Sustainable collaboration

Concerns about climate change are having a significant impact on the UK economy, changing market dynamics and customer behaviours. The UK is working towards being climate-neutral by 2050 and businesses are facing mounting pressure to become greener. 

Unfortunately, the benefits of pursuing green technology and sustainable strategies, particularly for businesses acting alone, are often outweighed by the risks and costs involved. Businesses that are able to join forces to pursue environmental objectives together, for example through joint R&D of green technologies, a joint commitment to minimum environmental standards or through co-ordinating resources or joint purchasing, can help to create a level playing field, achieve economies of scale and reduce investment costs.

Yet collaboration does not typically sit well with EU and national competition laws, which prohibit agreements or arrangements between competitors that restrict competition, with fines of up to 10% of their worldwide turnover for breaches. The threat of heavy financial sanctions for breaching competition law by collaborating on sustainability initiatives is stifling progress.

It is in this context that regulators are looking for ways to give businesses greater leeway to tackle environmental issues collaboratively, where those collaborations contribute to public goals of sustainable development.  

The Dutch Competition Authority has led the way with guidance to help businesses self-assess the compatibility of joint sustainability initiatives with competition law, and it has stated that it will not impose fines on companies applying the guidelines in good faith. The Dutch guidelines identify two types of sustainability agreements that would be considered low risk:

1. Agreements that are unlikely to restrict competition (e.g. codes of conduct for market behaviour, agreements to improve product quality by phasing out less sustainable products or agreements to create new products where collaboration is needed for reasons of production, know-how or to achieve sufficient scale).
2. Agreements that restrict competition but where the sustainability efficiencies outweigh any restrictions. These types of agreement must also meet four cumulative criteria: (i) the agreements offer sustainability benefits; (ii) the users of the products/services receive a fair share of those benefits; (iii) the restriction on competition is the minimum necessary to achieve the benefits; and (iv) competition is not eliminated in respect of a substantial part of the products/services in question. 

The UK's Competition and Markets Authority has also issued guidance for businesses and trade associations to better understand how competition law applies to sustainability agreements and to improve awareness of the key issues arising when cooperating on sustainability initiatives. 

Whilst the guidance to date is limited in substance and is not 'new', it does offer a starting point for businesses looking to implement collaborative sustainability initiatives. The fact that guidance has been issued at all also indicates the growing significance of the issue at a policy level, and it shows a willingness on the part of regulators to take a more flexible approach to the assessment of sustainability collaborations.  

In the meantime, it is important that businesses prioritising sustainability on their corporate agenda seek strategic legal advice at the outset of any joint initiative, in order to ensure that it can be designed and framed in a way that aligns with their objectives without bearing excessive risk.