Antitrust & ESG: European Commission publishes its final guidelines for businesses collaborating to meet sustainability goals

5 key takeaways

On 1 June 2023, the European Commission published its final guidelines on how companies should self-assess agreements with competitors that pursue sustainability objectives (sustainability agreements) under EU competition law.  The guidelines set the scene for enforcement policy across the EU as more companies across all sectors of the economy consider collaborative initiatives to meet ambitious net zero goals and broader sustainability objectives. 

The guidelines provide an essential framework for companies assessing whether their agreements could infringe EU competition law, but also highlight some important policy differences among antitrust authorities within and outside the EU. 

The key takeaways for business are summarised below (and for further background, please see our earlier blog here).  Please get in touch for a discussion on what this means for your company’s initiatives or the issues in your sector.

1. The Commission commits to providing informal guidance on initiatives that raise “novel or unresolved questions” – going further than others but not as far as some

A significant stumbling block for businesses entering collaborations to achieve sustainability goals has been the lack of legal certainty around how authorities would apply traditional competition law principles to multi-party initiatives that may negatively affect some consumers (e.g. higher prices or reduced choice) and where the benefits (e.g. reduced emissions) may be less easy to quantify but are likely to accrue to broader society and possibly only future generations. 

Helpfully, in its final guidelines, the Commission has committed “to provide informal guidance regarding novel or unresolved questions on individual sustainability agreements”.  This is in line with – albeit narrower in scope than – the approach adopted by other authorities, including:

• the UK Competition and Markets Authority (CMA), which indicates in its draft guidelines that it will operate an “open-door policy” for businesses to request informal guidance on their environmental sustainability initiatives, including (but not limited to) scenarios where businesses have questions that are not covered by the examples in the CMA’s guidance or to seek clarity on how the guidance will be applied in particular circumstances;
• the Dutch Authority for Consumers and Markets (ACM), which is similarly encouraging businesses to consult with the authority at any point before or after the sustainability initiative is implemented, and has committed to help businesses find solutions to ensure collaborations stay on the right side of competition laws; 
• the Greek authority (the Hellenic Competition Commission), which has implemented a “Sustainability Sandbox”, allowing businesses to approach the authority with sustainability initiatives and obtain informal comfort through a no-enforcement letter or confirmation by the authority that the initiative falls outside competition laws.  The sandbox environment is unique in that it allows the proposed initiative to be trialled in a supervised environment where potential effects on competition and sustainable development can be monitored and assessed by the authority; and
• other authorities, such as the German Bundeskartellamt (FCO), which informally review sustainability initiatives from time to time (notably in the food sector) and publish their views. 

However, the Commission has not gone as far as others (including the CMA and ACM) in making a clear policy statement that it will not:

• impose fines on companies that implement agreements that have been discussed with the Commission in advance and where concerns were not raised, but anti-competitive effects subsequently materialise; or
• take enforcement action against companies that have entered into initiatives which correspond to its guidance.

In fact, previous statements from the Commission’s Executive Vice-President Margrethe Vestager underscore the Commission’s view that competition should be a key driver of green innovation and where anti-competitive agreements threaten those objectives, the Commission will enforce its rules “more vigorously than ever”. 

Companies should carefully assess their initiatives under the final guidelines and, if in doubt, weigh the benefits of approaching the Commission for informal guidance against the risk that any disclosures may put the Commission “on notice” and lead to further investigation or potential enforcement action.  Issues for consideration are likely to include the evidence that companies will have to produce on the potential anti-competitive effects and consumer benefits that could arise from a proposed initiative (which may require economic modelling and/or consumer surveys) and whether any requests will remain confidential. 

2. The Commission takes a broad interpretation of “sustainability agreements” – and does not distinguish between initiatives to tackle climate change and those aimed at broader environmental or societal goals

In contrast to some authorities, the Commission is not giving any special treatment to certain types of sustainability agreement, such as those aimed at reducing greenhouse gas emissions and achieving the EU’s goal of being net zero by 2050.

Some comfort may be drawn from the Commission’s explicit recognition that agreements aimed solely at ensuring compliance with sufficiently precise requirements in legally binding international treaties fall outside the scope of competition law, but companies will be concerned that many initiatives to meet sustainability targets may not satisfy these criteria as the legal requirements on business are not sufficiently precise. 

The Commission’s guidance provides a helpful framework for companies pursuing broader sustainability objectives – including human rights, living wages, healthy diets and animal welfare – but some will be concerned that it does not go far enough in enabling companies to take the action needed to deliver on challenging climate change goals within the deadlines being set. 

