More Regulation instead of Competition: Commission plans Costly System Change of Laws on Advertising with Green Claims – Comments on the Proposal of a Green Claims Directive (Part 1 of 3)
On March 22, 2023, the EU Commission submitted a “Proposal for a Directive on substantiation and communication of explicit environmental claims (Green Claims Directive)“, COM(2023) 166 final, (hereinafter “Proposal“, the planned directive the “Green Claims Directive“). With the Green Claims Directive, the EU Commission is planning a fundamental system change in the law governing advertising with environmental claims and ecolabels. Up to now, these have been controlled by the law on unfair competition only after their use in the market, for example through competitor claims or claims of consumer associations. Using green claims in the market shall now be preceded by a comprehensive preventive control of the claims in the form of a conformity assessment procedure at independent verifiers (testing bodies), which shall be mandatory. According to this, use without certification of conformity by the testing body is prohibited from the outset. This central change in the law on advertising with green claims is accompanied by various additional obligations for companies, such as the obligation to collect and evaluate a range of information to substantiate the respective advertising claim, to submit it to the testing body, and to make it available to consumers (assuming a positive conformity assessment) when it is used in the market. As a result, environment-related advertising will become considerably more difficult for companies, or at least very time-consuming and costly. The regulations are accompanied by numerous powers for the authorities to investigate and impose sanctions.
In view of the planned fundamental innovations, it is worth taking a detailed look at and evaluating them. We will shed light on this in a three-part series focusing on different topics. This Part 1 provides an initial overview of the background and contents of the planned directive and presents some of the central substantive legal requirements relating to green claims. The second part will deal primarily with the envisaged conformity assessment procedure and the requirements relating to eco-labels, while the third part will focus on the planned regulatory powers and sanctions in the event of infringements.
The Proposal of the Green Claims Directive aims at strengthening the fight against so-called “greenwashing” and fits into various measures of the Commission in the context of its “Green Deal” (cf. our contribution on the proposal of a Repair Directive of the EU Commission). This in conjunction with a planned further amendment of the Unfair Commercial Practices Directive (Directive 2005/29/EC, “UCP Directive“). In essence, the Commission is concerned with two things: firstly, stronger regulation of advertising with green claims in general, and secondly, a reduction in the “proliferation” of eco-labels observed by the Commission.
1.1. Stronger Regulation of Advertising with Green Claims – questionable Justification Approach of the Commission
In general, advertising with “green claims” (current German term in the proposal: “Umweltaussagen”, English term “environmental claims”) is to be more closely regulated. Green claims (environmental claims) are, according to an expansive definition that is somewhat simplified here, all statements or representations that do not have to be made under EU or national law (i.e.: are made voluntarily), and in which it is stated that a product or company has a positive impact on the environment, an improved impact on the environment compared to the past, or no impact at all, or is less harmful to the environment than other companies or their products. Typical examples of green claims are statements that products or companies are “climate neutral,” “CO2 neutral,” or “100% CO compensated”.
The Commission’s main focus is on generally taking more intensive action “against greenwashing and misleading consumers with false environmental advertising claims“. To this end, it refers to a study according to which 53.3% of the green claims examined were vague, misleading or unfounded.
This empirical approach of justification is questionable even at the outset. The Commission combines three categories here that do not fit together stringently – with the result of a “shortage rate” of more than half, which in the end superficially signals a considerable need for action. If one then takes a look at the study referred to, it is explained in the summary that these 53.3% of statements are (only) “potentially misleading” (cf. p. 4 of the executive summary of the study). The study also reveals that the legal standards applicable under the UCP Directive for determining whether a claim is misleading were not used as the standards of the study – rather, independent criteria were formed for this purpose (cf. p. 85 of the study). In this context, “vague” was not even a core criterion.
As a result, the Commission is on the wrong track here. Vagueness is virtually immanent in advertising statements. They are not to be qualified as reprehensible per se. The fact that advertising claims are exaggerated and thus regularly not “well-founded” is also common and not worthy of criticism per se. On the contrary, Art. 5(3) UGP Directive explicitly recognizes that it is a common and lawful advertising practice to make “exaggerated” (i.e.: unfounded) statements or statements that are “not meant to be taken literally”.
