In line with the European Commission’s (EC) goal of facilitating cooperation between businesses in pursuit of sustainability objectives, its new Horizontal Guidelines include useful guidance on the types of sustainability agreements that are unlikely to raise competition concerns, providing legal certainty to businesses interested in engaging with sustainability initiatives.
Businesses contemplating collaborations with competitors in the pursuit of sustainability objectives should take heart from the fact that the EC recognises that many types of sustainability agreements will not violate the competition rules and this should give them the incentive to cooperate within the parameters of this guidance.
As a general rule, sustainability agreements between competitors which do not negatively affect the main parameters of competition, such as prices, production quantities, quality, choice, or innovation, will not be capable of raising competition law concerns.
The EC’s guidelines set out non-exhaustive examples of such agreements, including agreements relating solely to the internal corporate conduct of businesses (e.g., elimination of single use plastics from business premises or temperature control in corporate premises), and agreements relating to the planning of industry-wide campaigns to raise awareness of sustainability issues within the industry. Businesses can also set up a joint database containing general information regarding the sustainability (or lack thereof) of their suppliers, producers, or distributors, provided that there is no obligation to exclusively contract with sustainable entities or cease contracting with unsustainable entities.
Moreover, agreements solely aiming to ensure compliance with an international law which is not fully implemented or enforced by a signatory State will also be outside the scope of EU competition rules. Accordingly, businesses can agree to go beyond their obligations under national law to ensure they comply with sustainability obligations arising under international law. This could be significant for businesses operating in multiple countries, including countries with a poor record of compliance and enforcement of international law.
The EC also specifically addresses sustainability standardisation agreements whereby competitors may agree to adopt and comply with certain sustainability standards. For instance, these agreements could specify requirements that participants must meet in relation to sustainability metrics, such as CO2 emissions or recycling rates. They often include logos or labels that compliant participants can use to market their products to consumers by highlighting their sustainability benefits. The EC recognises that such agreements often have positive effects on competition and for consumers, including their contributions to sustainable development of products and increasing product quality. However, the EC does not grant a full “carte blanche” to such agreements, since they can also restrict competition through, for instance, the exclusion of, or discrimination against, certain competitors. To assist companies contemplating entering into such standardisation agreements, the EC has established a soft safe harbour if the following six cumulative conditions are met:
- sustainability standards must be transparent with all interested competitors able to participate in the selection of the standards;
- companies that do not wish to participate in the standards should not be hindered from continuing to supply the market;
- participants must remain free to adopt higher sustainability standards;
- exchanges of commercially sensitive information must be kept to a minimum;
- the outcome of the standards setting process must be non-discriminatory and accessible to all interested competitors, even after their initial adoption;
- the standards do not lead to a significant price increase or a significant quality reduction or alternatively, the combined market share of the participants does not exceed 20% on any relevant market affected by the standards.
The safe harbour is “soft” as opposed to iron clad, since it does not prevent the EC from intervening even if the six conditions are met, on the basis that a given sustainability standardisation agreement may nonetheless result in an appreciable restriction of competition. Conversely, sustainability standardisation agreements that do not fulfil the conditions of the safe harbour may still be compliant with the EU’s competition rules, but they must undergo a traditional effects-based antitrust assessment taking into account inter alia the market power of the parties involved, the market coverage of the agreement, and the extent to which commercially sensitive information is exchanged.
Finally, companies should note that a sustainability standardisation agreement is more likely to be recognised as pursuing a legitimate sustainability objective if it provides for a monitoring and enforcement system to ensure compliance with the sustainability standards.
The EC’s Horizontal Guidelines provide a valuable safe zone for businesses, by outlining the types of agreements that won’t raise any competition law issues. Meanwhile, standardisation sustainability agreements fulfilling the six conditions are highly unlikely to raise competition concerns, meaning interested business can consider them as low-risk and enabling them to engage in horizontal sustainability initiatives.