3. The Commission revises the conditions necessary for sustainability standards and codes of conduct to benefit from a “soft safe harbour”

Many sustainability objectives are currently pursued by companies signing up to voluntary standards, codes of conduct or collective commitments.  To help businesses agree such standards with a sufficient degree of legal certainty, the guidelines include a so-called “soft safe harbour” where, provided certain cumulative conditions are met, the Commission will view such agreements as unlikely to produce appreciable negative effects on competition. 

In summary the conditions concern: (i) open and transparent procedures for developing the standard; (ii) voluntary participation; (iii) freedom for participants to apply higher standards; (iv) no exchange of commercially sensitive information beyond what is objectively necessary and proportionate; (v) effective and non-discriminatory access to the standard; and (vi) no significant impact on price or choice or the parties’ market shares fall below the thresholds (see further below). 

The final guidelines make two important changes to the conditions set out in the Commission’s draft guidelines:

• Impact on price or choice: in the draft guidelines, one of the conditions of the soft safe harbour was that the standard should not lead to a significant increase in price or to a significant reduction in choice.  However, as many sustainability initiatives will lead to some price rise or reduction in choice, even if for a temporary period, there was much focus on the Commission’s interpretation of “significant”.  In the final guidelines:
  • agreements which lead to a significant increase in price or reduction of choice may still benefit from the soft safe harbour if the combined market share of the participating undertakings does not exceed 20% on any relevant market affected by the standard; and
  • the Commission suggests that, where standards are adopted by businesses representing a significant share of the market, those businesses may be able to preserve the previous price level, or apply only an insignificant price increase, for example where the product covered by the standard represents only a small input cost. 
• Mandatory compliance and monitoring: in the draft guidelines, the conditions required that a standard should include a mechanism or monitoring system to ensure that participating businesses comply with the standard.  This is no longer a condition but the Commission notes that a standard is more likely to promote attainment of the sustainability objective if a monitoring system is in place – and the presence of a monitoring system will be a factor taken into account when assessing whether an agreement has as its main object the pursuit of a sustainability objective. 

This position is similar to that proposed by the CMA where mandatory compliance with the standard for those businesses who have chosen to participate, combined with a monitoring mechanism, is optional and would not change the authority’s position that standards satisfying the conditions are unlikely to have an appreciable negative effect on competition.  Notably, there does appear to be some divergence among authorities on this issue as, for example, the FCO has just published a new case report in the food sector highlighting the “voluntary commitments” – without any sanctions for participants if they fail to comply – as a positive factor in its assessment.

In light of such possible divergences, it will be important to identify relevant differences in approach and consider which (national, or indeed broader) frameworks will likely apply to any given initiative. 

Moreover, for sustainability initiatives in the food supply chain, it is worth noting the specific sustainability exclusion from competition rules for agriculture which grants companies additional leeway (under the 2023-2027 EU common agricultural policy reform).  The Commission is currently preparing guidelines on the practical implementation of the new exclusion, and companies should consider if and to what extent it may apply to any proposed initiatives.  Authorities such as the FCO have already indicated that this may impact the assessment of initiatives going forward. 

Clear and practical conditions are key as companies signing up to standards which fall outside the soft safe harbour need to carry out an (often complex) assessment of the likely effects of the initiative on competition and, if they find it could have an appreciable negative effect on competition, examine it under the strict exemption criteria (see further below).

4. The Commission clarifies that some common types of sustainability agreement should be subject to an “effects assessment” – rather than being treated as anti-competitive “by object”

The guidelines appear to open the door to more sustainability agreements which could (outside the realm of ESG) be regarded as restricting competition “by object” (i.e. harm to competition can be assumed) as falling within a category of agreements where actual or potential restrictive “effects” must be established in order for the agreement to infringe competition law.  This will be the case if the parties can substantiate that the main object of the agreement is the pursuit of a sustainability objective. 

The factors taken into account in an “effects assessment” would generally include: the parties’ market power; the extent to which independent decision-making on price, quantity, quality, choice or innovation is restricted; market coverage of the agreement; whether commercially sensitive information is being exchanged; and whether the agreement could result in price rises or reduction in output, quality or innovation.

