Is competition law a barrier for companies collaborating on sustainability initiatives?

December 19, 2023
9 minutes

Are competition laws having a chilling effect on the promotion of climate action?  Is there a tension between competing to produce in larger quantities, at lower cost, and with more innovation, and producing a sustainable product at greater cost with potential “first mover disadvantages”?  And if so, how do you address that tension?

One solution is to provide a safe harbour under applicable competition laws, for example, to allow competitors to collaborate to reduce carbon production / emissions in production methods and supply chains.  Other more radical solutions are international agreements making certain arrangements (such as Carbon Border Agreements) presumptively legal, or placing legal obligation on companies to produce sustainable products, making clear that work done to achieve compliance with that obligation is not unlawful.

While current competition laws may chill incentives to cooperate in sustainability, at least for some, there has been progress through recent guidelines published by competition agencies around the world.  These guidelines aim to give companies comfort on how to collaborate procompetitively on sustainability initiatives: 

  • In January 2021, the Netherlands Authority for Consumers and Markets (ACM) and Hellenic Competition Commission (HCC) published the Technical Report on Sustainability and Competition.
  • In July 2021, the HCC published a public consultation for a “Sustainable Development Sandbox” which it launched in June 2022.  
  • Although the German Bundeskartellamt has not published standalone guidelines: (i) on 18 January 2022, it allowed two business cooperations and sustainability initiatives in the retail sector and animal welfare (for a transitional period), (ii) on 25 January 2022, it found that a financing model between German milk producers amounted to a surcharge without improved sustainability benefits and was not acceptable under competition law, and (iii) on 13 June 2023, the Bundeskartellamt declined to examine a joint initiative on “Sustainable Cocoa” production and distribution.  
  • On 28 September 2022, the Austrian Federal Competition Authority published its final sustainability guidelines introducing a new sustainability exemption for ecological sustainability agreements. 
  • On 30 March 2023, the Belgian Competition Authority found that a sustainability initiative on ‘living wages in the banana sector’ did not raise competition concerns.  It has also not published separate guidelines.  
  • On 31 March 2023, the Japan Fair Trade Commission published the “Green Guidelines” including a section on Business Alliances. 
  • On 1 June 2023, the European Commission (EC) adopted revised Horizontal Block Exemption Regulations and Horizontal Guidelines including a new chapter on Sustainability Agreements.
  • On 20 July 2023, the Competition and Consumer Commission of Singapore sought public feedback on its proposed Guidance Note on Business Collaborations Pursuing Environmental Sustainability Objectives (alongside a Guidance Note).
  • On 4 October 2023, the ACM published a Policy Rule on its oversight of sustainability agreements.  The ACM first published draft guidelines on “Sustainability Agreements” in 2020, and published a second draft in 2021.  
    • Also on 4 October 2023, the ACM published its first informal guidance under the Policy Rule, positively assessing an agreement between commercial waste disposers to separate waste in accordance with their statutory waste-separation obligation.  
    • Under the draft guidelines, the ACM analysed and approved five sustainability arrangements: (i) the joint purchase of electricity from a wind farm by businesses and organisations (February 2022), (ii) an agreement between distribution system operators to use a uniform price for CO2 in calculation models for grid investments (February 2022 – considered together with (i)), (iii) Shell and TotalEnergies collaborating in the storage of CO2 in empty North Sea gas fields (June 2022), (iv) a joint agreement between soft drink suppliers about discontinuation of plastic handles (July 2022), and (v) arrangements of garden centers to stop the use of illegal pesticides (September 2022).  And in September 2022, the ACM also published guidelines for collaborations between farmers. 
    • On 23 June 2023, the ACM concluded that a joint price agreement with supermarkets on plastic packaging limited competition. 
  • On 12 October 2023, the Competition and Markets Authority (CMA) in the UK published the Green Agreements Guidance (here is our summary) on the application of UK competition law to environmental sustainability (ESG) including climate change agreements.  These are progressive, clear, and comprehensive guidelines, providing companies with specific examples of ‘low risk’ agreements (Section 3) and exemptions (Section 5).  
    • On 14 December, 2023, the CMA published its first response to a request for informal guidance received from the Fairtrade Foundation under the CMA’s “open-door” policy.  The Fairtrade Shared Initiative Impact proposes to increase the length of purchasing commitment contracts for Fairtrade bananas, coffee, and cocoa, to provide producers with financial security and allow them to invest in sustainable farming practices. 

But are these guidelines enough?

The International Chamber of Commerce (ICC) has previously called on competition agencies to do more to reduce the chilling effect of current competition laws on sustainability goals (here is the ICC’s 2022 Report), given the mixed views on the effectiveness of recent guidelines.  Some are of the view that they come too late, are too limited in scope, and are too fragmented.

