Various national competition authorities (“NCAs”) are continuing to consider sustainability arguments in competition cases. However, NCAs are increasingly diverging in their approach as to whether, and to what extent, they are willing to allow sustainability considerations in the competition law framework. This blogpost highlights a few recent developments in jurisdictions on both sides of the Atlantic.
Belgian approval of an initiative in the banana sector
On 30 March 2023, the Belgian Competition Authority (“BCA”) approved a sustainability initiative concerning living wages in the banana industry. This marks the first initiative based on sustainability grounds approved by the Belgian NCA.
The IDH Sustainable Trade Initiative, a social enterprise working with various entities towards facilitating sustainable trade in global supply chains, and five Belgian supermarkets proposed a collaboration scheme aimed at closing the gap between actual wages and living wages in the banana sector. The collaboration will consist of meetings and discussions where the companies’ internal conduct will be assessed and further developed with the aim to better support living wages for workers in the participants’ banana supply chains.
The collaboration will involve the exchange of certain data and information which the BCA did not consider anticompetitive. The participants have committed to not set mandatory or recommended minimum prices and to not communicate any changes in costs relating to their supply chains. IDH will supervise the collaboration and any data shared will be verified by an independent third party.
Similar initiatives concerning the banana sector have been proposed in Germany, the Netherlands and the UK. The German NCA has already approved the proposed initiative. Neither the Belgian nor the German NCA considered the initiatives in question to infringe competition law. There is, however, a fine line between such agreements falling in or outside the scope of competition law, and potentially amounting to an infringement. For example, clauses which lead to non-negligible price increases for end-consumers could raise questions and potentially be considered to have anticompetitive effect. It can therefore be expected that that NCAs will periodically monitor the implementation of such initiatives.
UK draft Guidance on Sustainability Agreements
The Competition and Markets Authority (“CMA”) has recognised a need for the UK’s competition law framework to address sustainability concerns. The CMA’s Draft Guidance on Sustainability Agreements (“Draft Guidance”), published on 28 February 2023, identifies three different categories of practices where sustainability concerns could be relevant.
First, there are sustainability agreements which do not raise competition concerns, either because they do not affect competitive parameters or because they lack appreciable negative effects on competition. This includes agreements on the internal corporate conduct of businesses; the pooling of funds for engaging in activities to adapt to the effects of greenhouse gas emissions generated in production; the organisation of joint campaigns for raising awareness of environmental sustainability; and joint lobbying for policy or legislative changes.
Second, there are agreements that could infringe the prohibition on horizontal agreements. The CMA provides guidance on when environmental sustainability agreements may have the “object” of restricting competition. It further sets out relevant factors in considering the “effects” on competition of certain types of environmental sustainability agreements.
Third, there are agreements that would generally infringe competition law but may nonetheless be permitted because their resulting benefits outweigh any competitive harm. Such agreements may be exempted if they meet the general exemption criteria of Art. 101(3) TFEU and its UK equivalent, namely Section 9(1) of the Competition Act 1998.
This third category of agreements is divided into environmental sustainability agreements and climate change agreements. Environmental sustainability agreements refer to a broader notion of agreements “aimed at preventing, reducing or mitigating the adverse impact that economic activities have on environmental sustainability”, whereas climate change agreements are a narrower subset of environmental sustainability agreements “which contribute towards the UK’s binding climate change targets under domestic or international law”. For the latter subset of agreements, the CMA proposes a more permissive approach with regard to the fair share of benefits they have to generate for consumers, as further outlined below.
There are two notable differences between the CMA’s Draft Guidance and the European Commission’s (“EC”) draft Revised Horizontal Cooperation Guidelines (“HCGs”), which are expected to enter into force later this year and which include a chapter on sustainability agreements:
- Definition of sustainability: the CMA’s Draft Guidance exclusively focuses on environmental sustainability, whereas the EC’s HCGs envisage a broader definition which “encompasses activities that support economic, environmental and social development, including labour and human rights”.
- Scope of consumer benefit: the CMA is open to introducing a more permissive approach with regard to the exemption for climate change agreements, recognising that a fair share of their benefits will accrue to all UK consumers and not only to those in the relevant product market. By contrast, the EC’s HCGs generally recognise only the benefits accruing to consumers in the relevant market. The CMA’s view therefore appears to be closer to the Dutch Competition Authority’s (“ACM”)’s approach, which recognises sustainability benefits to society as a whole.
As such, the CMA appears to be aiming for a less conservative approach to estimating consumer benefit than the EU, albeit for a narrower set of agreements.
The American Bar Association (“ABA”)’s Antitrust Spring Meeting, which took place between 29 and 31 March 2023, gave further insights into the intended approach of several NCAs with regard to environmental, social or governance (“ESG”) commitments.
Lina Khan, Chair of the US Federal Trade Commission (“FTC”), stated that ESG commitments will not be considered a remedy for anticompetitive concerns in merger review. She noted that companies have previously proposed mergers that were “unlawful under competition laws”, in the hope that their ESG commitments might adequately address any anticompetitive concerns. She clarified that these deals would be looked at “through a competitive prism”.
Similarly, Brazil’s Conselho Administrativo de Defesa Econômica (“CADE”) stated that it is not prepared to look at relatively novel issues such as labour or sustainability beyond the more traditional competition lens. It noted that such issues would instead be looked at by other regulatory institutions in Brazil.
By contrast, the Australian Competition and Consumer Commission (“ACCC”) plans to focus on industry cooperation towards environmental goals in its new guidelines, in order to promote genuine attempts at achieving a more sustainable economy. The ACCC is aiming to encourage sustainable practices and authorise otherwise anticompetitive arrangements if they achieve adequate public interest outcomes. Its guidelines will therefore include a “public interest test” for arrangements that impact supply chains or interactions between suppliers or customers.
As authorities around the world are developing their position on the interplay between sustainability and competition law, companies operating internationally will have to ensure that any sustainability agreements they enter into comply with the varying scopes and standards of sustainability exemptions in different jurisdictions. While most NCAs appear to be conscious of the recent trend towards (at least considering) sustainability arguments in the context of competition law, some among them, such as the FTC and CADE, are likely to take a more traditional approach to reviewing sustainability agreements. Even within the EU, which can typically be relied upon for a more consistent set of rules across its member states, there is room for more consistency. Certain NCAs have been adopting a more permissive approach towards sustainability agreements, whereas EC officials have stated that agreements at the EU level should be reviewed by the EC and that NCAs would have limited scope for issuing exemptions under Article 101(3) TFEU. It remains plausible, therefore, that ultimately divergent views emerge with regard to sustainability agreements among the different NCAs as well as between the EC and EU NCAs.