An important example in the context of sustainability initiatives is an agreement between competitors to jointly purchase inputs that have a limited environmental impact, or to purchase exclusively from suppliers that meet certain standards.  The guidelines state that such agreements (termed “vertical boycotts”) do not generally amount to restrictions of competition “by object” and should be considered in their legal and economic context to assess their actual or likely “effects” on competition.  The CMA has adopted a similar position in its draft guidelines.  Alignment of approach to these common forms of sustainability agreements is particularly welcome. 

“Vertical boycotts” should be distinguished from “horizontal boycotts” where the aim of the agreement is to exclude an actual or potential competitor from the downstream selling market. 

Sustainability agreements will be treated as restricting competition by object if a sustainability objective is used to disguise price fixing, market sharing or customer allocation, or a limitation of output or innovation.  These include agreements where parties agree how to pass on to customers increased costs resulting from a sustainability initiative or agreements to limit technological development to minimum standards required by law. 

Many companies will welcome an approach where only the most serious forms of restriction are treated as “by object” restrictions.  However, only experience with “live cases” will tell whether:

• companies can satisfy the Commission with the evidence available that collaborations which go beyond those types of agreement which are unlikely to raise any competition concerns do not (or will not) have any appreciable effects; and
• if so, whether those companies are prepared to proceed on the basis of informal guidance – particularly given the risks of standalone litigation and other authorities taking divergent views.

5. The Commission refines its interpretation of the exemption criteria – but does not go so far as others on the “fair share for consumers” criterion

Any agreement which is found to restrict competition (by object or effect) needs to satisfy the strict criteria for exemption in order to avoid infringing the law.

Helpfully, the Commission has made some changes to its interpretation of one of those criteria: the agreement must not impose restrictions of competition that are not indispensable to the attainment of the benefits generated by the agreement.  In particular:

• where there is demand for sustainable products, the Commission’s view is that cooperation agreements are in general not indispensable.  However, the final guidelines recognise that they may be indispensable to reach a sustainability goal in a more cost-efficient or quicker way; and
• where EU or national law requires companies to comply with specific obligations, the Commission’s view is that cooperation agreements cannot be considered indispensable to ensure compliance with the obligation imposed.  However, the final guidelines clarify that companies may cooperate to achieve a substantially higher sustainability standard than the one set by regulation or to achieve a goal in a more cost-efficient way or more quickly.

These policies align with those proposed by the CMA. 

In relation to the other key criteria – consumers must receive a fair share of the claimed benefits – the Commission’s position has not changed and policy differences with the CMA and ACM remain.  In particular:

• the traditional view under EU (and UK) competition law is that, when assessing whether consumers receive a fair share of the benefits of an agreement, the relevant consumers are consumers of the products or services to which the agreement relates, and those consumers must be fully compensated for any harm suffered (i.e. any costs incurred must be offset by benefits, including improved product quality or the value placed by consumers on more sustainable production);
• both the CMA and ACM have flexed this approach for particular categories of agreement to allow a wider class of consumer benefits to be taken into account: “climate change agreements” in the CMA’s draft guidance and “environmental damage agreements” in the ACM’s draft guidance;
• although the Commission agrees with the CMA and ACM that future benefits may be taken into account, the Commission has adopted a narrower approach to the relevant class of consumers: benefits to a wider class of consumers can only be taken into account if the group of consumers affected by the restriction and that benefits is “substantially the same”. 

In other words, parties need to demonstrate that the consumers in the relevant market substantially overlap with the beneficiaries or form part of them and that the share of benefits accruing to consumers in the relevant market outweighs the harm suffered by those consumers.  This means that, where benefits are dispersed among a large section of society, it is less likely that the overlap with consumers in the relevant market will be substantial. 

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The Commission’s final guidelines are another helpful step forward in the global debate on how sustainability agreements should be assessed under competition law.  However, companies should take note that:

• if agreements may give rise to an appreciable restriction of competition, the hurdle for parties trying to satisfy the exemption criteria remains high; and
• convergence between authorities on these key issues remains elusive.  In particular, the US federal antitrust agencies have yet to provide a clear-cut framework to account for potential ESG benefits on a broader scale and instead their prevailing view is that no quantum of ESG benefits can save an agreement that negatively affects competition.  In addition, House Republicans and several State Attorneys General have initiated high-profile antitrust investigations into certain climate groups, a sign that the enforcement landscape in the US is currently different to that in many other jurisdictions. 

This is a complex and rapidly developing area.  In order to ensure multi-party initiatives which may affect competition in multiple jurisdictions are antitrust compliant, a careful case-by-case assessment under each relevant law and policy is essential. 

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