Sustainability governs all policies and sectors of social and economic life. The goal of sustainable development is to meet the needs of today’s generations without compromising the self-sufficiency of future generations. Companies are called upon to innovate as economic conditions indicate a change in the direction of sustainability. Sustainability considerations and green developments have increasingly caught the attention of competition law’s enforcers. Competition authorities such as the European Commission (“Commission”), the Hellenic Competition Commission (“HCC”), the Dutch Competition Authority (“ACM”) and the German Competition Authority (“Bka”) have taken a positive stance towards accepting sustainability initiatives proposed by the private sector. How can companies balance both sustainability and competition law? In this blog post, we analyze recent developments that further explain the sustainability framework that companies have to navigate.
The European Commission and sustainability
Sustainable development is a core principle of the Treaty on European Union and a priority objective for the Union’s internal and external policies. The publication of the Commission’s Revised Draft Horizontal Agreements Guidelines and its chapter on sustainability was analyzed in our previous blogpost. On 3 October 2022, the Commission adopted its revised Notice on the issuance of informal letters relating to novel or unresolved questions concerning Articles 101 and 102 TFEU (“Revised Notice on informal guidance”) as an additional step towards providing legal certainty to businesses. Under Regulation 1/2003 on the implementation of the rules on competition, the Commission can provide informal guidance to companies in cases where the latter are uncertain about the application of antitrust rules. The 2004 Notice on informal guidance sets rather strict criteria regarding the circumstances under which the Commission would provide such guidance. The Revised Notice on informal guidance offers more flexibility. In accordance with the Staff Working Document accompanying the Revised Notice on informal guidance, sustainability is an existing Commission priority which did not need to be explicitly referenced in the text of the Notice. Therefore, sustainability initiatives are to be considered as potential subject matter for these guidance letters.
The Hellenic Competition Commission’s Sustainability Sandbox
On 3 October 2022, the HCC officially launched its Sustainability Sandbox. The HCC is the first national competition authority to introduce this tool. The Sustainability Sandbox is a supervised environment, where businesses can undertake initiatives that contribute significantly to the goals of sustainable development for a specific period of time under the guidance and in direct collaboration with the HCC. In this way, the Sustainability Sandbox ensures that these initiatives do not significantly impede competition (at least in the view of the HCC), thus enhancing legal certainty and reducing regulatory risk for investments related to sustainable development.
Companies can submit their proposal in the Sandbox. There is specific information that needs to be provided such as a competitive assessment of the proposed practice. Their proposal is then evaluated by the Directorate-General for Competition of the HCC. Following this evaluation, the President of the HCC examines the proposal and issues a no-action letter, if he agrees with it. After the issuance of the no-action letter, the companies can implement their proposal in the market. Any guidance provided by the HCC will evidently be limited to Greece. Thus, the scope of protection provided will be limited to activities in Greece. However, this does not undermine the wider importance of this development to the novel field of interaction between sustainability and competition law. During the subsequent period of time, a sustainability advocate will be appointed in the HCC, in order to evaluate the proposed initiatives.
The German Competition Authority’s recent decisional practice
The Bka recently examined the Bananas case, where major food retailers wanted to form a working group aiming at promoting living wages along the supply chain in the banana sector (see also our previous blogpost). The competition authority approved this agreement, since it found that no competitively sensitive information on, e.g., prices, costs, production volumes or margins was exchanged. Moreover, there were no agreements on minimum prices or price premiums. According to the Bka, the agreement did not fall under the meaning of coordinated behaviour in accordance with Section 1 of the German Competition Act (GWB) (a similar provision to the prohibition under Article 101 TFEU). Furthermore, the Animal Welfare Initiative case concerned a plan implemented by the animal welfare initiative “Initiative Tierwohl”, which consists of representatives from the agricultural, meat production and food retail sectors, jointly working to increase animal welfare. According to this plan, farmers who implement certain animal welfare criteria could receive a subsidy per kilo of pork or poultry meat sold through the payment of a surcharge. The Bka found that the agreement at issue was temporarily permissible, without specifying its duration, because of its pioneering nature and the improvement of animal welfare standards.
In addition, the Bka ruled on two sustainability initiatives regarding the milk sector (as also mentioned in our previous blogpost). In January 2022, the Bka ruled that the “purely economic” reason of the first proposed initiative, i.e., to obtain higher payment for raw milk so as to protect milk producers’ income, does not qualify for an exemption from the cartel prohibition. In March 2022, the Bka took a positive view by stating it had no serious competition law concerns on a second initiative by milk producers whereby milk producers that meet certain animal welfare criteria are granted a quality mark. Under this scheme, a surcharge is paid by food retailers to dairies, and dairies subsequently pay out this surcharge to the farmers participating in the scheme.
