Competition law and sustainability

There has been much recent focus on the interplay between competition law and sustainability goals. To what extent should the former be reformed in order to advance the latter? Alternatively, is there already sufficient leeway in global regimes to enable sustainability co-operation to be progressed?

Theoretically, competitive markets should encourage businesses to innovate. This could include innovation around energy-efficiency, reducing emissions and contributing to environmental and climate policies. On the other hand, business practices which have sustainability at their core can entail first-mover disadvantages with higher investment cost. Corporates may not move on them unless they can share the costs by collaborating with their competitors. That, in turn, raises competition law risks.   

European Commission Guidelines

Global anti-trust authorities are becoming more aware of the need to assess the environmental impact of horizontal co-operation agreements (that is, collaboration agreements between competitors) under existing competition law.  The European Commission has made the most recent move by including a new chapter on sustainability agreements in its updated 'Guidelines on the applicability of Article 101 TFEU to horizontal co-operation agreements' (Commission Guidelines).[1] The Guidelines do not, however, go so far as to consider sustainability cooperation agreements as a distinct form of horizontal cooperation agreement, but rather as compatible with other, more traditional types of horizontal agreements (such as joint purchasing or joint R&D agreements). In practice, this means that any EU competition law assessment of a cooperation agreement includes that sustainability objectives must be evaluated with respect to the rules governing the specific type of agreement in question, as well as the specific provisions for sustainability.

What is the position in the UK?

It is useful to compare the Commission's approach to that which is currently under consultation in the UK. While the CMA's draft Guidance on the application of the Chapter I prohibition in the Competition Act 1998 to environmental sustainability agreements ("CMA's Draft Sustainability Guidance") is broadly similar to the Commission Guidelines, there are some important differences.

• The Commission folded sustainability into its drafting from the outset. In contrast, the consultation exercise for the CMA's Draft Sustainability Guidance has been run separately to the its more general draft Guidance on the application of the Chapter I prohibition in the Competition Act 1998 to horizontal agreement . The distinction is subtle but could indicate a greater tendency in the UK towards reforming competition law to ensure that sustainability benefits are accounted for when exercising exemptions.
• The Commission Guidelines provide for a broad and arguably vaguer definition of sustainability agreements, encompassing "activities that support economic, environmental and social development" and "which includes, but is not limited to, addressing climate change."[2]  In distinction, the CMA Draft Sustainability Guidance proposes a more defined "dual" approach, treating general environmental sustainability agreements (i.e. those aimed at preventing, reducing or mitigating the adverse impact that economic activities have on environmental sustainability) as different from climate change agreements (a sub-set of environmental sustainability which is focused on contributing towards the UK’s climate change targets).
• While the CMA will broadly use the same four criteria as the Commission in assessing if an agreement can benefit from exemption, it has made it clear that it intends to allow a more permissive stance in relation to the application of the ‘fair share to consumers’ condition in the case of climate change agreements. Specifically, the CMA will apply the 'fair share' condition so that it looks beyond the relevant market to which the climate change agreements directly relates to ensure that, "the totality of the benefits to all UK consumers" are captured.[3]

Reforming Member States

It is interesting to note that a small number of EU Member States have already chosen to adopt a more expansive approach than the Commission's to the 'fair share' condition. In early 2021, the Dutch Autoriteit Consument & Markt took the lead in revising its position such that, when assessing whether an exemption could apply to sustainability agreements,  the 'fair share' of benefits to users should include society at large (not just the users of the product/service). More recently, the Austrian Cartel Act has been modified to ensure a legal presumption that the criterion is met if the benefits that result from improvements to the production or distribution of goods or the promotion of technical or economic progress “contribute substantially to an ecologically sustainable or climate-neutral economy".[4] 

Some are exercising restraint

By contrast, other national competition authorities have been more restrained, perhaps borne out of a sense that the more conventional anti-trust framework is sufficient and that competition agencies are not the most appropriate means to implement sustainability policies.  For example, the German Bundeskartellamt ("BKA") has not seen the need to publish any particular guidance on sustainability. Instead, without diminishing its importance, the BKA has taken the view that the protection of the environment is like any other public interest objective which it may need to take into account when exercising its discretion on competition law exemptions.[5] Beyond Europe, the Brazilian regulator has taken a more direct stance in cautioning against competition law being reformed for the specific purpose of advancing sustainability goals. While acknowledging "the undeniable need to connect competition and environmental issues to the economic policy" the Administrative Council for Economic Defense has declared its reluctance to take a soft line on anti-trust exemption in cases where competitor cooperation might well generate environmental efficiencies.[6] 

To conclude

Stepping back from the detail, the direction of travel is clear. Regardless of how deliberately anti-trust authorities address the 'green agenda', the non-monetary benefits of sustainability cooperation agreements will increasingly be examined in determining if exemptions to the competition law rules might apply. We plan to address how the CMA will practically go about doing so in a future blog once its Draft Sustainability Guidance becomes final.