10 key themes
Antitrust and Net Zero — how will the rules shift to support transition?
It has never been clearer that there needs to be a rapid acceleration in the fight against climate change to prevent global temperatures from rising by more than 1.5C. Businesses will play a critical role in driving action to achieve global Net Zero and, as part of their efforts, they need to be alive to the antitrust risks that may be involved.
COP26 and competition policy
COP26 affirmed the goals set out by the Paris Agreement and measured global progress toward Net Zero by 2050. It set out many interim actions required by governments, policymakers and businesses to keep this target within reach. Key outcomes of COP26 included:
- a call to action for developed countries and financial institutions to accelerate the alignment of their financing activities with the goals of the Paris Agreement;
- steps encouraging the creation, expansion and strengthening of carbon offset markets;
- commitments by world leaders to work together and accelerate action by 2030; and
- agreements on ending deforestation and cutting methane emissions.
Our clients will play an important role in translating many of these commitments into action. We are advising businesses across all sectors to help them deliver on Net Zero sustainability goals.
Throughout 2021, we saw continued policy debate and focus from global regulators on antitrust and Net Zero. Antitrust authorities in the EU, the UK and Singapore have invited views on how competition policy can support Net Zero objectives. Authorities in Greece and the Netherlands published a joint report on how broader social benefits of sustainability initiatives can be quantified in competition assessments. Others, including authorities in Australia and Japan, have signaled their focus on sustainability. In the US, antitrust and Net Zero has received increased attention from business and policymakers but remains comparatively nascent.
Regulators remain very keen to receive examples from businesses of areas where antitrust may be holding back bolder Net Zero sustainability initiatives so that these can be factored into ongoing policy development. For example, the EC has communicated that it “stands ready” to respond to companies’ requests for guidance to provide legal certainty for collaborations with sustainability objectives as part of its ongoing review of its Horizontal Block Exemption Regulations and Guidelines.
Transformation through consolidation
One way businesses will invest in Net Zero transition is through acquiring “green” businesses and technologies. We expect that such transactions will grow in terms of volume and value in the coming years. With this, a larger number of “green” transactions will be subject to review by antitrust authorities around the world.
When assessing transactions with an espoused Net Zero or sustainability rationale, antitrust authorities may be faced with weighing up the benefits of sustainability-related efficiencies of the transaction. For example, the UK CMA has recognized that reduced carbon emissions can be considered as a relevant customer benefit in merger assessments. However, antitrust authorities have traditionally set a high evidentiary bar for this type of analysis, and targeted guidance from agencies on substantiating sustainability efficiencies is needed to assist companies in evidencing possible “sustainability defenses.”
This is one key area where we expect international divergence, particularly in relation to the impact of environmental sustainability agreements or mergers on consumer welfare as some antitrust authorities are likely to go further than others in the weight they place on the longer-term and out-of-market environmental effects of the joint initiative or merger. As risk assessments for global initiatives are typically based on the most stringent rules internationally, international convergence is crucial to driving real change.
We are also seeing an increase in merger cases that involve a theory of harm based on alleged harm to sustainability. One area that antitrust authorities are now on the lookout for is so-called “green killer acquisitions," i.e., those that may result in smaller companies relevant for green innovation exiting the market (see themes 2, 4 and 6). This was a key issue raised by Executive Vice-President Vestager in a recent speech: the EC has “already had to step in several times, to protect innovative efforts to find less toxic pesticides, or to develop more energy-efficient turbines.”
For businesses considering ‘green’ transactions that carry traditional merger control risks, building up evidence of sustainability-related efficiencies, including how these will be passed on to consumers, should form part of early transaction planning.
Net Zero funding high on government agendas
The EC will provide up to €672.5bn under its Recovery and Resilience Facility, targeted at enabling EU economies’ green transition and available at Member State level. The EU’s Green Deal has triggered the revision of various EU State aid instruments (e.g., Guidelines on State aid for climate, environmental protection and energy and the Communication on Important Projects of Common European Interest). The EU is also providing support for decarbonization (see theme 6).
In the UK, funding allocated to promote environmental protection has typically made up around 44 percent of the government’s total subsidy spend. The new UK subsidy control regime (expected to be passed into law in 2022) will continue this trend to help deliver on the UK government’s 2050 Net Zero goal. We expect that, in addition to the EU and UK, all major governments will use public funds to attract inbound investment in sustainable production and technology to safeguard jobs and growth.
