Skip to main content

10 key themes

Sustainability and antitrust

The role of competition law in helping business meet sustainability goals

Co-operation between competitors to achieve sustainability goals can be far more effective than unilateral action or legislation but may be hampered by concerns regarding competition law risk. As policymakers and companies seek to implement ambitious sustainability goals, there is a growing recognition that antitrust law has a role to play.

Sustainability is at the top of our clients’ strategic agendas. We are advising on the risks and opportunities of collaborations across the supply chain to achieve a sustainable and prosperous future.

Tim Wilkins
Global Partner for Client Sustainability,
New York

Lofty aim, but still restrictive environment

Slow or ineffective implementation or jurisdictional limitations often mean that government regulation is not always the most effective means to achieve ambitious sustainability objectives. It is therefore increasingly clear that corporate action will be indispensable to tackling environmental and other sustainability challenges on a global basis.

While sustainability can be a source of individual competitive advantage, collective action may be required for reasons of scale or where individual initiatives could result in a significant ‘first-mover disadvantage’. Examples of co-operation agreements to achieve sustainable objectives include:

  • conducting joint research into less polluting technologies;
  • committing to (probably higher) minimum standards for manufacturing and supplying goods and services (eg to use recycled packaging materials or to reduce packaging levels); and
  • agreeing to phase out less sustainable (but cheaper) products and replace them with more sustainable alternatives.

While many such initiatives will not raise competition law concerns, others may well be considered restrictive of competition, particularly where they may lead to price increases or materially reduce the range of available products.

Weighing sustainability benefits

The lawfulness of agreements that restrict competition is generally assessed by considering the impact of the agreement on consumer welfare. Antitrust enforcement has traditionally focused almost entirely on the strict economic and quantifiable impact of agreements on current consumers of the products directly covered by the joint initiative, with little consideration of wider and longer-term environmental or societal effects.

A consensus is emerging across many jurisdictions that antitrust enforcement practice must consider broader sustainability benefits within the consumer welfare assessment.

Competitors considering a joint sustainability initiative need to be clear about the indispensability of collaborating and set clear boundaries for the project. Evidencing sustainability benefits and building the pro-consumer narrative are critical elements of project planning.

Mary Wilks
Antitrust Counsel,
London

More flexibility and guidance required

2020 has been the year of increased awareness and consultations. Several competition authorities in Europe have taken the lead on this topic and published draft guidelines and discussion papers, inviting views on how competition policy can support sustainability objectives.

These developments are welcome as clear guidance is required to allow companies to draw the line between permissible co-operation and anti-competitive collusion. In particular, clarity about the types of joint schemes that will normally fall outside the scope of antitrust provisions and the circumstances in which restrictions of competition may be exempted as a result of their sustainability benefits would likely provide a real impetus to beneficial projects. In the absence of concrete and workable guidance, for understandable reasons, companies often adopt a conservative approach resulting in potentially beneficial industry initiatives being dropped.

While environmental sustainability is a key focus, the United Nations Sustainable Development Goals are much broader, as they also encompass economic and social sustainability goals. Collaboration across the supply chain to achieve these wider societal objectives can be particularly difficult to reconcile with the current antitrust enforcement framework where it involves promoting a fair trade objective which will likely involve a price rise for consumers. More flexible procedures enabling consultation and some form of agency ‘comfort’ or ‘no-action’ letter are needed to enable companies to be bolder in seeking to achieve these objectives.

Now is the time to influence the policy debate. Authorities argue that no cases are being presented to them. Companies consider that there is too much uncertainty. The stalemate needs to be addressed from both sides, by contributing to the debate, presenting initiatives and sharing concrete guidance.

Paul van den Berg
Antitrust Partner,
Amsterdam and Brussels

International convergence among antitrust enforcers will be crucial given the global nature of many supply chains. The EC has indicated that it will liaise with national competition authorities to encourage a uniform approach; and international organisations such as the International Competition Network and OECD will have a critical role in fostering international best practices to give sufficient certainty to business.

