A sustainable future for competition law

August 2020  |  SPECIAL REPORT: COMPETITION & ANTITRUST

Financier Worldwide Magazine

August 2020 Issue

There is widespread recognition of the need to address global sustainability challenges, such as greenhouse gas emissions and climate change. While competition law may not be an obvious response to these challenges, it does have an important role to play. In fact, there is a view that competition law may be part of the problem if it stops companies collaborating on environmentally friendly initiatives. More guidance from competition authorities would help competition law become part of the solution for a sustainable future.

Why are the competition rules relevant?

Many businesses are seeking to take action on sustainability objectives such as emissions reduction or recycling targets. However, unilateral action on the part of some companies alone may not be sufficient to address these challenges. At the same time, some businesses are concerned that the costs involved in taking such action might put them at a competitive disadvantage against any rivals that choose not to act. A potential solution to these concerns could be to seek agreement with competitors on the actions they might take together to address these challenges. Businesses are, however, understandably cautious about the legal risks that such cooperative action might expose them to, in particular the risk that it might be considered an unlawful restriction of competition, which could lead to the imposition of significant fines or claims for damages.

The European competition authorities have previously demonstrated that agreements promoting sustainability but restricting competition may be exempted from the prohibition on anti-competitive agreements. For example, the European Commission (EC) approved an agreement between competitors in 1999 to improve the energy efficiency of washing machines. While the EC found that the agreement would reduce some aspects of competition, it concluded that the benefits of reduced emissions from electricity generation, as well as the cost savings from more energy-efficient equipment, outweighed these restrictions.

However, following the move to the self-assessment regime as part of the 2004 reforms to European competition law, there has been very little in the way of recent decisions from the competition authorities tackling these issues. Businesses therefore face a degree of uncertainty around when or how they can collaborate without unlawfully restricting competition, and the extent to which initiatives that might restrict competition are capable of exemption because they achieve sustainable objectives.

More guidance on the horizon?

Many businesses would appreciate guidance from the competition authorities on their approach to assessing joint sustainability initiatives. There are encouraging signals that some European competition authorities are considering such a move. For example, Margrethe Vestager, the EU’s competition commissioner, has noted that the EC’s upcoming review of the rules and guidelines on horizontal cooperation “could be [an] opportunity to explain how companies can put together sustainability agreements without harming competition”. The EC has also indicated that guidance for the agricultural sector on “collective initiatives that promote sustainability in supply chains” may be forthcoming as part of the EU’s ‘Farm to Fork’ strategy. However, these initiatives are not expected to result in final form guidance until 2022.

Some national competition authorities in Europe have also indicated that guidance may be forthcoming. For example, the Dutch Competition Authority has announced that it will “introduce guidelines regarding sustainability and competition”. While the UK Competition and Markets Authority (CMA) has noted that it will “communicate better to ensure that businesses engaged in sustainability initiatives know how to comply with competition law”. Similarly, the French Competition Authority has noted that it will reflect further on “the ecological imperative in the action of regulators”.

It remains to be seen when such guidance will be issued and what form it will take. However, a useful blueprint may be found in the EC’s Temporary Framework guidance to firms with a need to cooperate in the context of the COVID-19 crisis. That guidance explains that cooperative projects aimed at tackling the pandemic should not be problematic under EU competition law if they are: (i) designed and objectively necessary to actually increase output in the most efficient way to address or avoid a shortage of supply of essential products or services; (ii) temporary in nature; and (iii) do not exceed what is strictly necessary to achieve the objective of addressing or avoiding the shortage of supply.

In addition to providing general guidance, the EC has indicated that it is open to providing informal guidance to firms considering specific sustainability initiatives. Ms Vestager said that the EC will “be ready to give informal guidance when it’s needed – in new or unclear situations, for instance”. While the possibility of seeking such informal guidance has existed since the current system of EU competition law enforcement was introduced in 2004, it has, in practice, been used very rarely. However, the fact that the EC has encouraged the usage of the procedure in response to the COVID-19 crisis lends credibility to the signal that it is willing to do the same in relation to sustainability goals.

Several national competition authorities across Europe have also offered informal guidance in response to the COVID-19 pandemic, which might suggest that they will also be open to using these existing mechanisms to discuss proposals intended to combat climate change.

The way forward

It remains to be seen when and how the European competition authorities will issue guidance in order to ease the tension between competition law and sustainability initiatives. However, there is clearly growing momentum behind their introduction, and the quick and decisive action of some authorities in response to the COVID-19 crisis might serve as an example or catalyst for change.

While the authorities appear to be focusing on what can be done to facilitate sustainability initiatives within existing legislative frameworks, a different approach may be required if the future guidance is not sufficiently clear to provide businesses with the security they require. Legislative reform, possibly in the form of new exemption criteria or block exemptions to cover sustainability initiatives, may be a necessary step to secure a sustainable future for competition law.

Lisa Wright is a partner, Alexander Chadd is an associate and Nele Dhondt is a professional support lawyer at Slaughter and May. Ms Wright can be contacted on +44 (0)20 7090 3548 or by email: lisa.wright@slaughterandmay.com. Mr Chadd can be contacted on +32 (0) 2 737 9419 or by email: alexander.chadd@slaughterandmay.com. Ms Dhondt can be contacted on +44 (0)20 7090 4023 or by email: nele.dhondt@slaughterandmay.com.

© Financier Worldwide

BY

Lisa Wright, Alexander Chadd and Nele Dhondt

Slaughter and May

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