Greenwashing: what it is and why it might violate competition law

In today’s world, where sustainability and environmental awareness are becoming increasingly important, companies have realized that they can gain a competitive advantage by portraying their products or services as “green” or environmentally friendly. But not all companies that claim to be green really are. This is where the term “greenwashing” comes into play.

The Düsseldorf Higher Regional Court recently ruled in two cases that advertising products as “climate-neutral” does not automatically mislead consumers. The cases concerned a manufacturer of fruit gums and a manufacturer of jams, each of which was sued by a Wettbewerbszentrale for failure to advertise its products as “climate-neutral”.

The court clarified that the average consumer understands the term “climate neutral” in the sense of a balanced balance of the CO2 emissions of a product. In doing so, it is aware that neutrality can be achieved both through avoidance and through compensatory measures, such as allowance trading. The advertising of both manufacturing companies was therefore not misleading on its own.

However, injunctive relief may arise in individual cases if the advertiser has breached its duty to inform by withholding material information from the consumer. The way in which the climate neutrality of an advertised product is achieved constitutes such essential information. Climate protection is an increasingly important issue for consumers, which can have a considerable influence on a purchasing decision.

In one of the cases, the fruit gum manufacturer had provided the required information in a sufficient manner by allowing the reader of its advertisement to go to the website of “ClimatePartner.com” via a QR code, where the required information could be taken. In the other case, the jam manufacturer’s advertisement neither in a food magazine nor on the product packaging contained any reference to how the advertised climate neutrality came about.

These recent decisions by the Düsseldorf Higher Regional Court inspired me to write this article and take a closer look at the topic of greenwashing and its legal aspects. It is important that consumers are aware of greenwashing practices and how to recognize them. At the same time, companies committed to protecting the environment must ensure that they comply with applicable laws and regulations to avoid falling into the trap of greenwashing.

What is greenwashing?

Greenwashing is a marketing strategy in which companies portray their products, services, or the entire company as more environmentally friendly than they actually are. It is a misleading tactic designed to fool consumers into believing that a company cares about the environment when in fact it is doing little or nothing to reduce its environmental footprint.

Greenwashing can take many forms, from vague, unverifiable claims (“This product is good for the environment”) to irrelevant statements (“This product does not contain CFCs” – which is required by law) to outright lies about the environmental friendliness of a product or service.

Legal aspects of greenwashing

Greenwashing, the portrayal of products or services as more environmentally friendly than they actually are, can violate competition law. This is because it can be misleading and deceptive, thus interfering with fair and honest competition between companies.

In Germany, greenwashing is regulated by the Unfair Competition Act (UWG). According to § 5 para. 1 sentence 2 no. 1 UWG, it is unlawful to engage in misleading commercial conduct in the course of trade which is likely to induce the consumer to make a transactional decision which he would not otherwise have made. This can also be applied to greenwashing practices.

The legal aspects of greenwashing and the use of the term “climate neutral” in advertising are complex and multi-layered. In Germany, the Unfair Competition Act (Gesetz gegen den unlauteren Wettbewerb – UWG), which prohibits misleading commercial acts, is the governing law. This can also be applied to greenwashing practices.

The European Commission has published guidance on the application of EU competition and consumer protection rules to environmental claims, known as “green claims.” These guidelines are designed to help companies comply with EU regulations and protect consumers from misleading environmental claims.

In Germany, courts have already dealt with the term “climate neutral” and taken different positions. Some courts require disclosure of basic circumstances surrounding the company’s claim of carbon neutrality. Other courts assume that the average consumer understands the concept of carbon neutrality through offsetting, and that the concept of carbon neutrality in itself promises nothing more than a balanced carbon footprint.

The completely emission-free production of a product (including transport routes) in the sense that no greenhouse gases are emitted at all is rather rare in practice. As soon as greenhouse gases are emitted during production (incl. distribution) of the product, climate neutrality can only be achieved if compensation measures are allowed as an offset option.

Inadmissible advertising statements can result in expensive warnings under competition law. In addition, there is the damage to reputation that can be caused by media coverage, especially in the case of well-known companies or trustworthy brands.

Several initiatives exist that would like to legally prohibit or more strictly limit advertising with climate neutrality. Of particular note is the EU Commission’s proposal for a directive to empower consumers for environmental change through better protection against unfair practices and better information. Among other things, the new rules are intended to make it easier to take action against greenwashing, which until now has only been possible through general competition law means. Until these plans are implemented, advertising with climate neutrality is (still) permitted in principle.

Greenwashing and the European Green Deal

Climate change and environmental degradation pose existential threats to humans. To combat these threats, resource-efficient handling of products is crucial. Many consumers already consume consciously, for example by refraining from buying so-called fast fashion. A large proportion of consumers would like to consume even more sustainably, but are currently unable to do so. In a survey conducted by the EU Commission, for example, 80 percent of EU citizens said they had difficulty finding information on the reparability of products.

To make sustainable products the norm in the European Union and promote the circular economy, the EU Commission presented a series of proposals as part of the so-called European Green Deal on March 30, 2022. The goal is to empower consumers in the green transition. People who want to protect the environment through their purchasing behavior should have a right to know something about the service life at the point of sale. In the future, the EU’s Consumer Rights Directive will ensure that buyers are informed directly at the point of sale about, among other things, a commercial shelf life guarantee for the products of more than two years, as well as the information relevant to the repair.

Combating greenwashing

In addition, consumers should be better protected from unreliable or false environmental claims. The EU Commission’s proposal combats “greenwashing” for this purpose. To this end, the Unfair Commercial Practices Directive is to be amended by, among other things, adding further practices to the existing list of prohibited unfair commercial practices. In the future, these will include:

General, vague statements about environmental attributes, with no evidence of the product’s or retailer’s environmental excellence. Examples include general environmental claims such as “eco-friendly,” “eco,” or “green,” which falsely create the impression of excellent environmental performance. Environmental claims about the entire product, if these actually only concern parts of the product (example: only the packaging is 100 percent recyclable, not the product) Labeling with a voluntary sustainability seal that is neither based on a third-party testing procedure nor originates from authorities. Failure to indicate that the product has limited functionality when using consumables, spare parts or accessories other than those supplied by the original manufacturer (for example, when using printer cartridges or chargers not supplied by the original manufacturer).

The updated regulatory framework is intended to enable consumers to make informed and environmentally friendly choices when purchasing products in the future. The EU Commission’s proposal is currently being discussed in the member states.

Conclusion

While it is important that companies recognize their role in promoting sustainability and environmental protection, it is equally important that they are honest and transparent in their communications. Greenwashing is not only misleading to consumers, but can also undermine trust in companies’ efforts to promote sustainability. It is therefore critical that consumers are informed and have the ability to distinguish genuine green practices from greenwashing. New EU regulations and guidelines, and national laws such as the UWG in Germany, seek to combat greenwashing and protect consumers from misleading environmental claims.