Current German case law on the term “climate neutral” (klimaneutral) and related claims, such as “environmentally neutral” (umweltneutral)

Climate neutral – or not? The delicate use of the term “climate neutral” in advertising.

In ongoing debates in society, business, politics and science around the – extremely relevant – topic of climate protection, the term “climate neutrality”, among other things, is referred to on a regular basis. In the future everything should, where possible, – or at least according to the wishes and ideas of politicians – be carried out, produced, offered and disposed of in a climate neutral way.

On the legislative side, ambitious targets are being set in this regard. The EU, for example, has committed to becoming the first climate neutral continent by 2050 as part of its European Climate Law. It is not only the international community, politicians and businesses that have a responsibility for a climate-neutral future, but also each individual consumer, in order to slow down the acceleration of climate change and, at best, prevent it. Companies are responding to consumers' increased environmental awareness with products, packaging and services that are “climate neutral” or “CO₂ reduced”. But what does “climate neutral” or “reduced carbon” actually mean in concrete terms and what does the relevant target public actually understand? What should be taken into account when advertising with the label “climate neutral”? Numerous courts have already dealt with this in recent years.

Despite its intense usage in the economy, and the high amount of relevance the term “climate neutral” holds, it is neither legally defined nor is there a generally accepted understanding of it

In addition to German case law, international organisations, among others, have also tried to concretely define “climate neutral”.

According to the IPCC (Intergovernmental Panel on Climate Change) of the United Nations, “climate neutrality” means

“Concept of a state in which human activities result in no net effect on the climate system. Achieving such a state would require balancing of residual emissions with emission (carbon dioxide) removal as well as accounting for regional or local biogeophysical effects of human activities that, for example, affect surface albedo or local climate.”

As the term “climate neutral” is used in the EU's multi-layered goals and voluntary commitments, the Council of the European Union has also published a definition:

“Becoming ‘climate neutral’ means reducing greenhouse gas emissions as much as possible, but it also means compensating for any remaining emissions. This is how a net-zero emissions balance can be achieved.”

On the other hand, the technical standard DIN EN ISO 14021 (which regulates the requirements for self-declared environmental claims) understands the term “carbon neutral” to mean that a “carbon neutral” product has a zero-carbon footprint or that it has been offset and that all greenhouse gas emissions from all stages have been taken into account (DIN EN ISO:2016 + A1:2021 p. 47 No. 7.17.3.1 + 2.).

The above shows that there are basically two terms that need defining, or at least a generally accepted understanding is required: one is “climate” and the other is “neutral”. The broad (compound) term “climate neutral” refers not only to greenhouse gas and carbon neutrality, but also various other factors that can have a harmful impact on the climate (including air pollution through soot particles, etc.). Nevertheless, “climate neutrality” is usually equated with “greenhouse gas neutrality” and is probably understood in this sense by the vast majority.

Climate or greenhouse gas neutrality, in turn, can be understood for example as a balance between the anthropogenic emissions from greenhouse gases from sources and the reduction in the volume of such gases by means of sinks, see section 2 (9) German Federal Climate Protection Act (KSG), or understood in the sense that the respective product or service does not harm the climate in any way (in gross terms), i.e. that it is “emission-free”. The first interpretation implies there is an understanding that concretely determined (gross) emissions can be offset by other measures. The notion of “emission-free”, on the other hand, would mean that no emissions are (or will be) produced in connection with the reference object (or reference service) in the course of its life cycle. The second interpretation would have no room for the inclusion of compensation measures to reduce emissions.

Amongst all of this, the issue also arises (especially for companies) with regard to how climate neutrality can actually be achieved – on one side with regard to how emissions as such should be measured, and on the other with regard to how they should be compensated. Assuming that the emissions of a product and its packaging are measured on a life-cycle basis (including the entire value chain), there is considerable leeway with regard to the concrete standards. The private Greenhouse Gas Protocol (GHG Protocol) standard series could be applied here; however, this is not obligatory. In addition, how indirect emissions (Scope 2 emissions, e.g. externally purchased electricity) are measured and how emissions from the upstream and downstream activities of other companies (Scope 3 emissions) are to be dealt with is unresolved or, at least for Scope 3 emissions, estimates are used. There are also no fixed standards for compensation measures, so it is basically up to the companies themselves as to how they compensate, i.e. whether they buy carbon certificates that comply with the Gold Standard, for example, or use other certificates. The market of services offered in this area is huge.

Legal and actual potential for conflict in connection with advertising with climate neutrality

Advertising with the claim/label “climate neutral” can help raise awareness of climate protection and promote demand for environmentally friendly products and services. This is also the approach that is generally welcomed. Now that it has become common knowledge that climate change threatens the future of life on earth and that appropriate action is necessary, this has led to a significant increase in awareness in society with regard to protecting the climate. For many consumers, this means reducing their consumption of climate-damaging products and purchasing products and/or services from environmentally conscious companies that are as “climate neutral” as possible.

