Clifford Chance

The recent Italian decision in the Dieselgate saga demonstrates one of the main three ways a corporate may face liability if it gets caught up in greenwashing.

The Dieselgate decision

On 7 July 2021, the Court of Venezia ruled in favour of over 63,000 Italian consumers granting a class action claim against Volkswagen (both the German headquarters and the Italian branch) brought by two Italian consumers who purchased Volkswagen Polos, represented by Altroconsumo (an Italian Consumers' association).

The case follows the so called "Dieselgate scandal" which exploded in 2015, when the [US] Environmental Protection Agency (EPA) notified the German carmaker of an alleged emissions standard violation. It was later discovered that, between 2009 and 2015, Volkswagen had employed a particular piece of software that allowed some vehicles with diesel engines to pass emissions standards test that they would otherwise have failed. At that time, according to the court, Volkswagen's marketing campaign focused on the green and environmental features of the vehicles.

Altroconsumo argued that Volkswagen's 'green claims' were false and deceptive, and constituted a misleading commercial practice prohibited by the Unfair Commercial Practice Directive no. 2005/29/CE (implemented in Italy by Legislative Decree no. 145/2007). The plaintiffs also argued that Volkswagen had violated their right to freedom of contract and that the plaintiffs had suffered financial loss, equal to the decrease in value of the vehicle because it did not possess the promised green qualities. Over 63,000 individuals who had bought Volkswagen, Audi, Seat and Skoda vehicles in the relevant period joined the class action, all claiming to have been damaged by the same conduct.

The Court found that the defendants were responsible for using misleading, and at times false, 'green claims' in their marketing and advertising activities. The Court awarded damages under tort law, amounting to Euro 3,000 for each member of the class action in financial damage, plus Euro 300 in moral damage (over Euro 200M in total) and legal expenses.

According to the Court, Volkswagen's conduct potentially misled consumers. Such potential effect was enough to draw a causal link between Volkswagen's behaviour and the damage suffered by the consumers, as it was presumed – in the absence of evidence to the contrary – that consumers were influenced in their commercial choices by Volkswagen's 'green claims'. To reach its conclusions, the Court relied on reasoning expressed by the Italian Supreme Court in prospectus liability cases where a similar presumption applies.

Volkswagen has appealed the judgment before the Court of Appeal.

The spread of greenwashing litigation: to whom can the company be held liable?

Greenwashing litigation is on the rise across Europe, and not just in Italy.

Companies are increasingly making 'green claims' about their businesses, having spotted a commercial opportunity created by their consumers' growing awareness of environmental, social and governance issues. According to the Consumer Market Monitoring Survey, 78 per cent of European customers consider the environmental impact of a product to be “very important” or “fairly important” factors when making a purchase.

Due to the strong influence of these factors on consumers' commercial choices, making misleading environmental claims when marketing products can constitute an unfair commercial practice.

There are at least three different ways in which a claim may be brought against a company in such circumstances (with examples of all three already present in Italy):

1. Competition Authorities – companies may face cases brought by local competition watchdogs (in some cases pushed by local NGOs, nowadays more and more committed in scrutinising corporates' environmental claims and ready to make them accountable for those claims), challenging the accuracy of the 'green claims' they make. Such cases can end up with large fines if the environmental claims are proven to be vague, false, generic, and non-verifiable and can potentially result in significant reputational damages. The case brought by the Italian Competition Authority against Eni S.p.A. for the "Diesel+" fuel campaign is a clear example of this first category of cases.

2. Competitors - companies can also be held liable by competitors if any 'green claim' amounts to an act of unfair competition. As shown in the Alcantara case (See, our previous blog), competitors may obtain interim injunctions preventing the use of vague, false, non-verifiable environmental claims, and could also recover damages for lost market share, if they are able to draw a causal link between their competitor's 'green claim' and the customer diversion.

3. Consumers and other stakeholders - as seen in the Dieselgate case, (alleged) unfair commercial practices can expose companies (and potentially their directors) to claims by consumers, customers, investors, and shareholders who were persuaded to buy or invest in a product by misleading marketing. The risks entailed in this context are particularly high given the unforeseeable number of potential claimants involved.

Conclusions

As demonstrated by this line of Italian cases, greenwashing can potentially result in serious reputational damage, regulatory fines, and direct costs, and, ultimately, could have an impact on a company’s share price. The same incorrect or misleading statements may expose a company (and its directors) to liability towards multiple parties: public authorities, consumers or customers in general, and competitors. Such risk could be even higher in Italy, considering the new collective redress regime that (from May 2021) allows all potentially aggrieved parties, not just consumers, to bring a class action claim (See our previous blog). 

Accusations of greenwashing can also go beyond advertising-related cases. For instance, claims may be brought against companies subject to reporting and disclosure regimes (such as publicly listed companies and regulated entities) alleging that their annual reports or market filings contain greenwashing misrepresentations. See as a concrete example the claim brought by the Australasian Centre for Corporate Responsibility (ACCR) against Santos, a gas company, in relation to net zero claims made in its Annual Report. Banks, financial investors, and public pension funds could, however, also be targeted (See also our recent blog for an European perspecitive).

Given the risks involved, it is important that all market players properly assess their environmental claims before making them publicly.