The Dutch Competition Authority’s no-action letter and Guidelines for cooperation between farmers
The ACM issued, in June 2022, a no-action letter for the Agreement between Shell and TotalEnergies regarding a joint market initiative for carbon capture and storage (CCS) services. The ACM assessed the agreement in question under the exemption rule of Article 101 (3) TFEU. It found that the joint market initiative in question will offer objective sustainability benefits, as an environmental damage agreement, since it offers to emitters an additional solution for decreasing CO2 emissions, without affecting the options currently available to them. It also stated that the initiative will be beneficial to all consumers within the relevant market and society as a whole, and that these benefits outweigh the negative effects for consumers. Therefore, the ACM abided by its Draft Sustainability Agreements Guidelines, taking into account both the benefits to the consumers in the relevant market and to society as a whole, and ruled that the agreement in question meets all four criteria of Article 101 (3) TFEU. Similarly, this decision focuses on the national (i.e., Dutch) market and is not binding on other EU competition agencies. However, it constitutes a significant development towards the inclusion of sustainability considerations in the competition framework.
The ACM has also issued Guidelines regarding collaborations between farmers (Leidraad samenwerking landbouwers). These Guidelines set out how some of the main possibilities for cooperation between farmers can be permitted by competition rules. Regarding sustainability considerations, the Guidelines devote a subchapter to collaborations as part of sustainability initiatives. This type of collaboration can take the form of horizontal or vertical agreements (between farmers and suppliers/buyers). The agreements can even concern selling prices or production volumes if doing so is indispensable. The agreement must be necessary for achieving the sustainability objective, otherwise it should not be allowed.
Austria’s Amendment of the Cartel Act
Austria amended its Cartel Act (KaWeRÄG 2021) in September 2021 to explicitly include sustainability criteria in Austrian antitrust law for the first time. Business cooperation for the purpose of an eco-sustainable or climate-neutral economy is now exempted from the cartel prohibition. The new provision extends the general exemption from the cartel prohibition in Section 2 (1) of the Cartel Act to the effect that consumer sharing in efficiency profits is considered to exist whenever these efficiency profits contribute to an ecologically sustainable or climate-neutral economy (including out of market efficiencies). Thus, the innovative element of the amended competition act lies in the fact that it is the first time that the introduction of wider consumer welfare appears in a legally binding text, other than in competition authorities’ guidelines (i.e., ACM guidelines).
UN’s Race to Zero initiatives and the ICC White Paper on sustainability
Regarding the international sphere, there are several initiatives sponsored by the UN Environment Programme Finance Initiative, which aim to encourage companies to become carbon neutral by 2050. To give an example, in the context of the Net-Zero Insurance Alliance, introduced in July 2022, participating insurance companies have to declare that they will respect certain commitments relating to the transition of their insurance and reinsurance underwriting portfolios to net-zero greenhouse gas (GHG) emissions by 2050. Although these initiatives can have beneficial environmental effects, this type of cooperation can also amount to a collective boycott, which is prohibited by competition law. A vivid example of this case is the current investigation — announced on 19 October 2022 — by 19 U.S Attorneys General into six participating parties of the Net Zero Banking Alliance for potential concerted practices to block fossil fuel companies from receiving financial services.
Furthermore, in November 2022, the International Chamber of Commerce issued a White Paper under the title “When chilling contributes to warming -How competition policy acts as a barrier to climate action”. This paper provides practical scenarios, where sustainability considerations and subsequently competition concerns might arise from companies’ environmentally-focused activities. It also includes an Annex, which consists of a list of do’s and don’ts related to sustainability agreements. Among the permitted activities are agreements between non-competitors, agreements with no significant effect on prices, quantity, quality, choice, or innovation, as well as minimum sustainability standards agreements where the standard is transparent and accessible to every interested party. High market power, the achievement of sustainability benefits unilaterally by the parties concerned, and the existence of little evidence on how consumers will benefit from the cooperation are, to the contrary, strong indicators of raising competition red flags.
Recent decisional practice and legislative/regulatory initiatives are shedding more light on when sustainability agreements may or may not be permissible. As explained in our previous blogpost, Article 101 TFEU would not apply to sustainability agreements that do not affect parameters of competition (such asprice, quality, quantity, choice or innovation). This kind of agreement is not capable of raising competition law concerns. If the agreement were to affect parameters of competition, it would be caught by Article 101 TFEU but can potentially benefit from the exemption under Article 101(3) TFEU. A possible exemption is not sufficiently justified by purely economic reasons, as for example the safeguard of a higher income for milk producers, which was highlighted through a proposed scheme before the Bka. This exemption can however be justified if the sustainability agreement in question offers objective environmental benefits, i.e., a reduction in CO2 emissions and benefits to society as a whole. Finally, the consideration of sustainability benefits as benefits for the society as a whole and their inclusion in the antitrust framework introduced by law could herald a new era in competition analysis and practice in this context.
Significant endeavours have been made during recent years concerning the inclusion of sustainability considerations into antitrust analysis. The Commission and National Competition Authorities (“NCAs”), in particular the HCC, seem receptive to sustainability initiatives proposed by companies. There is however, a risk of divergent decisional practice. The decision of one NCA approving a sustainability agreement is not binding on another NCA, in the territory in which the agreement at issue might generate effects. This means that it is up to the discretionary powers of the second NCA to approve or reject sustainability considerations in the context of the agreement at issue. Therefore, the interaction between the Commission and the NCAs appears to be crucial in this case and should thus, be strengthened.
Overall, given the lack of sufficient decisional practice, there is still a need for more guidance, on both an EU and national level. As competitive self-assessments are important in this regard, legal advice is key when companies are developing a sustainable strategy. Covington’s team is ready to provide this advice.