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3 April 2023

Greenwashing – 3 of 6 Insights

Green Advertising in Germany – making carbon neutral claims

Andreas Bauer looks at rules around making carbon neutral claims and analyses recent German case law.

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Andreas Bauer

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Andreas Bauer

Partner

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Rarely has any topic related to advertising and competition law kept the German courts as busy in such a short period of time as adverts making carbon neutral claims. New and sometimes inconsistent decisions on this topic have been handed down in quick succession leaving advertisers facing a number of questions including:

  • Can you advertise something as carbon neutral if the carbon footprint is merely offset by purchasing CO2 emission certificates?
  • Can you exclude certain CO2 emissions from the carbon balance calculation?
  • What are the advertisers' duties to provide clarification and information?
  • How and where does clarification have to be provided - directly on site or is a so-called "media disruption" (“Medienbruch”) permissible as well?
  • Can you to link to a website? Is a QR code an option?

German case law on this issue is yet to be settled. At present, a sizable number of proceedings are pending, and more can be expected in the near future. The Federal Court of Justice (Bundesgerichtshof, BGH) is also yet to rule on advertising using the statement "carbon neutral". As a result, advertising a company or products as carbon neutral remains fraught with risks, including of being publicly branded as a 'greenwasher', even where a genuine effort is made to be sustainable.

In 2021, the European Commission carried out a sweep of EU websites to assess the extent to which environmental claims constituted greenwashing. The European legislator consequently identified a need for EU-wide regulation, which is already taking concrete shape - a draft "Green Claims Directive" on substantiation and communication of explicit environmental claims) was published on 22 March 2023 as discussed here.

This EU sweep also led to several German competition associations taking up the fight against greenwashing in Germany. In particular, the “Centre for Protection against Unfair Competition” (Wettbewerbszentrale) and “Environmental Action Germany” (Deutsche Umwelthilfe e.V.) saw fit to issue warnings to a large number of companies for environmental advertising claims and to initiate legal proceedings.

This has resulted in many recent rulings, giving the German courts a somewhat pioneering role in the EU when it comes to carbon neutrality claims made in advertising.  The, rulings give advertisers in Germany a little more (if still incomplete) certainty, as a number of trends have emerged.

General principles for Green Advertising in Germany

In Germany, environment-related advertising claims to date have mostly been tested against Sections 5 and 5a of the Act against Unfair Competition (Gesetz gegen den unlauteren Wettberwerb, UWG). These two provisions of German competition law are regularly at issue in court when it comes to advertising using the term 'carbon neutral' or similar terms. All of the cases revolve around the issue of misleading. Whereas Section 5 UWG provides for a prohibition of misleading by (active) deception, section 5a prohibits misleading by leaving out material information, (misleading by omission).

The highest German civil court (BGH) has a history of making landmark decisions on environmental advertising, and has found that consumers have an interest in being informed about environmental effects. The requirements established by the BGH for environmental advertising and the duty to provide information set a high bar (in particular BGH, judgment of 20 October 1988 – I ZR 238/87 – “Aus Altpapier” (Made from waste paper), BGH, judgment of 14 December 1995 – I ZR 213/93 – “Umweltfreundliches Bauen” (Environmentally friendly construction), BGH, judgment of 05 December 1996 – I ZR 140/94 – “Umweltfreundliche Reinigungsmittel” (Environmentally friendly detergents)).

The BGH established that since vague environmental claims (eg 'environmentally friendly', 'sustainable' etc.) have a high potential to mislead, they also require special protection against misleading statements. As a consequence, generally speaking, environmental advertising in Germany must be assessed strictly and restrictively. Extensive duties to provide information and explanations are imposed on advertisers.

This does not mean there is a general and comprehensive duty to provide information about other/all disadvantages of a product. The BGH established this in its 1996 ruling on the term “PVC frei” ("free from PVC") (BGH, judgment of 23 May 1996 - I ZR 76/94 – “PVC frei” (PVC free”)). However, this issue needs to be assessed on a case-by-case basis.

Application of these principles to 'carbon neutral' advertisements

These very strict principles of environmental advertising established by Germany's highest courts apply to advertising using the term 'carbon neutral'. As a consequence, many German courts initially found that the meaning of 'carbon neutral' was not clear-cut and therefore required explanation. If such an explanation was missing or inadequate, the courts usually ruled the advertising to be non-compliant.

In 2021 and 2022, a number of rulings were handed down in Germany on advertising using the words 'carbon neutral'. Over time, case law clearly has become ever more specific and differentiated. Some of these rulings dealt with product advertising and some with company-related advertising. Initially, nearly all of the advertising at issue was classified as non-compliant. However, 2022 saw a shift with a number of rulings in favor of the advertising companies.

