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| 2 minutes read

ESG - The EU’s new Horizontal Guidelines; Sign of sustainable times to come

In a sign of the importance of ESG in encouraging businesses to be more sustainable, and in the context of the EU’s Green Deal, the European Commission (EC) became the first major competition authority to issue formal guidance encouraging cooperation between competitors pursuing sustainability objectives, by adding a new chapter to its Horizontal Guidelines in June 2023 dedicated to this topic.

The EC endorses a broad vision of sustainability objectives, including not just environmental or climate goals, but also social objectives, such as labour and human rights, and animal welfare. The EC’s approach is far wider than the approach adopted by the UK’s CMA in its draft guidance on environmental sustainability agreements, which focuses solely on environmental and climate change agreements and expressly excludes agreements with pursue broader societal objectives from its scope. By contrast to both the EU and the UK, the US’s FTC has not indicated any intention to follow its peers by adopting a more flexible approach to horizontal sustainability agreements.

The EC clearly indicates that it does not want the EU competition rules to be an obstacle to horizontal agreements pursuing genuine sustainability objectives. The extent to which the EC will achieve this objective is up for debate, as the guidelines are undoubtedly not for the uninitiated. Most forms of sustainability agreements remain subject to a traditional effects-based antitrust assessment, whereby the benefits of an agreement are assessed against the harm it causes to competition. Any alleged benefits need to be substantiated by objective, concrete, and verifiable evidence, but the EC’s lack of relevant pre-existing case practice means interested companies have no assurances as to what kind of evidence will suffice.

In a rare step for the EC, and in recognition of the uncertainty in this field, the guidelines encourage interested companies to approach the EC for informal guidance regarding novel or unresolved questions on individual sustainability agreements. While the EC already has a framework in place for the provision of such guidance, this has rarely been used due to its limited scope and the requirement for the EC to have a significant interest in providing such guidance. The EC’s willingness to extend this framework to sustainability agreements marks both the growing importance of sustainability, and the recognition that interested companies are unlikely to get sufficient comfort from the new guidelines alone.

The EC’s new chapter on sustainability agreements is a welcome development, but uncertainty remains as to how these guidelines will be implemented in practice and what evidence will be needed to justify the benefits of sustainability agreements. Consequently, interested companies should seek legal advice before entering into any agreements with competitors pursuing sustainability objectives.