has produced all products in a climate-neutral manner” and included a label with the words “climate-neutral [product]”.  It also included a website and QR code which linked to a separate German company, with information on certain climate-friendly projects.  The confectionery manufacturer financially supported the separate German company’s climate protection projects.     

A German industry association – the Centre for Combating Unfair Competition (“Competition Centre”) initially brought the case before the courts.  In June 2022, the Regional Court of Kleve dismissed the action.  The Competition Centre then appealed that decision before the regional Court of Appeal (OLG Dusseldorf).  In July 2023, the Court of Appeal also dismissed the core action but allowed an appeal to the BGH.  On 27 June 2024, the BGH handed down its Judgment, setting aside the Court of Appeal’s Judgment and amending the Regional Court’s Judgment.

General findings

In assessing whether the Court of Appeal had erred in law, the BGH noted that:

• The Court of Appeal was correct in its assessment that both the statement and the label were ‘environmental advertising’.
• The risk of consumers being misled by environmental advertising was “particularly high” as: (1) consumers often prefer environmentally friendly products due to a sense of responsibility for future generations but also to protect their own health; and (2) generic or vague environmental claims (such as ‘environmentally friendly’ etc) are often used but – generally speaking – one product is rarely environmentally better than another product in every respect but “usually only in some areas”. As such, there was “an increased need” to inform the public about the meaning and content of terms and signs used. 
• “Special legal standards” therefore apply to the legal assessment of environmental advertising claims in Germany, similar to the standards applicable to health-related advertising, which require that environmental advertising statements are ‘accurate, unambiguous and clear’.
• In those cases where an ‘ambiguous’ environmental term is used, the strict legal standards which apply to environmental advertising require that “the advertising itself clearly and unambiguously explain its specific meaning”.
• In this case, the environmental term “climate neutral” was used.
• This was an ‘ambiguous’ environmental term which could mean either (1) that the manufacturer itself had taken steps to produce the product by reducing, avoiding or eliminating its own emissions of carbon dioxide, or (2) that the manufacturer had merely offset its emissions by ‘compensation’ measures such as carbon trading schemes.
• These alternative meanings are not equivalent and thus ambiguous, given that the principle of “priority of reduction over compensation” applied, i.e. that manufacturers and others should prioritize the reduction and elimination of emissions in their manufacturing processes, over offsetting (e.g. ‘certificate trading’).
• This environmental term did not relate, in this case, to the company’s general activities but to “the production of the products” themselves which increased the need for clarification since the audience may very well assume that any production-related climate-neutrality might have been achieved through improved production methods/technology or supply chains rather than offsetting.
• In light of the strict legal standards applied to environmental advertising and the ambiguity of the term used, it would have been necessary for the manufacturer to explain the relevant meaning within the advertising itself rather than referring to another website (by using a QR code and/or url).
• It was also not apparent that, “for reasons of space, it was not possible to include in the advertisement” a clear and unambiguous explanation to avoid providing misleading information, and ensuring it was clear that the manufacturer was engaged in carbon offsetting schemes to compensate for production emissions.

The BGH was therefore not, per se, persuaded by the Defendant’s arguments that, for example: the advertisement was published in a trade magazine, that the level of sophistication of the readers was therefore not the same as the general public, or that – given the advertisement had a link to a separate company – it was clear that the ‘climate-neutral’ claim was referring to offsetting not reduction of carbon dioxide in the company’s own manufacturing processes.  Nor did the BGH, look, at whether the climate protection projects financially supported by the Defendant did, in fact, sufficiently offset its carbon footprint.

Some key take-aways

The case will be of significant importance to companies who make green, environmental and climate-related claims in Germany, in particular where companies:

• make general or vague climate claims with weblinks or QR code links with information explaining the claims made, and
• make climate claims which can be substantiated due to the reduction or elimination of greenhouse gases in production processes or, alternatively, merely (in whole or in part) to offsetting / trading schemes.   

Using terms for “environmental advertising” will thus be subject to additional requirements where such terms are potentially ambiguous. This may require, for instance, including additional clarifying explanations directly in the advertisement rather than referring to another venue such as a website.

It also seems likely that the Competition Centre (and possibly other similar associations) may use this precedent to approach other companies currently using the same or similar terms in their advertisements to request cease and desist undertakings from these companies.

This Judgment comes at a time of significant change in the regulation of green and environmental claims in Europe, particularly as regards the ECGT Directive and the Green Claims Directive and their transposition and implementation – and other ongoing efforts to prevent greenwashing.  There are also new regulatory requirements and litigation risks that should be considered in the United Kingdom, the United States and other jurisdictions.

For more information please contact:  Marcus Navin-Jones (mnavinjones@crowell.com); Benjamin Geisel (bgeisel@crowell.com) and Juge Gregg (jgregg@crowell.com).