Selected rulings on adverts making carbon neutral claims

2021

OLG Hamm, judgment of 19.08.2021 – 4 U 57/21 "CO2-reduziert" (CO2 reduced)

This concerned a lamp manufacturer's catalogue advertising, claiming "carbon-reduced - environmentally friendly products and sustainable packaging - our contribution to sustainability". No further explanations were provided. The court classified the advertising as non-compliant as it was deemed misleading. The court found that it remained unclear where exactly in the production process, packaging and carbon distribution was reduced and in relation to which standard. How exactly the used packaging was particularly sustainable was also held to be unclear. The court ruled that the advertiser should have provided information on all of these aspects.

Regional Court (Landgericht, LG) of Konstanz, judgment of 19 November 2021 – 7 O 6/21 KfH "klimaneutrales Heizöl" (carbon neutral heating fuel)

This related to a heating fuel supplier's advertising. In a letter to their customers, they advertised their fuel as "carbon neutral heating fuel". The court prohibited this advertising. It considered information on how carbon neutrality is realised as material for the purchase decision. The court also found that due to the special emotional appeal of environment-related advertising statements, the complex scientific contexts and the mostly low level of factual knowledge of the target audience, advertising using the term 'carbon neutral' is subject to strict requirements and substantial duties to provide information. It was therefore necessary to clarify whether the advertising company itself contributed at least in part to reducing carbon emissions or whether it simply purchased CO2 emissions certificates. The court argued that a company's own more extensive and sustainable savings measures are rated more highly by customers than the mere purchase of certificates.

LG Oldenburg, judgment of 16 December 2021 – 15 O 1469/21 "klimaneutrale Fleischprodukte" (carbon neutral meat products)

This concerned the product-related advertising of a meat producer as "carbon neutral". Among other things, the ClimatePartner "carbon neutral" label was used. The court said information that the advertised carbon neutrality is realised only by way of offset through supporting climate protection projects (purchasing CO2 emission certificates) was material. As no such information was provided, the court prohibited the advertising in dispute. The court also said it was not enough for the product to include a reference to the ClimatePartner website, which provided further information. The court was of the view that the advertising material itself would have offered adequate space to include details about the offset schemes.

2022

LG Mönchengladbach, judgment of 25 February 2022 – 8 O 17/21 "klimaneutrales Produkt" (carbon neutral product)

This dealt with product-related carbon neutral advertising. The case concerned the promotion of a jam with a label that featured a printed "carbon neutral product" logo. The product was also promoted as a "carbon neutral price-performance icon". The court found that consumers can be expected to be familiar with the concept of carbon neutrality by way of offset. However, in this specific situation (product selection in a supermarket aisle), consumers perceive the claim of being "carbon neutral" as relating directly to the specific product and therefore expect that very product has been produced in a carbon neutral way. But this was in fact not the case here. The court therefore prohibited this advertising.

LG Frankfurt a.M., judgment of 17 March 2022 – 3-10 O 14/22 "klimaneutrale Hygiene I" (carbon neutral hygiene I)

This high profile decision set extremely high standards for carbon neutral claims. The court ruled that providing the following background information in such advertising is mandatory:

  • reference point of the claim (eg company-related or product-related)
  • standard of calculation (eg GHG protocol)
  • excluded emissions (eg scope 3)
  • type of offset (own or third-party measures eg purchase of CO2 emission certificates)
  • type and scope of the company's own carbon reduction measures and their savings effect, in particular relative to the remaining carbon emissions which will then be offset
  • type and subject of the CO2 certificate's climate project.

The court argued that all of the above must be presented using clear, transparent, and precise language. This was not done in the specific case which involved a cleaning agent manufacturer's advertising using the terms "carbon neutral company" and "carbon neutral hygiene". The court therefore classified the advertising as non-compliant.

LG Frankfurt, judgment of 15 July 2022 - 3-12 O 21/22 "klimaneutrale Hygiene II" (carbon neutral hygiene II)

In subsequent proceedings between the same parties, it was held that the requirements of the judgment of 17 March 2022 went too far. Once again, the case involved a cleaning agent manufacturer's advertising using the terms "carbon neutral company" and "carbon neutral hygiene", this time in a YouTube video. The court found the advertising to be compliant. Of particular note was that the case involved B2B advertising. The court took the view that in this case, a reference to a website with more detailed information on carbon neutrality was sufficient. According to the court, such explanations do not have to be provided directly in the actual advertising (so-called "media disruption"/“Medienbruch”). However, on appeal, the decision was partially reversed by OLG Frankfurt (judgment of 16 February 2023 - 6 U 157/22, see below).  Another carbon neutral ruling in 2022 (LG Kleve, judgment of 22 June 2022 – 8 O 44/21) followed a similar path.