From a competition (law) perspective, the decisive factor must be whether statements are misleading. This may be the starting point, although the relevant case law in Germany, for example, has already developed continuously in this area and environmental statements are subject to “strict requirements and extensive duties of clarification” according to a leading decision of the Federal Court of Justice (BGH I ZR 213/93; cf. most recently also Karlsruhe Regional Court (13 O 46/22 KfH)). It should be noted, however, that the decisions of the courts of instance are not uniform and reveal diverging standards with regard to the understanding of advertising statements on “climate neutrality” by the average consumer (rather restrictive: e.g., District Court Frankfurt a.M. (3-06 O 40/16) and District Court Stuttgart (53 O 169/22); less restrictive: e.g., Higher Regional Court Schleswig (6 U 46/21) and Higher Regional Court Dusseldorf (I-20 U 152/22 and I-20 U 72/22)).
1.2. Plans to reduce the Proliferation of Ecolabels
The Commission is also concerned with reducing the alleged “proliferation” of public and private labels. It states that the large number of eco-labels has led to a decline in consumer confidence in such labels. In fact, it has recently been reported in the media that consumers avoid companies or products that are accused of making false statements about climate protection. The Commission wants to restore consumer confidence and, to this end, ensure that certain minimum requirements for transparency and credibility of eco-labels are met.
An important limitation of the intended scope of the Green Claims Directive is, first of all, that only those environmental claims and eco-label schemes are covered that are not covered by other EU legislation regulating environmental claims. Accordingly, EU legislation that provides for more specific rules on environmental claims for a particular sector or product category, such as those relating to the EU Ecolabel, the EU Energy Efficiency Label or the EU Organic Logo for organic farming, should take precedence over the proposed provisions (cf. Art. 1(2)), i.e., continue to apply, and to that extent conclusively.
Only explicit environmental claims are to be covered by the Green Claims Directive, i.e., those that are “in textual form” or are contained on an eco-label (Art. 2(2) in conjunction with Art. 1(1)). In this context, the German reader should not be misled by the term “text form” used in the German proposal; what is meant is, in particular with reference to the English version of the proposal, any form of text, but not the “text form” pursuant to Section 126b of the German Civil Code. According to the current state of the draft, the result is that texts in television advertisements are covered, while (possibly also constantly repeated) corresponding statements in radio are not covered and are therefore not subject to the Green Claims Directive.
Micro-enterprises (less than 10 employees and annual sales of max. EUR 2 million) are largely exempt from the regulations in terms of personnel. These can voluntarily submit to the requirements (opt-in), which will probably rarely happen.
3. Substantive Legal Cornerstones regarding Green Claims
From a company’s point of view, the substantive cornerstones of the proposal with regard to requirements concerning green claims are the requirements for substantiating and evaluating green claims (Art. 3, 4), the claim-related information obligations of companies vis-à-vis consumers (Art. 5) and the obligation to review and update the substantiation of green claims (Art. 9).
3.1. Requirements regarding Substantiation of Green Claims (Art. 3, Art. 4)
Art. 3 of the proposal contains one of the most essential regulations. Anyone wishing to advertise with green claims is obliged to collect and evaluate various information to substantiate the respective advertising claim.
In particular, companies must provide evidence that the environmental impacts that are the subject of the proposed claim are relevant with respect to the life cycle of the product. They must also indicate whether the product (or the company) to which the claim refers performs significantly better than competing products or companies in terms of the environmental aspects referred to, and also indicate, for example, whether the claim refers to the whole product, only parts or partial aspects of the product, or to the company as a whole or only individual parts of its activities. The company’s evaluation of the advertising claim must be based on recognized scientific evidence and the latest state of the art. In addition, it must be stated whether the improvement of advertised environmental aspects results in a detrimental effect on other aspects, such as resource consumption, biodiversity or animal welfare. With regard to the aspect of greenhouse gas emissions, which has recently been very frequently addressed in advertising claims, various requirements are provided for. For example, all claimed offsets for greenhouse gas emissions must be disclosed separately from all other greenhouse gas emissions as additional environmental information. It must also be stated whether these offsets relate to emission reductions or removals of greenhouse gases. In addition, in particular, the correct accounting of the offsets used must be demonstrated in order to substantiate the claimed impact on the climate.