At the same time, however, companies must ensure that their advertising is clear and truthful and that consumers are sufficiently informed when making an informed purchasing decision. Misleading advertising must be avoided. The provisions of the German Unfair Competition Act (UWG) are decisive for the admissibility of advertising to consumers, in particular, the general prohibition on misleading advertising (section 5 (1) German Unfair Competition Act (UWG)) and/or concealing essential information (section 5a (1) German Unfair Competition Act (UWG)).

As previously stated, the use of the undefined term “climate neutral” involves uncertainty, as well as a certain potential for misuse, commonly known as “greenwashing”. The German Federal Environment Agency defines “greenwashing” as

“an attempt by organisations to give themselves a ‘green’ or ‘sustainable’ image, in particular, by using measures in the field of communication and marketing, without actually systematically implementing the corresponding sustainability-oriented activities in their operational business” (https://www.umweltbundesamt.de/greenwashing-sustainable-finance#die-nachfrage-nach-glaubwurdigkeit).

Even companies that are actually climate neutral according to the above-mentioned standards (avoidance – reduction – compensation) can be suspected of greenwashing – for example, if the information duties are only insufficiently fulfilled or where the impression is given that emissions are being largely avoided, but in fact, climate neutrality is mainly being achieved by compensation measures.

In the absence of legislative regulations, German case law is currently trying to provide advertisers with standards so they can use the term “climate neutral” in a way that is allowed.

Can this be concretized? – A classification in German case law

A decision from the highest German court regarding advertising with the term “climate neutral” is still pending. Recently, however, the lower courts have increasingly dealt with the statement “climate neutral” in various areas.

It should be emphasised here that the courts generally apply strict standards to the use of the term “climate neutral” – especially with regard to information requirements. However, it can be seen that the courts are moving to a more lenient approach to how consumers understand this term.

Initially, the courts had assumed that the consumer understood “climate neutral” in the sense of meaning “emission-free” (e.g. Mönchengladbach Regional Court, Judgment dated 25 February 2022 – 8 O 17/21 – re: climate-neutral jam; Oldenburg Regional Court, Judgment dated 16 December 2021 – 15 O 1469/21 – re: climate-neutral meat products; Frankfurt a. M. Regional Court, Judgment dated 31 May 2016 – 3-06 O 40/15 – re: “100% CLIMATE neutral”; Düsseldorf Regional Court, Judgment dated 19 July 2013 – 38 O 123/12 U – re: climate-neutral candles), however, in more recent decisions, the lower courts held that it is clear that both end consumers and professionals deem that “climate neutral” is not equivalent to “emission-free”, but that climate neutrality can also be achieved using compensation measures (e.g. Frankfurt a. M. Higher Regional Court, Judgment dated 10 November 2022 – 6 U 104/22 – re: use of a “climate-neutral” quality label; Kleve Regional Court, Judgment dated 22 June 2022 – 8 O 44/21 – re: climate-neutral jelly gums; Schleswig Higher Regional Court, Judgment dated 30 June 2022 – 6 U 46/21 – re: climate-neutral bin liners II). The Schleswig Higher Regional Court stressed in the reasoning for its decision that consumer understanding has developed over time to such an extent that it is clear to consumers that the advertised product cannot have been produced completely “emission-free”, but that compensation must have taken place via financial contributions (i.e. purchasing certificates). The court also said that unlike the vague terms “environmentally friendly”, “environmentally compatible”, “protecting the environment” or “organic” where there was an increased need to inform the target public about the meaning and content of the terms used, advertising with “climate neutral” was not necessarily misleading when considered in isolation, i.e. without any explanatory information. It should, however, be noted that the packaging that was contested had contained a general notice that the company supports climate protection projects. One of the most recent decisions even goes so far to state that consumer understanding of using the term climate neutrality assumes that the advertising company first does everything it can reasonably be expected to do to avoid emissions, and that it is only the unavoidable residual emissions that are compensated (Stuttgart Regional Court, Judgment dated 30 December 2022 – 53 O 169/22 – re: climate-neutral vinegar cleaner).

Even if the consumer does not necessarily equate “climate neutral” with “emission-free”, adverts that use the term “climate neutral” must or should continue to be explained comprehensively in order to prevent an application for injunctive relief. According to the Frankfurt a.M. Higher Regional Court, any duties to disclose must refer to whether the purported climate neutrality has been achieved in whole or in part via savings or via compensation measures, whether certain emissions were excluded from the carbon balance and what criteria were used to assess the statement. When advertising a product a “climate neutral”, many courts generally do not consider it sufficient to attach a link to a website containing the relevant information (see, for example, Stuttgart Regional Court). The Kleve Regional Court took a different view in the case of advertising in professional circles.

