The ad, which was part of Shell's "Throw away" campaign, featured the strapline "Don't throw anything away, there is no away", and was illustrated by a cartoon silhouette of an oil refinery with flowers coming out of the chimneys.
Accompanying text for the ad, which was aimed at current and new business customers, stated it "used its waste CO2 to grow flowers" and "waste sulphur to make super-strong concrete". These claims that were disputed by the complainant, Friends of the Earth.
Friends of the Earth also complained to the Advertising Standards Authority that Shell's cartoon depiction of flowers coming out of oil refinery chimneys used misleading imagery that implied that oil refineries had a positive environmental impact.
Shell defended the images, saying they showed a world "they wished existed" and that the flowers coming out of the chimney were "unlikely to be interpreted as a literal claim".
The ASA ruled that the images used were "conceptual and fanciful", and that in this context the ad did not mislead the public.
However, the watchdog upheld two further complaints centring on claims made in the Shell ad about the company's environmental record, which implied that it recycled substantially more waste materials than it actually did.
Shell defended the action, citing that it supplied greenhouse growers with 170,000 tonnes of CO2 in 2005; a figure that it expected to rise to 320,000 tonnes by the end of the year.
Friends of The Earth disputed Shell's CO2 recycling record, claiming the annual amount the company recycled represented just 0.325% of Shell's total global yearly emissions.
The ASA said that while it acknowledged Shell used some waste CO2 to grow flowers, the wording of the ad implied that the company used all of its waste CO2 to grow flowers, and ruled that the text breached its rules on truthfulness and environmental claims.
The ASA also upheld a complaint that Shell used waste sulphur to create "super-strong concrete", which was also deemed to have breached its rules of truthfulness and environmental claims.
Shell said its use of sulphur to make concrete was one of a number of environmental initiatives it had embraced in the last 20 years, which the ASA acknowledged, but ruled that the ad's wording implied that it used all of its waste sulphur for this process.
The watchdog said it welcomed Shell's decision to no longer use the ad, and accepted its assurances not do so in the future.