Assessing the sustainability benefits of M&A

Merger control has so far featured less prominently in the debate on sustainability and antitrust, although specific cases have taken sustainability factors into account in market definition or the competitive assessment, for example as regards incentives to innovate.  

Similar issues as for competitor collaborations apply for companies considering a merger with potentially anti-competitive effects, but which pursues sustainability objectives, for example achieving the necessary scale to implement sustainability goals. Seeking to use sustainability to demonstrate merger-specific efficiencies requires the parties to produce economic evidence which demonstrates that the benefits for consumers (or wider society) outweigh any lessening of competition. Competition authorities have set a very high evidentiary bar for this type of analysis and guidance on the substantiation of sustainability efficiencies will be needed to enable companies properly to assess whether they can rely on a ‘sustainability defence’. Conversely, businesses should be prepared for additional scrutiny in a merger review context where their transaction is perceived to harm consumers by reducing their choice of environmentally friendly products and/or technologies.

With governments increasingly setting ambitious sustainability targets, transactions aimed at driving this agenda are inevitable. Companies will need to think critically about how they document and substantiate any claimed efficiencies generated by a transaction more than ever before.

Ninette Dodoo
Antitrust Partner,
Beijing

The role of public funding

In Europe, State aid rules have already proven to be an effective tool in promoting and achieving green objectives (eg in the area of generating energy from renewable sources), and the EC has in the past adopted specific guidelines in this area. Crowding-in, which involves public funding strategies resulting in increased private investments, is essential to raise the substantial investment required to achieve the ambitious environmental goals of broader regulatory initiatives, such as the EC’s European Green Deal.

Against this background, the EC is considering adjusting the existing rules to allow more aid, or aid on easier terms, for green projects. On the other hand, the granting of State funds for less environmentally friendly uses is likely to attract closer scrutiny or may be made subject to sustainability commitments. For example, State aid for Air France in response to COVID-19 contained conditions to cease offering flights on certain domestic routes to meet environmental goals. Ultimately, the legal framework for the granting of public support for green projects is becoming increasingly favourable, and companies should consider these rules when planning for investments. This can become relevant for instance when tackling energy transformation processes in a range of industries.

The European State aid framework is currently under review. Changes are expected to create opportunities for sustainability-related industrial transformation processes.

Maria Dreher
Antitrust Partner,
Brussels and Vienna

Looking ahead in 2021:

  • Shape the debate: antitrust agencies around the globe are seeking industry input to shape policy changes and guidance documents. Providing concrete examples of sustainability collaborations that are not going ahead because of uncertainties over antitrust enforcement is a significant opportunity for companies to ensure that their needs and concerns are taken into account.
  • Plan ahead for regulatory guidance: competition authorities are inviting companies to seek case-specific guidance where proposed sustainability collaborations raise genuinely novel competition law issues. Consider early on in the development process whether to engage (informally) with enforcers to ensure there is time to factor in any evidence gathering requested by the authority (eg a consumer survey) or to implement any feedback received on the parameters of the initiative.
  • Building a helpful evidence bank: competitors considering sustainability collaborations should ensure that the need for collaboration rather than individual action is clearly documented, particularly where the collaboration involves large, well-resourced global players. Similar considerations apply with respect to planned M&A. Given the potential difficulties of evidencing the sustainability benefits for current and future consumers, building up a helpful evidence bank should form part of early project planning.  It is also important to ensure everyone involved understands the scope of the collaboration and guidance is provided to mitigate unwanted effects, in particular exchange of competitively sensitive information or alignment in other areas.

Our cross-office antitrust and sustainability group is contributing to the debate at local, regional and international levels through industry networks, agency consultations and discussions with clients. 

To register interest for our client events, or to learn more, contact: sustainableantitrust@freshfields.com 

Key contacts

View contacts