Advertising with sustainability: What companies must legally observe with "sustainability claims" in order to avoid "greenwashing"
Published on 27th Jan 2022
The trend towards sustainability among consumers is leading to more and more advertising claims relating to climate neutrality. Competitors and government agencies are keeping a close eye on this. To avoid risks, companies must observe increasing requirements.
Sustainability is the most important trend among consumers for the year 2022 in Germany. This was the result of a data-based outlook by the market research institute GfK at the turn of the year. According to the survey, more than two-thirds of Germans (68%) demand that companies behave as environmentally consciously as possible, for example by using environmentally friendly materials. Especially for the young target group, GfK continues, social sustainability is also becoming an increasingly important factor. Sustainability and environmental compatibility will therefore be a hot topic in the communication of companies with their respective target groups. At the same time, legal issues are also gaining strongly in importance in this advertising with the sustainability of products or the entire company.
Why more and more legal risks lurk with "sustainability claims" such as "sustainable" and "climate-neutral”
This is because "sustainability claims" and their legal admissibility are increasingly coming into the focus of competitors and authorities. The focus is on the question of what is permissible as an advertising statement and where a claim violates the prohibition of misleading advertising under Section 5 of the German Unfair Competition Act (UWG) because a company uses it to portray itself as "greener" than it is and engages in so-called "greenwashing".
Although the ban on misleading advertising is not new as such, the trend is emerging that this misleading is no longer just about the indication of prices or product features, but more and more often about "greenwashing". Thus, the legal risks are increasing for claims in the area of environmental compatibility and sustainability. There are several reasons for this.
The more consumers care about the sustainability of companies and their products, the greater gets its importance in competition. German competition law gives companies the possibility to claim injunctive relief and damages from competitors if they (allegedly) do business in an unfair manner. This is justified by the fact that those who, unlike their competitors, disregard regulatory requirements, gain an "advantage in competition by breaking the law". With the increasing economic importance of sustainability for the success of products and companies, the risk has thus also increased that a competitor will take offence at this - rightly or wrongly - and, on the basis of the UWG and the ban on misleading advertising, attempt to restrict the competitor with a judgement or an injunction.
Verification of sustainability claims by public authorities across the EU and UK
In addition, there is a tendency for state institutions to take the initiative themselves and check sustainability claims made by companies. For example, the European consumer protection network CPC (Consumer Protection Cooperation) checked 344 sustainability claims at the beginning of 2021 and found misleading claims in 42 percent of the cases, i.e. violations of the ban on misleading advertising that can be prosecuted. For Germany, the Federal Office of Justice (BfJ) was involved in this EU-wide review of "greenwashing" with its "Consumer Protection Review Group". As a next step, the BfJ requested companies to stop these infringements (so-called enforcement requests). The CPC Regulation ((EU) 2017/2394) together with the German law implementing this Regulation, the EU Consumer Protection Enforcement Act (EU-VSchDG), offer the Federal Office of Justice as the competent authority pursuant to Section 2 No. 1 EU-VSchDG several options in this regard: It can hand the matter over to the Verbraucherzentrale Bundesverband (vzbv) and the Wettbewerbszentrale (Section 7 EU-VSchDG), but it can also pursue enforcement itself and issue an order to cease an infringement, but also resort to fines and penalty payments. This raises new legal questions, as companies are suddenly faced – different from what they have been used to in Germany – not with a warning letter from a competitor, but from a state agency.
A look at Great Britain shows that this is only the beginning: On 10 January 2022, the Competition and Markets Authority (CMA) announced that a review of environmental claims in the fashion retail sector had been initiated. Previously, it had published a guide on environmental claims for goods and services. At the same time, the CMA has announced that it will investigate other sectors after the Fashion Retail Sector. If, in the opinion of the CMA, companies engage in "greenwashing", the authority would take appropriate measures.
Specific "greenwashing" case law develops: When is a product "climate neutral"?
A kind of specific "greenwashing" jurisprudence is currently developing from the increasing number of legal disputes with respect to environmental claims made by companies. It is true that the general principles and requirements of case law to avoid misleading statements also apply in the area of sustainability terms. However, specific terms from the area of "sustainability claims" such as "sustainable" or "climate neutral" are accompanied by very specific questions that require clarification by the courts. For example, the question arises whether a product may only be advertised as "climate neutral" if it was produced without emissions or also if climate neutrality was achieved through compensatory measures. A legally relevant follow-up question in this case would be whether and in what form the consumer must be informed in the context of advertising about which compensatory measures a company has taken to achieve climate neutrality.
In a judgement of 2 July 2021 (Ref.: 14 HKO 99/20), the Regional Court of Kiel provided guidelines on the climate neutrality of waste bags, that can also be applied to other products and industries. In the court's view, it is generally known that "climate neutral" is not to be equated with "emission-free". It follows that, in principle, climate neutrality may also be advertised if this is achieved through compensatory measures. However, according to the court, it is then essential that consumers "can easily obtain information on the way in which climate neutrality is to be achieved". Only in this way consumers would be in a position to decide, if necessary, whether they consider the measures taken to be plausible and worthy of support. The court thereby focuses on easy-to-find information about the climate neutrality measures. For example, a website or a QR code can be used for this purpose - which was lacking in the case to be decided.
Similar questions may arise for other environmental protection-related terms such as "sustainable", "climate-friendly" or "green".
It is to be expected that future decisions will further specify the legal framework for "sustainability claims". In principle, the requirements laid down by case law for permissible advertising claims are relatively strict. Companies that want to advertise themselves or their products with an environmental claim are well advised to orient themselves as closely as possible to these requirements from the outset. Otherwise, they may legally be accused of "greenwashing" – even if the company or its product pursues a sensible approach to environmental protection, but consumers are not sufficiently informed about it and cannot judge to what extent they consider the approach worth supporting.