Sustainability Agreements and Competition Law
With growing emphasis on environmental, social, and governance (ESG) objectives in the business world, competition law is evolving to facilitate cooperation among competitors to promote these goals. The European Commission released revised guidelines on horizontal cooperation agreements on June 1, 2023, including a dedicated section on sustainability agreements. The UK's Competition and Markets Authority (CMA) also released draft guidance on environmental sustainability agreements. Some agreements aim to reduce greenhouse gas emissions, while others have broader sustainability objectives. Companies contemplating sustainability agreements can seek informal guidance from authorities to ensure compliance with competition rules.
The interplay between competition law and sustainability goals has raised questions about the need for reform. While competitive markets promote innovation, sustainability-focused practices can involve first-mover disadvantages. To address this, companies may collaborate with competitors, raising competition law concerns. These European Union guidelines provide a framework for companies to assess their agreements' compliance with competition law while emphasizing variations in approach among competition authorities.
The definition of sustainability agreements varies. The Commission's broad definition encompasses activities supporting economic, environmental, and social development, including labor and human rights.
Concerns arise when companies collaborate on sustainability goals without legal certainty regarding competition law's application. The Commission's Guidelines allow businesses to seek informal guidance, promoting compliance with EU competition rules.
Assessment of sustainability agreements depends on whether they affect competition parameters. Sustainability agreements that do not impact competition parameters like prices or innovation generally fall outside the scope of competition law. Sustainability agreements that negatively impact competition parameters are assessed under competition law, with safeguards to differentiate legitimate sustainability agreements from anti-competitive ones.
Sustainability agreements can also be assessed under Article 101(3) TFEU to determine whether they benefit consumers. However, assessing these agreements has been challenging because benefits often accrue to society rather than specific consumers.
Sustainability agreements should not be used to mask anti-competitive practices such as price-fixing or market sharing. The new Guidelines set out criteria for assessing their compatibility with competition law.
Various industries, particularly industrial, energy, and agriculture sectors, are impacted by these Guidelines, as sustainability agreements can enhance environmental standards, reduce pesticides, improve animal welfare, and promote sustainable mobility.
The Guidelines underscore that sustainable development is a priority objective for the EU, aligning with the United Nations Sustainable Development Goals (SDGs). They offer the possibility to exempt sustainability agreements from the prohibition of horizontal agreements under Article 101 TFEU.
Global antitrust authorities are increasingly assessing the environmental impact of cooperation agreements between competitors under existing competition law. The European Commission's Guidelines introduce a new chapter dedicated to sustainability agreements, positioning them within the realm of traditional horizontal agreements.
In conclusion, competition law is adapting to accommodate sustainability cooperation, emphasizing non-monetary benefits as part of compliance. This evolving landscape will likely play a significant role in promoting responsible business conduct.
About the author: Sinéad Leahy is a Trainee Solicitor with Dermot G. O’Donovan Solicitors.