Recent case law on the terms “climate neutral” and “environmentally neutral”

The Düsseldorf Higher Regional Court has ruled in two cases (Judgments dated 6 July 2023 – I-20 U 72/22 and I-20 U 152/22) that the advertising of products as “climate neutral” does not easily constitute a misleading of the consumers. The decisions relate to the advertising of a jam manufacturer (Mönchengladbach Regional Court, Judgment dated 25 February 2022 – 8 O 17/21 – re: climate-neutral jam) and a fruit jelly manufacturer (preliminary instance Kleve Regional Court, Judgment dated 22 June 2022 – 8 O 44/21 – re: climate-neutral jelly gums).

The Düsseldorf Higher Regional Court confirmed the recent decision-making practice of the German lower courts, in particular, the Frankfurt Higher Regional Court and the Schleswig Higher Regional Court, to the effect that it said the average consumer understands climate neutrality in the sense that this means the balancing of the carbon emissions of a product, and that the consumer is aware that this can be achieved through both emission-reducing and also emission-compensating measures. However, the court also stated, the advertiser has certain information duties with regard to achieving climate neutrality. The way in which climate neutrality is achieved provides the essential information that the consumer needs to make an informed purchase decision. In its decisions, the Düsseldorf Higher Regional Court emphasised the importance of climate protection for consumers and the considerable influence that climate-related claims can have on purchasing decisions. Whilst in the case of the jam manufacturer, where the reference to further information on how to achieve climate neutrality was missing and, therefore, the duties to provide information had been breached, in the case of the fruit jelly manufacturer, a QR code/link to a website with further information was considered sufficient.

The decisions are not legally binding. The Düsseldorf Higher Regional Court allowed an appeal to the German Federal Court of Justice in each case due to the fundamental importance of the issues in dispute. In the proceedings brought by the jam manufacturer (preliminary instance Kleve Regional Court, Judgment dated 22 June 2022 – 8 O 44/21 – climate-neutral fruit jellies, Düsseldorf Higher Regional Court – I-20 U 152/22 ), the German Centre for Protection against Unfair Competition (Wettbewerbszentrale) filed an appeal with the German Federal Court of Justice. It is of the opinion that basic information should already be provided in key words in the advertising or on the packaging, even if a detailed explanation of climate neutrality can only be expected on the website. It remains to be seen how the German Federal Court of Justice will rule on what is probably the first case it has received which relates to the term “climate neutral”.

The strict standards developed by case law also apply to other climate-related terms, such as “environmentally neutral”. In its Judgment dated 26 July 2023 (13 O 46/22 KfH), the Karlsruhe Regional Court viewed that the term “environmental neutrality” would be understood by the target pubic in a specific sense, namely as a “product with a balanced environmental footprint”, and, therefore, to the effect that after the environmental impacts have been reduced and any remaining environmental impacts have been compensated, no (negative) impacts on the environment would remain. As the products in dispute do not have a balanced environmental footprint, advertising with the claim that they are “environmentally neutral” is exuberant and, therefore, incorrect.

Increasing duties and requirements in connection with the use of so-called “green claims”

Companies should only advertise their products and services as climate neutral if the claim is actually true and can be substantiated with comprehensive evidence. Misleading or false advertising can not only have legal consequences (recall, compensation, etc.) but also affect consumer confidence in the company and its products or services. Therefore, companies should ensure that they carefully and transparently identify their carbon footprints and take the appropriate measures to reduce and/or offset their emissions before promoting their products or services as climate neutral.

In addition, companies should establish clear guidelines for the use of the term “climate neutral” to avoid misunderstandings and false claims. Consumers also have a responsibility to question the credibility of such statements and to inform themselves about the actual meaning of the term.

In view of the increased prosecution of climate-friendly claims by consumer protection and environmental associations, special attention should be given to the concrete product design or the concrete use of the term “climate neutral” or also any other climate claims.

It is expected that the EU Directive on the “substantiation and communication of explicit environmental claims” (so-called “Green Claims Directive”, “GCD”) proposed by the EU Commission on 22 March 2023 will provide more clarity for advertisers with regard to “green” claims. The first draft already stipulates, among other things, that environmental claims must be scientifically substantiated and independently verified on the basis of internationally recognised standards, and that companies must clarify whether they apply to the entire product or only parts of it. In addition, companies are encouraged to first implement their own reduction measures before making use of compensation measures. In future, there will most likely also be far-reaching restrictions on the awarding of labels (clear assessment criteria, regular monitoring, requirements for verification bodies, etc.). A breach of the requirements in the GCD will be punished with considerable sanctions, such as fines.

Furthermore, the “Unfair Commercial Practices Directive” (2005/29/EC) is to be amended and will include in the so-called “blacklist”, among other things, additional provisions relating to misleading environmental claims. Business acts that fulfil the elements in the blacklist are always regarded as inadmissible.

Companies are, therefore, well advised to keep themselves regularly informed about current developments at legislative level.

For more information on environmental claims and potential risks of greenwashing, see CMS Green Globe https://cms.law/en/deu/publication/cms-green-globe.