OLG Schleswig, judgment of 30 June 2022 – 6 U 46/21 "Müllbeutel klimaneutral" (carbon neutral garbage bag)

In another less restrictive decision at second instance, the court ruled that consumers understand 'carbon neutral' as merely a promise of a corresponding result, in the sense of a balanced carbon footprint, which can be achieved by being emission-free or by way of offset. How or in which way neutrality is achieved was not considered material information by the court. This was the first time that a German court ruled that the term 'carbon neutral' (as opposed to 'environmentally friendly') does not require explanation. It said additional information on product packaging is not required and a link to a website with further information is sufficient. The court therefore considered the advertising in dispute to be compliant. It also expressly noted that it considers the requirements set by the LG Frankfurt in its judgment of 17 March 2022 - 3-10 O 14/22 (see above) too onerous.  Another appeal decision (OLG Frankfurt a.M., judgment of 10 November 2022 – 6 U 104/22) took a similar approach, but then also ruled that there still is a need for information on the fundamental carbon neutrality facts:

  • whether carbon neutrality was realised in whole or in part by way of savings or by offset
  • whether (not which) specific/material CO2 emissions have been excluded from the carbon footprint (eg in the case of scope 3 exclusions)
  • information on the criteria used to determine the carbon footprint.

LG Stuttgart, judgment of 05 December 2022 – 53 O 169/22 "klimaneutraler Essigreiniger" (climate neutral vinegar cleaner)

The defendant in this case, a manufacturer of vinegar cleaning products, repeatedly used the statement "carbon neutral" on one of its products. The ClimatePartner "carbon neutral" label was also used. The product also featured a QR code, which could be used to visit a website with further information. The court classified the advertising as non-compliant. It found that the product was missing any reference to the fact that carbon neutrality was exclusively achieved by way of offset (CO2 emission certificates). A further area of non-compliance was failure to state that the carbon footprint did not include the disposal phase. The court said that without such reference, consumers would interpret this type of product-related advertising as indicating "cradle-to-grave" neutrality, ie that, in particular, the disposal phase was included as well. The QR code with additional information was also not considered adequate by the court, since at least according to the plaintiff's unrefuted submission, around 20% of Germans still do not own a smartphone. However, the court was at least somewhat more liberal with regard to the specific scope of the duty to provide information. Accordingly, the court did not consider it necessary to specify any of the following:

  • the specific standard of calculation
  • the specific CO2 emissions that have been excluded
  • the fact that the underlying data of the carbon footprint have not been independently verified
  • the specific scope of the carbon reduction measures and their offset effect
  • the subject of the emission certificate's specific climate project
  • the price per ton of carbon.
2023

OLG Frankfurt a.M., judgment of 16 February 2023 – 6 U 157/22 "klimaneutrale Hygiene II" (carbon neutral hygiene II)

This was the ruling in the appeal on the proceedings before the LG Frankfurt shown above (3-12 O 21/22). In these proceedings, the manufacturers of different cleaning agents were facing off again. The defendant company was certified by a third party as a "carbon neutral company" and promoted its company in a YouTube video using the phrase "Carbon neutral company certified by [...]" as well as the catchphrase "carbon neutral hygiene". The advertising was primarily targeting professional audiences (B2B).

The court in the first instance found the advertising to be compliant. The OLG Frankfurt overturned this decision at least in part. To begin with, it confirmed its own case law from previous proceedings (6 U 104/22), where it had found that while the term 'carbon neutrality' had a specific content, it requires explanation. The court then observed that the specific case did not provide any indications that the targeted professional audience (B2B) would understand the statement on carbon neutrality in any way that was different from normal consumers' understanding.

In the court's view, when it comes to advertisements using the term "carbon neutral company" without further references, which must already be included in the video itself, both professional audiences as well as normal consumers assume that all major emissions of the advertiser have been offset, including those from production. However, since the advertising company had excluded certain scope 3 emissions, this was found to be misleading and therefore non-compliant. Contrary to the first instance decision, the reference made in the YouTube video to a website with further information was not considered adequate by the appellate court. The court did not allow a media disruption (“Medienbruch”) in this case.

 All in all, this decision also appears rather restrictive to the advertiser's detriment.

What does this mean for advertisers?

As a result of all of these rulings at first and second instance, a certain trend in carbon neutral advertising-related case law has crystalised within a very short period of time in Germany. This brings more legal certainty for the advertising companies which is welcome.

Having said that, the courts' requirements for this type of advertising while now somewhat clearer, ultimately set a very high bar for making this type of claim. Advertising sustainability, in particular with claims relating to carbon neutrality continues to be potentially risky and likely to attract scrutiny. It should be carefully considered on a case-by-case basis, not least because the courts have by no means clarified all the issues and there is no current ruling on advertising using the term 'carbon neutral' from the highest courts.

This means advertisers in Germany should watch not only the further development of the EU legislative process and the progress of the recently announced Green Claims Directive, but also upcoming rulings of the German courts.

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