The long-awaited decision of the Federal Court of Justice (BGH), judgment of 27 June 2024, in case I ZR 98/23 – ‘climate-neutral’ on advertising with the claim ‘climate-neutral’ has finally been published. It can be applied to any advertising claims related to  environmental statements (such as ‘environmentally friendly’, ‘eco-friendly ’, ‘green’, ‘nature-friendly’, ‘ecological’, ‘environmentally sound’, ‘climate-friendly’, ‘environmentally compatible’, ‘CO2-friendly’, ‘energy-efficient’, ‘recyclable’, ‘biodegradable’, ‘bio-based’, etc.). At first glance, the decision may seem surprising given the strict standards applied to environmentally-related advertising, but upon further examination, it is entirely logical.

Facts of the Case

The defendant produces sweets made from fruit gum and liquorice. To advertise its products, it placed an advertisement that contained the statement: ‘Since 2021, [the defendant] has been producing all products in a climate-neutral manner’. It also contained a label with the claims ‘climate-neutral’ and ‘product’ as well as the link to a ‘climate partner’ and a QR code, each of which led to the ‘climate partner's’ website with information about the advertised climate neutrality.

The defendant supported climate projects of the ‘climate partner’, whereby the CO2 emissions incurred in the production of the defendant's products were, according to the defendant, at least partially offset in terms of balance.

The plaintiff is the German Centre for Protection against Unfair Competition. It objected to the defendant's advertising at issue, with the claim ‘climate-neutral’, as being unfair both from the point of view of being misleading under Section 5 (1) of the German Act against Unfair Competition (UWG) and because essential information was withheld under Section 5a (1) UWG. The public understands the defendant's advertising to mean that its products are manufactured with zero emissions, whereas the defendant actually only makes compensation payments at best. This should have been pointed out in the advertisement itself; a reference to the ‘climate partner’ website is not sufficient. The plaintiff has claimed that the defendant should be enjoined and that the defendant should pay a flat-rate fee for the costs of the written warning. The Regional Court of Kleve dismissed the action. The plaintiff's appeal before the Higher Regional Court of Düsseldorf was unsuccessful.

Decision

Upon the plaintiff's appeal, the judgment of the appellate court was amended and the defendant was sentenced as requested. The Federal Court of Justice (BGH) leaves open whether the claim for injunction is also based on a violation of the information obligation under Section 5a (1) UWG, because in its opinion there is already a misleading effect under Section 5 (1) UWG. According to Section 5 (2) no. 1 UWG, misleading advertising also exists in the case of information that is likely to deceive regarding essential characteristics of the advertised goods, such as the manufacturing process and its effects on the environment, as well as measures taken to fully or partially compensate for such effects.

The Federal Court of Justice (BGH) states that, according to its case law, the strict requirements for the accuracy, unambiguousness and clarity of the advertising message in the case of health-related advertising also apply to advertising with environmental protection terms and symbols. Here, the risk of misleading the public is particularly great and there is an increased need to educate the public about the meaning and content of the terms and symbols used. These requirements are only met if the specific meaning is clearly and unambiguously explained in the advertisement itself. In the present case, an explanatory note is necessary because the reduction and offsetting of CO2 emissions are not equivalent measures for achieving climate neutrality. Rather, the reduction of CO2 takes precedence over CO2 offsetting.

Background

Advertising with environmental claims is not new. As a result of increased environmental awareness, the public often favours goods and services that are advertised as being particularly environmentally friendly. Accordingly, advertising with environmental protection terms and symbols, similar to health advertising, is to be judged according to strict standards. However, these principles were subsequently applied in different ways by the courts of lower instance. Therefore, the decision of the Federal Court of Justice was eagerly awaited by all sides in the interest of legal certainty and clarity.

Ultimately, the strict standards applied by the Federal Court of Justice in its decision merely anticipate developments at the European level that are already outlined in the European ‘Green Deal’ announced in 2019 (COM(2019) 640 final). In it, the Commission announced that it would inhance both its regulatory and non-regulatory efforts to combat misleading environmental claims. According to the Commission, reliable, comparable and verifiable information is important to enable consumers to make more sustainable choices and reduce the risk of ‘greenwashing’.

In order to implement the European Green Deal, the EU Directive (EU) 2024/825 on empowering consumers for the green transition came into force on 26 March 2024, which must be transposed into German law by 27 September 2026 (also referred to as the ‘Empowering Consumer Directive/EmpCo-RL’). In addition to new definitions for the terms ‘environmental claim’, ‘general environmental claim’ and ‘sustainability label’, the directive prohibits general environmental claims without a recognised outstanding environmental performance to which the claim refers. Claims based on the compensation of greenhouse gas (GHG) offsetting, stating that a product, either a good or a service, has neutral, reduced or positive impacts on the environment regarding GHG emissions will also be banned. Such claims will only be allowed if they are based on actual impacts throughout the lifecycle of the product concerned and do not refer to GHG offsetting outside the value chain of the product. Furthermore, it is expressly clarified here that measures with actual effects on the lifecycle of a product and mere compensation of greenhouse gas emissions are not equivalent. In terms of content, this is also in line with the third guiding principle of the Federal Court of Justice (BGH) on the primacy of reduction over compensation.

In addition, on 23 March 2023, the Commission submitted a proposal for a directive on the substantiation and communication of explicit environmental claims (COM (2023) 166 final, also known as the ‘Green Claims Directive’) to the European Parliament and the Council, which was discussed by the Council in June 2024. According to this proposal, companies and traders will have to substantiate voluntary claims about the environmental characteristics of their products or their organisations on the basis of current scientific knowledge, with any environmental claim having to be verified by independent external experts before it can be published. The draft also provides for new requirements for the substantiation of climate-related claims, such as the obligation to provide information on the type, quantity and duration of CO2 credits. In the case of claims of compensation, companies must demonstrate a net-zero target and progress in decarbonisation, as well as the percentage of total greenhouse gas emissions offset.

Practical Implications

The upcoming developments at the European level show that the Federal Court of Justice (BGH), with the requirements for environmental advertising statements set out in its decision, which are stricter than those of the majority of the previous court rulings, has already applied the standards that will apply in the near future anyway. In view of the increasing popularity of advertising with unsubstantiated and vague environmental claims, serious efforts by companies that are committed to improving their climate balance in a variety of ways and at a not inconsiderable cost in terms of time and money are thus being recognised, while at the same time free-riders are being stopped. In view of the forthcoming comprehensive obligations to provide evidence, the advertising companies are well advised to carefully document the environmental impacts of their economic activities and to justify them scientifically if they want to use them in advertising to gain a competitive advantage in the future.