European Union: Green, Greener, Greenwashing – Green Claims Marketing In The EU And Germany

Introduction

The highlighting of ecological benefits of products or sustainability efforts and achievements has become the new normal in advertising and marketing activities. Along with these efforts goes the risk of overstating environmental benefits. This practice of "greenwashing" was examined in last year's screening of websites (sweep) conducted by the EU Commission and national consumer authorities. According to a statement of the EU Commission, in 42% of cases the claims were exaggerated, false, or deceptive and could potentially qualify as unfair commercial practices under EU rules. This has led to several lawsuits in Germany and across the EU, as well as counter-campaigns by environmental and consumer protection organizations.¹ Additionally, public authorities and consumer associations are increasingly taking actions against companies on the grounds of suspected greenwashing activities.²

In this client alert, we give an overview of the regulatory regime governing green claims marketing in the EU and Germany and give practice tips on how to avoid greenwashing in advertising and marketing communications and shed some light on upcoming EU legislation. For a UK perspective, see our latest client alert on the UK Competition and Marketing Authority's investigations.

What are green claims?

"Green claims" are commercial or marketing claims that suggest or otherwise create the impression that a product or service is

• Environmentally friendly (i.e., it has a positive impact on the environment) or
• Less damaging or harmful to the environment than competing goods or services.

A number of factors may contribute to claims about an individual product or service, such as its composition, the way it has been manufactured or produced, the way it can be disposed of, and the reduction in energy or pollution it is expected to generate.

The term "greenwashing" on the other hand refers to false, misleading, vague, or unqualified claims about a company's environmental impact or the impact of its products or services.

Regulatory framework

At present there are no specific rules on either the EU or national level targeting green claims marketing; instead, general unfair competition rules apply, e.g., the rules for misleading and comparative advertisements. In the EU, these rules are mainly stipulated in two directives harmonizing³ the legal framework across the EU (collectively, the "Directives"):

1. Directive 2006/114/EC concerning misleading and comparative advertising ("MCA Directive"), which seeks to protect traders against misleading advertising from other businesses (B2B) and
2. Unfair Commercial Practices Directive ("UCP Directive"), which primarily defines the unfair commercial practices vis-à-vis consumers (B2C) that are prohibited in the EU.

All EU Member States have transposed the Directives into their respective national legislation. In Germany, the Directives are mostly implemented in the Act against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb, "UWG"), which we will primarily refer to in this blog post.

How can companies avoid misleading commercial practices in green claims marketing?

Like any other advertising claim assessed under the Directives and the UWG, green claims must be truthful, not contain false information, and be presented in a clear, specific, accurate, and unambiguous manner to avoid misleading consumers.

It cannot be emphasized enough that the perception of a green marketing claim is not assessed from the perspective of the advertiser. Rather, the perspective of the addressee of the green claim is decisive when interpreting the content of the claim. The level of attention and informedness may vary among consumers and professional audiences, and this must be taken in account.

Against this background, green marketing claims may not only be misleading if they are objectively false. Even if they are factually true, they may be perceived incorrectly. This may be due to the presentation of the claim and/or the product. The use of images, layouts, and symbols that suggest a greater environmental benefit than what is claimed by the green claim, or an unclear presentation that leaves room for interpretation as to what the claim refers to can be misleading. For example, a normal shampoo that is packaged in a bamboo container labeled "natural" in a green font may create the false impression that the shampoo has an environmental benefit, whereas the reference was intended to address the packaging only.

The use of generic attributes of environmental benefits, such as "ecological," "environmentally friendly," or "green," is all the more problematic. It is highly likely that they are misleading since such generic attributes are subject to the consumer's interpretation. As an example, the term "organic" can have different meanings depending on the product. It is almost certainly misleading to claim that clothing is organic, for instance, when only 35% of the material is organic cotton, since the consumer will expect that "organic" means that the whole product or at least a major part of the product is organic.

Omission of relevant information may also mislead consumers about the nature of the product. The environmental effect of a product or service must be judged from its entire production cycle (cradle to grave). Thus, it may be misleading to only emphasize one environmental benefit of the product, like the carbon emissions, and to omit significant ecological disadvantages of the product or its manufacturing process. When using the term "climate-neutral," for example, it is advisable to state in the claim whether climate-neutrality is achieved by way of emission reduction or by way of offsetting and to include a reference to a website where further information can be found.

Companies must be able to provide scientific evidence for their green marketing claims. This information should ideally be presented to the public during use of such claim but must in any case be produced once a claim is challenged. Otherwise the claim will likely be deemed misleading. The scientific evidence should (i) be robust, independent, verifiable, and generally recognized; (ii) take into account up-to-date scientific findings and methods; (iii) be updated when necessary to support the claim as long as the claim is available to the relevant public; and (iv) be appropriate for the claims made, regarding content and complexity. In any case, assumptions that cannot be verified are not sufficient.

