The claim
The non-profit environmental justice organisation, Fossielvrij (Fossil Free), brought an action against KLM in the Dutch courts on the basis that it had engaged in greenwashing in breach of Dutch consumer law. The claim was brought under the Dutch Civil Code, as amended by the Dutch Mass Damage in Collective Action Act, which allows interest groups to bring legal action to protect the interests of persons with similar interests.
Fossielvrij argued that 19 statements made by KLM in their advertisements and marketing campaign misled consumers about the environmental benefits of their products, and therefore violated the Dutch Unfair Commercial Practices Act (which implemented the EU Unfair Commercial Practices Directive). The statements were made as part of KLM's 'Fly Responsibly' campaign and 'CO2ZERO' service whereby customers were encouraged to make a financial contribution to reforestation projects selected by KLM as a way reduce the impact of their flights on the environment.
In its defence, KLM claimed that it was free to publish information about its sustainability efforts. Further, KLM claimed that while it realised that its main business activities were not currently sustainable, it was working on a number of projects to make its operations more sustainable.
Judgment
The Court of Amsterdam ruled that 15 of the 19 statements violated the Unfair Commercial Practices Act as they were misleading, including those which suggested that:
- Flying can be or become environmentally sustainable; and
- Purchasing or contributing to KLM products and measures (such as price promotions, carbon offsetting and 'Sustainable Aviation Fuel') reduced the impact of flying on climate change.
The Court found that these statements were based on "vague and general statements" about the environmental benefits of KLM's services and products, as well as depicting "an overly rosy picture" of the benefits of KLM's environmental initiatives. The Court also observed that KLM could have "reasonably foreseen that the economic behaviour of its audience would be disrupted by factually incorrect, incomplete and/or misleading information" .
The judgment recognises that consumers "are concerned with sustainability and the desire to make better choices increasingly plays a role in the decision whether or not to purchase a particular product", and statements made by companies about the sustainability of a product or provider can influence a purchase decision. However, while the Court was satisfied to make a declaratory judgment that 15 of the statements were misleading and unlawful, it was not willing to award the pleaded 'penalty' of EUR,100,000 each time KLM violated the Act, although it did order KLM to pay Fossielvrij's costs.
Comment
While no damages or penalty were awarded by the Court, this is an important judgment which underlines the serious reputational costs of greenwashing for those operating in the ESG space.
- Application to English Law
The judgment is not binding on the English courts but there are lessons to be learned from an English law perspective.
The Court of Amsterdam's judgment was heavily based on the Dutch Unfair Commercial Practices Act, which implemented the EU's Unfair Commercial Practices Directive 2005. This Directive was implemented in England and Wales as the Consumer Protection from Unfair Trading Regulations 2008 ( CPUTR ), which prohibits businesses from engaging in misleading actions which are likely to affect the economic behaviour of the average consumer. Greenwashing therefore is an example of a misleading action which is unlawful under the Regulations, and which businesses promoting green or sustainable products or services should seek to guard against.
Consumers can bring a claim under the CPUTR against a trader engaging in misleading action, so long as they have entered into a contract (or made a payment), and the misleading action was a significant factor in their decision to make the purchase or enter into a contract.
However, the biggest risk to business in the UK at the moment is the increased level of regulatory scrutiny over greenwashing, which we have previously written about here. Businesses should be aware that consumer facing statements about sustainability credentials or performance are capable of being investigated for greenwashing by the Advertising Standards Authority (ASA), as well as the Trading Standards and Competition and Markets Authority.
The ASA has explained in its recent guidance, that environmental claims such as 'carbon neutral', 'net zero', 'sustainable' and 'environmentally friendly', should not be made on an unqualified basis, and must be sufficiently substantiated with accurate information. Further, claims based on a company's future goals (such as those made by KLM) should be based on a verifiable strategy to deliver those goals, and the information supporting such claims must be signposted in the advert.
- Climate litigation trends
Claimants pursuing strategic climate litigation (which often seeks a broader change in corporate behaviour rather than damages) continue to use different causes of action with varying degrees of success (see further our climate litigation map).
We have seen a number of greenwashing cases brought under consumer protection legislation in various jurisdictions. We expect this successful judgment to encourage further use of this type of legislation, especially in Europe and those jurisdictions which allow interest groups to bring a claim on behalf of others.
- ESG policies and procedures
This case highlights the ongoing challenge faced by businesses in showcasing their climate ambitions and progress to their customers, while at the same time ensuring such statements do not fall foul of consumer protection laws and advertising standards.
Policies should be in place to ensure public facing claims about the sustainability credentials of a product or the business are accurate and clear, substantiated by credible and up to date evidence, and qualified. General claims including terminology such as 'green', 'sustainable' and 'eco-friendly' are best avoided, and the KLM case highlights that particular caution should be taken around claims on the benefits of offsetting schemes.
The CMA Green Claims Code and ASA Guidance on Misleading Claims and Social Responsibility in advertising should be referred to and followed. While such guidance is not legally binding, following this so called 'soft law' provides a strong defence when faced with greenwashing allegations, and as the KLM case demonstrates, such guidance is often referred to and used by courts in coming to a decision.
Where environmental credentials feature either in the sale of products to consumers or when addressing investors, in the current political and social environment, we expect to see an increased frequency in claims against companies, or their managers. However, where a board has taken appropriate steps to ensure statements are demonstrably accurate, and strong governance is in place, then directors and officers, together with their insurers, will be in a good position to successfully defend allegations of wrongdoing.
