Adidas vs sustainability: How DUH's lawsuits are forcing climate finance transparency

Intro: A brief on the Adidas case

In November 2024, the NGO Environmental Action Germany (Deutsche Umwelthilfe e.V. - DUH) filed a lawsuit against Adidas, which has its headquarters in Herzogenaurach, Germany. The case, which would be overseen by the Nuremberg-Fürth Regional Court, was against the sportswear company’s claims to achieve ‘carbon neutrality by 2050’ without specifying what measures would be taken despite setting climate targets aligning with SBTi, and whether carbon offsetting would be involved. The company’s defeat in March 2025 highlights the critical need for clear and transparent future-oriented promises, as per DUH's Jürgen Resch.

Though the Adidas verdict received much of the attention, they weren't the only target of DUH’s lawsuits; they also sued Lufthansa in Cologne, Germany. The verdict ruled against the airline, saying their "offset flight" option lacked transparency. Both cases were brought forth due to the presence of vague sustainability terms and greenwashing, with the root cause being one key word: offset.

The “offsetting” problem

In theory, carbon offsetting isn’t a bad choice. The funds from carbon offset purchases can be used to support various projects that reduce emissions, such as reforestation, investing in carbon capture technologies, etc. Furthermore, many high-quality offset projects offer significant co-benefits like biodiversity enhancement, improved livelihoods for local communities, etc. In practice, however, it can become a way for companies to use the purchased credits to mask their emissions. Additionally, carbon offsets may be cheaper in the short-term, but they won't grant the benefits and ROI that come with long-term sustainability initiatives.

Most importantly, a company’s use of carbon offsetting can also highlight potential deficiencies in its climate financing strategy, particularly when considering the balance between offsetting and direct emissions reduction. Over-relying on carbon credits, particularly if those credits are from low-quality or questionable projects like protecting low-risk forests, can suggest insufficient funding or a misallocation of resources towards compensating for pollution instead of preventing it.

The quality and scale of a company's offset choices also serve as key indicators of its commitment to impactful climate action and robust financial planning.

There can be a few key reasons for this weak climate finance, including;

● Compensation for weak climate strategies: Companies with well-defined climate strategies typically prioritize direct emissions reductions, using offsetting as a supplementary tool for remaining emissions. An excessive reliance on offsetting may indicate a less mature or ambitious approach to climate finance.

● Market demand for low-cost options: Many companies, especially those new to carbon offsetting or facing budget constraints, prioritize the cheapest available credits to meet their offsetting goals or public commitments. This demand for low-cost options incentivizes the development and sale of projects that may cut corners on quality and impact.

● Regulatory loopholes and weak enforcement: In some regions, regulations surrounding industrial emissions may be weak or poorly enforced. This creates opportunities for cheap offset projects that don't go beyond business-as-usual practices or that may even have negative local environmental or social impacts.

Improving the carbon markets requires greater transparency, standardized methodologies, stricter verification, and increased buyer awareness to favor high-quality, impactful offsets. DUH's victories against Adidas and Lufthansa, while not directly tackling these systemic issues, are a crucial step forward by underscoring the risks of misleading environmental claims and demanding greater accountability.

Changes in climate finance transparency

The DUH rulings are likely to act as a catalyst for a more discerning approach to climate finance: avoiding greenwashing, a demand for clearer information, etc., all for prioritizing direct emissions reduction. Other effects these rulings could have include:

● Differentiation based on quality: Higher-quality offsets are likely to become more valuable, while the demand for cheap, less impactful offsets may decrease due to the associated risks.

● Potential for price increases: If the demand for high-quality offsets increases and the supply remains limited, the price of these credits could rise, making offsetting a less financially attractive "easy fix" and further incentivizing direct emissions reductions.

● Regulatory influence: The rulings could spur governments to develop clearer regulations and standards for carbon offsetting and environmental claims, which could, in turn, shape the flow of finance within the carbon markets.

This shift towards direct emissions reduction, coupled with the evolving carbon offset landscape, is expected to drive a significant reallocation of climate finance, channeling increased investment towards:

● Internal decarbonization projects: Direct corporate investments in renewable energy, energy efficiency upgrades, and process innovation to reduce their own operational emissions.

● Supply chain sustainability initiatives: Collaborative projects and partnerships focused on reducing greenhouse gas emissions across the entire value chain.

● Innovative climate technologies: Increased funding for the research, development, and deployment of crucial breakthrough solutions like carbon capture, sustainable fuels, and other pathways to a net-zero economy.

Conclusion

DUH’s lawsuits victories serve as a critical inflection point, highlighting the growing intolerance for vague, misleading environmental claims, as well as demanding greater transparency and accountability in climate finance. And by taking a more proactive approach to it, hopefully stories of ‘landmark rulings’ forcing companies to do the bare minimum will be replaced with success stories of sustainability.