According to the German Federal Supreme Court (Bundesgerichtshof – “BGH”), companies must substantiate “climate neutral” advertising claims: Where such advertising claims lack sufficient substantiation in direct proximity to the claim, they will likely be considered misleading and, therefore, in breach of the statutory requirements of the German Act against Unfair Commercial Practices (Gesetz gegen den unlauteren Wettbewerb – UWG).

Background of the case

A leading German manufacturer of sweets (“Advertiser”) advertised in a magazine that all its products were produced in a “climate neutral” manner. The Advertiser’s manufacturing process was, in fact, not CO₂ neutral. To reduce its CO₂ footprint, the Advertiser supported climate protection projects carried out by a third party. German competition watchdog Wettbewerbszentrale considered the advertisement misleading and initiated legal action against the Advertiser

The BGH’s decision

In its third instance judgment of 27 June 2024, case no I ZR 98/23, the BGH sets strict substantiation standards for “climate neutral” claims. The BGH’s key considerations are summarised in its press release, while the fully reasoned judgment has not yet been published. The BGH ruled that the particular advertising claim would be misleading within the meaning of section 5(1) UWG and, therefore, prohibited.

In the BGH’s view, the advertising claim “climate neutral” is ambiguous as it can mean (i) reduction of CO₂ emissions or (ii) offsetting of CO₂ emissions. According to the BGH, reducing CO₂ emissions on the one hand and offsetting CO₂ emissions on the other cannot be considered equally suitable means for achieving climate neutrality. Rather, reducing CO₂ emissions would take precedence over offsetting CO₂ emissions. According to the BGH, vague environmental claims such as “climate neutral” may be legally permissible only if the specific meaning of the claims would be explained as part of the advertising itself. By contrast, in the BGH’s view, it shall not be sufficient to refer to information on an external website, including where such external website can be accessed through a QR-code displayed in close proximity to the advertising claim.

The reason for this strict view is that environmental claims – as with health claims – entail an increased risk of misleading consumers. Accordingly, there is a greater need to inform the target audience about the specific meaning of the claim.

The BGH’s press release suggests that the judgment does not impose a general ban on “climate neutral” claims. Nor does the BGH categorically prevent advertisers from supporting environmental claims with offsetting measures, such as third-party climate protection projects. However, it follows from the BGH judgment that advertisers must act diligently when making environmental claims. In particular, where the climate-friendly effects of the advertised products are achieved (only) by implementing offsetting measures, sufficient explanatory substantiation must be included “in the advertisement itself”. The press release does not reveal whether and how the judgment provides any guidance on (i) what standards advertisers must meet to comply with the requirement to substantiate their “climate neutral” claim “in the advertisement itself” and (ii) potential exemptions from this strict requirement. These aspects will be of particular relevance where the advertising is made online where easily accessible substantiation can be provided via hyperlinking, overlays and other technical means. Therefore, the fully reasoned judgment must be reviewed once published.

Interplay with upcoming EU legislation

In light of recent developments on the EU level, the BGH’s ruling appears to be relevant only for a transitional period ending 27 March 2026. The background is that Directive (EU) 2024/825 empowering consumers for the green transition through better protection against unfair practices and through better information (“Directive“) needs to be transposed into national laws of EU member states until this date. The Directive regulates, among other topics, advertising claims, which are based on the offsetting of greenhouse gas emissions, that a product has a neutral, reduced or positive impact on the environment in terms of greenhouse gas emissions. Such advertising claims will be prohibited under the Directive as misleading in all circumstances. This is a key difference compared to the BGH judgment.

Claims that fall under the Directive include “climate neutral”, “CO₂ neutral certified”, “carbon positive”, ”climate net zero”, “climate compensated”, “reduced climate impact” and “limited CO₂ footprint”. Such claims should only be allowed where they are not based on the offsetting of greenhouse gas emissions outside the product’s value chain but are instead based on the actual lifecycle impact of the product in question, as the former and the latter are not equivalent (Directive, Recital 12). Finally, it needs to be noted that the EU legislator emphasised that “such a prohibition should not prevent companies from advertising their investments in environmental initiatives, including carbon credit projects, as long as they provide such information in a way that is not misleading and that complies with the requirements laid down in Union law” (Directive, Recital 12). Clearly, it will be a challenge for the practice to identify what is not misleading in this particular context. In particular, the increased substantiation requirements under the proposed EU Green Claims Directive will need to be taken into account. For further information on the proposed EU Green Claims Directive, please see the Reed Smith in-depth article of 19 April 2023, “Greenwashing – EU proposes strict requirements for environmental claims: key points on the Green Claims Directive”.