In addition, there is already some divergence between agencies.  For example:

  • The CMA has encouraged companies to assess and show that consumers receive a “fair share of the benefit” of a sustainability environmental agreement, extending the analysis to consumers who may benefit indirectly i.e., UK consumers outside the relevant market.  The Austrian agency has also adopted a similar approach assessing ecological benefits to consumers who did not purchase the relevant products or services.  
  • However, the EC has taken a narrower approach, requiring consumers in the market to be compensated for any harm caused by pro-sustainable benefits without assessing out-of-market benefits.  Concerns with a narrower approach are that agencies may only consider a smaller subsegment of agreements, and disregard or miss substantial out-of-market sustainability and environmental benefits.  
  • The guidelines also cover different categories of agreements.  The CMA’s Green Agreements Guidance applies to environmental sustainability agreements including climate change agreements as a sub-segment, but does not include agreements to tackle the loss of biodiversity.  The EC’s guidance covers a broader range of objectives and agreements, including the UN’s sustainability goals, upholding human rights, animal welfare, and the recently published guidance for sustainability agreements in agriculture.  
  • In contrast to competition agencies in Europe and Asia, the US has failed to issue any guidance at all.  This may be a result of political opposition (e.g. from fossil fuel lobbies), federal and administrative factions, skepticism around motivations for collaboration, and fear of litigation and group boycott accusations.  This has caused greater uncertainty, and significantly deters companies from considering global sustainability initiatives.

Other fora in competition law provide hope that competition agencies will recognise and reward procompetitive sustainability benefits.  For example, in merger control, the Australian Competition Consumer Commission (ACCC) balanced the alleged anticompetitive effects of a merger between Brookfield, MidOcean, and Origin against the likely environmental benefits from increasing the speed and extent of Origin’s transition to renewable energy.  In this case, the environmental impact was a significant factor in the ACCC’s decision conditionally to approve the merger.  And in the UK in 2021, the CMA incorporated new language into its Merger Assessment Guidelines considering the sustainability of a product or service as a non-price aspect of competition as well as a relevant customer benefit. 

Although new guidelines for companies, even in just a few jurisdictions, are a helpful first step: 

The guidelines are still a work in progress, and can only go so far.  Competition agencies need practical experience and more interaction with companies to understand new sustainability efficiencies and benefits versus any anticompetitive harm to consumers resulting from the collaboration.  Leading agencies must also encourage other agencies to adopt and develop regulations, guidelines, and discuss practical experience to avoid further fragmentation and divergence. 

The burden remains on companies to assess sustainability benefits over anticompetitive harm.  There remain difficulties and risks for companies to make their own assessment on how to apply the guidelines, and balance the benefit of a sustainability initiative and the need for consumers to be fully compensated for anticompetitive behaviours.  Companies may need to show that consumers receive a fair share of the benefit from the relevant sustainability agreement and that the benefit outweighs any harm caused by the restriction of competition.  Companies may also need to assess the type of consumer benefit resulting from the relevant agreement, i.e., whether it is a direct, indirect, or collective benefit.  However, the CMA has clarified that parties will need to be able to demonstrate that benefits are substantial enough to offset any harm, but admits that in many cases, it will not be necessary to quantify the benefits precisely. 

Informal guidance may not apply where the facts or effect of an agreement materially change.  Companies may be protected from fines by competition agencies who review and provide informal or formal guidance on an agreement, but would not be protected if the scope or effect (e.g., market coverage) of an agreement materially changed.  The CMA’s informal guidance once it has considered an agreement, for example, is prepared based on the facts submitted by the parties, which are not verified or market tested, and the conclusion is caveated on the basis that there are no new factors that would make a material difference to the initial conclusion.  Parties are encouraged to monitor and review existing and sustainability agreements and initiatives. 

Climate action is a global issue which requires a global approach.  Companies operate on a global basis and so guidelines should provide an internationally recognized standard or approach allowing companies to develop and implement global sustainability initiatives.  The current fragmentation and limited adoption of guidelines globally has resulted in legal uncertainty and confirmed apprehension to collaborate to advance climate action, particularly where initiatives involve US customers or supply/distribution chains.  

So what can companies do?  

  • Companies discussing or developing new sustainability initiatives should continue to consider antitrust risk.  But they should be willing to consult the new guidelines when doing so.   
  • Companies should consider pro-active engagement with competition agencies.  For example, the CMA introduced an “open-door” policy allowing companies to approach the CMA for informal guidance on proposed (not existing) environmental sustainability agreements.  The main benefit is that if the CMA concludes the agreement does not raise competition concerns, providing the parties have not withheld information that would have been crucial for the CMA’s assessment, the parties are protected from enforcement action.  And, the CMA may consider intervening in support of parties over an environmental sustainability agreement, where it has provided informal guidance on that agreement in the past and where that agreement is subject to private litigation. 
  • Companies might consider adapting current internal competition law guidelines on trade association attendance and exchanging competitively sensitive information to allow greater dealings with competitors on only sustainability initiatives.  

Regardless, there remains a lot more to do to encourage businesses to cooperate procompetitively on sustainability initiatives.  

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