When a company makes claims about the amount of greenhouse gas emissions of an organization or product, the substantiation requirements can differ from the ones described above. Although carbon footprint claims must of course be true, there is currently no universal methodology available to assess a carbon footprint, so the results will vary depending on the methodology used. Therefore, in this case, the assessment is no longer about the truth of the statement being the result of a calculation, but instead it is about the correctness of the methodology.

Checklist

• Do not suggest greater environmental benefits of your products or services than exist in reality and do not omit important information.
• Do not emphasize a minor environmental achievement or benefit and omit any trade-offs or negative environmental impacts.
• Describe a specific measurable impact or process considering the whole lifecycle (including supply chain) of a product or service – avoid use of vague terms such as "eco," "environmentally friendly," or "sustainable."
• Use specific measurements or standards, for example ISO or CEN.
• Make it clear whether the promoted ESG benefit refers to the whole business or just a specific area.
• Employ fair and meaningful comparisons to other companies or their products/services.
• Substantiate your marketing claims.

Enforcement

Under the Directives, sanctioning is generally left to the discretion of the EU Member States and thus varies across the EU. There are basically three enforcement systems: (i) public enforcement systems, (ii) private enforcement systems, and (iii) mixtures of the two systems.

In Germany, there was mainly a private enforcement system in place. Competitors and certain associations (like consumer protection associations) had the right to bring claims under the UWG. They could initiate cease and desist claims (e.g., cease and desist regarding the use of a certain misleading green marketing claim) and claims for elimination (e.g., elimination of advertising materials). For competitors, there was also a right to claim damages, but in relation to misleading advertisements this was hardly ever used since it is difficult to substantiate any damage under German law for such infringements. Certain associations had a right to claim a confiscation of profits resulting from an infringement of the UWG, but this also had rarely any practical relevance due to high hurdles in enforcing this claim.

Recently, the EU introduced an amendment to the Directives which requires EU Member States to include a public enforcement element for certain "widespread infringements" of consumer rights (i.e., infringements happening in at least three EU Member States). This amendment, inter alia, concerns misleading advertisements. For such "widespread infringements," fines of up to 4% of a company's annual turnover can be imposed. It remains to be seen what practical impact this will have, particularly since the imposition of such a fine requires a coordinated action among different EU Member State authorities.

Outlook

The European Green Deal has placed even more emphasis on the importance of this matter for the European legislature. On March 30, 2022, the EU Commission presented a package of European Green Deal proposals which includes a provision that seeks to address unfair commercial practices that prevent consumers from making sustainable consumption choices, such as misleading environmental claims, by amending existing EU legislation, specifically the UCP Directive. Several of the proposed amendments only clarify what is already the law today (i.e., that no overly general and exaggerated statements about sustainability should be made), but few proposed amendments add substance to the current regime. Most notably in this regard is a provision to prevent advertising of market benefits and future environmental performance without objective, verifiable obligations and systems to monitor the outcome.

The European Parliament will decide on the proposal in accordance with its ordinary legislative procedure. The process may take up to 18 months, and amendments to the UCP Directive must be transposed into national law within 18 months of adoption, which means the rules may not be in effect until 2025.

Concluding remarks

With the recent prevalence of highlighting the ecological benefits of products and sustainability efforts and achievements, the focus of market participants and regulatory authorities is shifting more towards greenwashing. The fact that more specific regulations may not be expected to match this change and may not come into effect for some time should not be taken lightly. Since lawful conduct is adequately guided by the current legal framework, it is imperative to comply with best practice rules to reduce enforcement risks and help avoid the negative impact that greenwashing allegations could have on a company's reputation.

Footnotes

1. Environmental Action Germany (DUH) hands Shell "Golden Vulture" for the most "impudent environmental lie" of 2022 (press release, Sept. 20, 2022, only available in German); judgment of the Higher Regional Court of Schleswig on the misleading nature of the claim that a garbage bag is "climate-neutral," June 30, 2022, case no. 6 U 46/21; judgment of the Regional Court of Constance on the claim "climate-neutral," Nov. 19, 2021, case no. 7 O 6/21 KfH; judgment of the Higher Regional Court of Hamm on the claim "CO2 - reduced," Aug. 19, 2021, case no. 4 U 57/21.

2. The consumer association Verbraucherzentrale Baden-Württemberg sues Germany's largest fund company DWS on suspicion of greenwashing (press release, Oct. 24, 2022, only available in German).

3. Although the Member States' latitude for implementation is limited, there are individual provisions that give the legislatures and courts of the Member States some flexibility in interpreting the Directives.