In summary, high requirements must be met before advertising claims are made, particularly with regard to greenhouse gas emissions.
Art. 4 deals with the special issue of comparative green claims, i.e., claims which state or imply that a product or a trader causes less environmental impact or performs better than other products or traders. With regard to such claims, in addition to the substantial requirements mentioned in Art. 3, further requirements have to be fulfilled in order to ensure comparability. Proverbially, it should not be possible to compare apples and oranges in order to present the company or product in a positive light. In particular, the data of the relevant companies or products on which the respective comparison is based must be comparable and must have been collected in a comparable manner.
3.2. Requirements for Communication in Connection with Explicit Environmental Claims (Art. 5, Art. 6)
The proposal also contains various requirements regarding the communication of green claims to the market. In simple terms, green claims must comply with the above-mentioned substantiation requirements (Art. 3, Art. 4) and be material (English version: “significant”, German version: “bedeutend”). Conversely, aspects should be prevented from being advertised as significant if they are of no relevance to the life cycle of the product or to environmental compatibility (Art. 5(2)). The overemphasis on insignificant aspects is to be eliminated.
It is also stipulated that advertising claims referring to a final product must contain information on how the consumer can use it to achieve the purported environmental performance of the respective product advertised by the company. This information must be provided together with the corresponding advertising claim (Art. 5(3)).
In practice, Art. 5(6) in particular will cause effort, as it stipulates that a range of information must be provided together with the advertising claim in physical form or in the form of a web link, QR code or similar. That is, the relevant information must be printed directly on the product or be easily accessible. This includes, in particular, the studies or calculations on which the statement is based, which are made available for assessing, measuring and monitoring the environmental impact of the product. In addition, the mandatory certificate of conformity and the contact details of the relevant inspection body (Art. 10, 11) must be provided.
An important requirement under Art. 5(6) is that, in the case of climate-related explicit environmental claims that refer to offsets for greenhouse gas emissions, information must be provided on the extent to which the claims are based on offsetting measures and whether these are attributable to emission reductions or removals of greenhouse gases.
This will certainly be useful as an area-wide requirement for achieving a minimum standard. However, companies cannot currently rely on case law assuming that advertising is permissible if these requirements are complied with in the event of a judicial clarification on the basis of the still applicable UCP Directive or the corresponding implementation standards in the German Act against Unfair Competition (UWG). For example, the District Court of Stuttgart (Case No. 53 O 169/22, para. 86 et seq.) in the case of a vinegar cleaner that was advertised with a supposed climate neutrality did not allow it to suffice that reference was made to a website with further information. Rather, with regard to Section 5a (1) UWG or Article 7 UGP Directive, the District Court required that the essential information be provided on the means of communication used for the advertising, in this case the product itself. There is a need for action here on the part of the Commission to ensure as far as possible – e.g., by supplementing the guidelines on the UCP Directive (cf. therein, sec. 4.1 ) – that companies are subject to uniform standards in order to prevent unnecessary uncertainty among companies.
With regard to comparative green claims (see also above regarding Art. 4), Art. 6 of the Proposal provides, in addition to the requirements under Art. 5, that comparative environmental claims regarding allegedly improved environmental impacts of a product compared to other products of the same company – i.e., a self-comparison – or with those of former competitors are not permitted. An exception applies only insofar as it is proven that a significant improvement has been achieved in the last five years.
3.3. Updating Obligation (Art. 9)
According to Art. 9, a continuous review and updating of the information used for the substantiation of green claims is provided for. The companies are to ensure that the corresponding requirements of Articles 3 and 4 are fully complied with on an ongoing basis and that there is an obligation to review and update even if there are circumstances that “may” affect the accuracy of a claim. According to the current draft Proposal, this requirement would oblige companies to update the relevant information even in the event of mere suspicions. It is to be expected that this will be critically scrutinized in the further legislative process and, if necessary, attributed to circumstances that “affect” the accuracy of the respective claim.
This concludes Part 1 of our series on the proposed Green Claims Directive. We will continue the series shortly with Part 2 (focus: conformity assessment procedures, eco-cabel requirements).