There has never been more funding available from the public sector to support the Net Zero transition. Businesses should carefully consider how to structure and implement their individual funding strategy in sync with industrial reality to obtain the maximum outcome.
Andreas von Bonin
Rise in private sector collaboration initiatives and litigation risk
Encouraging governments and the private sector to work together was a key goal of COP26, and indeed no country, company or individual can drive change alone. A key challenge for businesses is the potential competition law risk raised by collective decision-making to pursue sustainable investment strategies. Businesses jointly developing best practices for sustainable investments should be aware that implementing sustainable investment strategies — and decisions to cease investing in specific sectors — raises the potential for collective boycott concerns.
Higher pressure on businesses to collaborate to pursue sustainability goals comes with greater risks of infringing competition law. Businesses will need to be alive to policy developments, new guidance and international differences in competition rules when carrying out risk assessments.
Paul van den Berg
We expect antitrust authorities to take an increasingly tough stance on anticompetitive agreements that are disguised as environmental sustainability collaborations or any illicit agreements that have a negative impact on the environment.
Increased industry collaboration also raises the risk of more litigation and class actions, especially where collaborations could be interpreted as alleged anticompetitive agreements. This is particularly the case for sustainability initiatives that result in small price increases or a reduction in choice for customers (at least in the short run).
The number and variety of climate change cases have grown significantly in recent years. While defendants have typically been governments, claims are increasingly directed at corporates. When considering sustainability collaborations, businesses must consider the risks of customer and/or competitor complaints.
Rise in consumer law enforcement
We expect to see a continued trend in consumer law enforcement on misleading sustainability claims. Businesses need to be alive to the risks of making misleading statements in relation to the sustainability credentials of products and services.
In Europe, The Netherlands Authority for Consumers and Markets (ACM) has been particularly active in seeking to regulate sustainability claims under consumer law. The ACM published Guidelines on Sustainability Claims in early 2021 and has since been actively monitoring the market for potentially misleading environmental sustainability claims. It has sent letters to 170 companies across various sectors calling on them to check the accuracy of their claims and reminding them of their consumer law obligations. In addition, the ACM announced investigations into six companies in the clothing sector following initial findings of misleading sustainability claims.
Similarly, in the UK, the CMA published the “Green Claims Code” in September 2021. The CMA plans to conduct a detailed review of misleading environmental and sustainability claims and will prioritize enforcement action in sectors such as textiles and fashion, travel and transport, food and beverages, and beauty and cleaning products. We can expect active enforcement from the CMA in this area in 2022. The UK government is also consulting on strengthening the CMA’s consumer law enforcement powers, proposing fines of up to 10 percent of global turnover envisaged for breaches of consumer protection law.
We expect all European consumer protection agencies to collaborate closely on these issues. In connection with its own investigation, the Dutch ACM has announced it is working with other regulators to act against companies based outside the Netherlands.
In the US, consumer protection-related litigation is as busy as it has ever been with actions being brought by both regulators and private plaintiffs. We expect this to continue into 2022.
Regulators have increasingly brought actions against companies for making misrepresentative claims about environmental credentials. For example, both the Massachusetts Attorney General and City of New York have brought claims against oil and gas companies for violating respective consumer protection laws by allegedly issuing advertisements containing misleading environmental claims.
With thanks to Kirsty Brown for her contribution to this theme.
Looking ahead in 2022:
- Businesses need to prepare for an influx of new guidance from regulators - the EC will provide guidance on sustainability cooperation as part of its update to the Horizontal Block Exemption Regulations and Guidelines, as well as guidelines on the new derogation from antitrust rules for agricultural sustainability agreements between producers and/or other actors in the food value chain. The EC is also planning a series of further guidelines in relation to State aid for projects supporting the Net Zero transition during 2022. The CMA will advise the UK government in early 2022 on how competition law and consumer law can better support the UK’s transition to an environmentally sustainable and Net Zero economy. In Singapore, the Competition and Consumer Commission has invited researchers to submit proposals on the topic of sustainability and competition law.
- Build a helpful evidence bank - businesses considering “green” acquisitions and industry collaborations need to be clear about the indispensability of the project to help meet Net Zero goals. Evidencing environmental sustainability benefits and building a pro-consumer narrative are key for project planning.
- Continue to shape the debate - we expect other antitrust authorities to follow Europe’s and Singapore’s lead to seek industry input to shape policy changes and guidance documents. In the US, businesses have an important role to play in helping influence the direction of travel on antitrust and Net Zero to ensure that their needs and concerns are considered by antitrust agencies.