German Federal Court of Justice, Judgment of 27 June 2024, case no. I ZR 98/23 Green Claims under the German Unfair Competition Act

On 27 June 2024, the German Federal Supreme Court (BGH) has rendered a significant decision on the permissibility of green claims under the current German Unfair Competition Act. The decision marks a significant moment in the realm of unfair competition and advertising law, particularly concerning allegations of greenwashing.

The Decision

The Court ruled that advertising with an ambiguous environmental term (in this case “klimaneutral” = climate neutral) is only permissible if the specific meaning of the term used is explained within the respective advertising itself.

The case revolved around a German confectionery manufacturer that advertised its products in a trade journal as being produced climate-neutrally since 2021. However, the production process in fact was not CO2-neutral, but instead, to compensate for its CO2 emissions, the company supported climate protection projects through a partner firm for climate action.

After the Regional Court had initially dismissed the claims, the Court of Appeals found the term “klimaneutral” as understood by the trade journal’s readers to mean a balanced CO2 emission account, achievable through avoidance or compensation measures. The Court of Appeal also found no right to injunctive relief for withholding information on how the advertised product’s climate neutrality was achieved, as this information could be accessed via the partner firm’s website and a QR code in the advertisement, which was deemed reasonable for the readers.

The BGH found that the lower courts had not adequately considered the potential for consumer deception in green claims advertising, which is held to a higher standard due to the increased risk of misleading consumers. According to the BGH, the term “klimaneutral” was ambiguous, as it could be interpreted by the trade journal’s readers – and consumers in general – as either a reduction of CO2 in the production process or merely as compensation for CO2 emissions. According to the BGH, advertisers must provide clarification within the advertisement itself to prevent any misunderstanding under Section 5 para. 1 of the German Unfair Competition Act. The Court of Appeal had failed to consider the heightened risk of misleading in environmental advertising, akin to health-related advertising, which necessitates a greater need to inform the public about the meaning and content of used terms and symbols. Therefore, to avoid misleading, advertising employing an ambiguous environmental term like “climate neutral” must include an explanation within the advertisement itself. Informative information outside of environmental advertising was not sufficient.

For these reasons, the appeal before the BGH was successful and the defendant was ordered to cease and desist from the advertising in question and reimburse pre-trial warning costs in accordance with Sections 8 para. 1, 3 para. 1, 5 para. 1 of the German Unfair Competition Act.

Assessment and Outlook

The decision underscores the importance of transparency in environmental claims and sets a precedent for how companies must communicate their sustainability efforts under the current German legal framework. The BGH hits the nerve of the times as it is widely debated that compensation rather than reduction ultimately provides less protection to the environment, as it does not prevent CO2 emissions but only compensates for them retrospectively. In addition, CO2 compensation measures are more favourable for companies than switching production processes to CO2 neutrality would be as they cost less. A competitor on the market might therefore gain an advantage. For companies, this decision is a call for action to review their advertising practices and ensure that any environmental claims are clear, substantiated, and not misleading. For consumers, it provides assurance that environmental-related advertisements and respective claims by companies will be more transparent, allowing them to make more informed choices.

On European Union level, the Proposal for a directive of the European Parliament and of the Council on substantiation and communication of explicit environmental claims (Green Claims Directive) aims to establish clear and standardized rules for environmental claims made by companies about their products and services. The Green Claims Directive will contain requirements for companies to substantiate their green claims with reliable, scientifically based evidence and to ensure that such claims are clear, specific, and not misleading. The Green Claims Directive sets out a framework for verifying and certifying environmental claims, with the intention of reducing risks of greenwashing, where companies falsely portray their products as environmentally friendly. By promoting transparency and accuracy in green marketing, the Green Claims Directive seeks to enhance consumer trust and encourage sustainable consumption.

The relevance of the European Union’s Green Deal is significant for unfair competition law across the EU and in Germany, as can be seen by the decision of the BGH. The European Union's Green Deal includes recent amendments to the Unfair Commercial Practices Directive 2005/29/EC which address, among other things, information, transparency, and credibility obligations for green and environmental claims at Union competition law level. As misleading environmental claims can distort the market by providing an unfair advantage to companies that engage in greenwashing, the European Union regulatory landscape addresses these issues of a green EU economy by harmonizing unionwide standards for environmental claims aiming to ensure consistency and legal certainty across the region. Besides consumer protection and trust, the alignment of national laws with EU regulation should help facilitating smoother cross-border trade and marketing within national markets.