May 16, 2024

From label to court: navigating European case law on corporate climate claims

Recent court rulings across EU member states suggest solutions for the substantiation of climate claims, highlighting a gap in EU legislations.

The recent boom of corporate climate claims has caused an increase in related judiciary cases across Europe, due to a legislative gap in EU law. Court rulings suggest solutions for the substantiation and communication of climate claims, which should inspire the EU co-legislators as they design harmonised rules to bridge this legislative gap.

We have seen a proliferation of claims regarding the reduced or (net) zero impact of companies or their products on the climate in recent years. As consumers increasingly scrutinise the environmental impact of their consumption, companies are ever more eager to communicate their climate mitigation efforts. However, these claims can be vague or false and often do not stand up to scientific scrutiny, easily becoming a tool for greenwashing that can divert important private funding away from true climate action.

The EU has recently banned climate claims based on carbon credits for products and services. At the same time, European and national authorities, often thanks to the push of NGOs, are increasing their surveillance on faulty climate claims, most recently with a lawsuit against 20 airlines for “misleading greenwashing practices”.

As the EU is developing rules on legitimate company-level environmental claims through the Green Claims Directive, the recent rulings by domestic courts across Europe should inspire lawmakers to address some of the key open issues, in particular for net zero claims.


How climate neutrality claims may confuse consumers

At least 22 cases regarding product or organisational climate claims have been the subject of litigation in the last 15 years, mainly across Germany and the Netherlands, as well as Denmark, France and Sweden.

According to these court cases, from the consumer’s perspective, a claim of climate neutrality from an organisation implies that said company produces and distributes its products and services entirely without CO2 emissions across its entire supply chain. In one German case regarding a product-level claim, the court explained that from the consumers believe that climate neutrality means that the materials and production techniques used do not emit CO2 at all.

The terms ‘neutral’ and ‘to neutralise’ thus prove confusing, as they create the expectation that the full environmental and climate damages caused by CO2 emissions are compensated for, whereas, according to the courts, doing so in practice is very difficult, if at all possible, to prove.


The courts’ suggestions for legitimate climate claims

In most cases, multiple European courts presented ways for making legitimate organisational claims in line with consumer protection law and scientific consensus. Namely:

  1. To make climate neutrality claims, organisations should clearly explain what climate neutrality means and the way it is achieved through compensation. Such explanations should include information for consumers on how climate projects are financed at the time of purchase of a product or service.
  2. Achieving net zero cannot rely solely on carbon credit certificates. Emissions reductions within a company’s supply chain take priority over acquiring external carbon credits. Despite constituting the majority of carbon credits on the Voluntary Carbon Market, emissions avoidance credits or afforestation projects cannot be used to substantiate a net zero claim.
  3. Companies must prove the causal link between their mitigation practices and concrete CO2 savings or removals. As such, only a full lifecycle assessment of an organisation’s emissions (including avoided and removed) showing the complete compensation of CO2 emissions can substantiate claims of climate neutrality. Contribution to climate protection projects cannot on their own justify such claims.
  4. A consequence of the former point is that companies cannot base their climate neutrality claims on commitments to practices alone. The court deemed that following guidelines or applying standards such as the Gold Standard was insufficient for substantiating climate neutrality claims as doing so didn’t necessarily lead to concrete CO2 emissions  savings or removals.
  5. Transparency is mandatory for net zero claims to be legitimate. Customers must clearly receive the information when making a purchase decision. Additional information can be made available in the advertisement, or through a web link or QR code, and presented on a single website, using transparent, concise and clear language. Companies must prove with full certainty that the claimed emissions compensation has been achieved, although some courts argued that the compensation for the harm done by emissions could not be accurately proven in practice


A gap to be filled

Domestic courts across Europe have been ambitious in dealing with climate claims. However, the sheer volume of faulty climate claims exceeds the capacity of the courts to deal with them. Courts should not take over the role of legislators in setting adequate rules on climate claims substantiation either.

These cases highlight the current gap in the EU and national legislation on substantiating and communicating corporate climate claims. A clear European regulatory framework is needed to tackle greenwashing and guide member states to adopt national legislation on the matter. Plugging this gap is exactly what an improved Green Claims Directive can offer.

This Directive should introduce the key principles brought forward by court rulings to provide more clarity to companies and consumers. However, putting these principles into practice is not straightforward for companies that want to do the right thing. The Directive should therefore further elaborate on these principles.

First and foremost, only carbon dioxide removal (CDR) activities can completely compensate for the lifecycle assessment of a companies’ greenhouse gas (GHG) emissions, in line with the IPCC definition of ‘climate neutrality’. In particular, fossil-fuel emissions can only be compensated with permanent CDR to respect the balance between nature’s short and long carbon cycle, known as the like-for-like principle.

In addition, it is important to clarify which emissions within a company’s value chain are eligible for compensation. The EU must introduce a mechanism to differentiate between emissions that must be reduced and those emissions that can be compensated for, such as hard-to-abate emissions (i.e., those emissions which cannot be reduced for technical or financial reasons).  This mechanism should look at sectorial differences and the latest technology developments and should be set up at EU level, to avoid fragmentation across member states.

In this context, effective EU-level rules on climate claims can reinforce domestic court rulings to tackle greenwashing, spur investments in high-durability removals and allow Europe to lead the way in driving effective corporate climate action globally.

by Lucian Morié, Associate Policy Analyst