Out-Law Analysis 3 min. read

Competition law clarity needed to encourage sustainable business practices

Businesses responding to the increasing environmental, social and corporate governance (ESG) agenda often need to cooperate to achieve more sustainable business practices.

This cooperation must comply with competition laws, but how the existing framework applies in the context of sustainability initiatives is unclear and this is leading to growing calls for new guidelines to help businesses, as findings from a recent survey carried out by Pinsent Masons, the law firm behind Out-Law, show.

The sustainability drive

Sustainability and corporate responsibility are broad terms that encapsulate a wide range of issues. From, 'Fridays for Future', to 'Green Deal', 'energy transition', 'equal pay', 'intergenerational justice', and 'employees' rights', there are many buzzwords that capture the different aspects.

The importance of sustainability has grown in recent times in light of international developments. The UN has proclaimed 17 sustainable development goals to be reached until 2030, and the EU aims to transform Europe into the first climate neutral continent by 2050 – a move described as "Europe's man on the moon moment" and a signal of clear intent on working towards the global targets set in the Paris Agreement on climate change.

Changing consumer attitudes are also having an impact. Consumers are increasingly incorporating sustainability considerations into their purchasing decisions, the demand for "green" investments is growing and financial investors are designing their portfolios with sustainability in mind, for example by divesting investments in sectors that are particularly harmful to the climate. In short: companies are increasingly under pressure to implement sustainability goals. While at first many expected that the Covid-19 pandemic would put sustainability initiatives in the backseat, the opposite is true: the recovery of the economy could kick-start a green transition.

A need for cooperation

Many companies have recognised the need to adapt. In a survey carried out at a recent competition law and sustainability webinar hosted by Pinsent Masons, the overwhelming majority of respondents stated that sustainability is – at least to some extent – important to their business. Some 69% stated that sustainability was important, while 28% stated that it was "somewhat important".

The caveat: companies are often unable to achieve ambitious sustainability goals on their own, as they would often have to incur higher costs, for example by investing in more environmentally friendly technology, processes, or inputs, and therefore could only offer their more sustainable products at higher prices – so-called first-mover-disadvantage. Consequently, high investments or technical circumstances force companies to cooperate, often with competitors.

In principle, companies willing to cooperate have to assess for themselves whether their actions are compatible with antitrust law

Such cooperation must comply with antitrust rules. However, the current legal framework is rather unclear. At one end of the spectrum, antitrust law prohibits companies from entering into agreements that restrict competition, with agreements between competitors relating to prices, quantities, customers or territories being particularly serious antitrust violations. A hefty fine is just one of the myriad consequences of an infringement. At the other end of the spectrum are actions that do not impact competition at all. Between those two ends of the scale is a large grey area with little established case law. In principle, companies willing to cooperate have to assess for themselves whether their actions are compatible with antitrust law.

The survey findings and initial actions

Therefore, the call for concrete and manageable guidelines for the examination of antitrust requirements in the context of sustainability initiatives is growing. This finding was also reflected in the recent webinar survey by Pinsent Masons where 72% of participants considered that competition authorities should provide explicit guidance on green cooperation. A quarter of respondents said that a general competition law exemption should apply to certain sustainability initiatives; while only a minority said this should be a job left for the legislator.

To facilitate cooperation, countries like the Netherlands and Greece have already issued, or are intending to issue, far-reaching guidelines regarding sustainability considerations. In the UK, competition policy is not seen as the best way to address sustainability issues, but they will be taken into account. The German, Scandinavian and Lithuanian competition authorities seem to favour initiatives through a separate legal framework, ideally covering the whole of Europe.

The European Commission has put the issue on its agenda. A conference early in 2021 will present ideas that the European Commission has gathered from various stakeholders during its call for contributions on competition policy and the Green Deal this year. Recently, Maria Jaspers, a senior European Commission official, noted there was "huge interest" in the topic and "more than 100" consultation responses were received encompassing antitrust, mergers and state aid.

There is hope that revised EU competition law guidance, including the horizontal cooperation guidelines, could include sustainability aspects as well. This would provide for more clarity that is desired by businesses.

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