Sustainability Collaborations: Good Deed or a Sin?

Sustainability goals are nowadays of high importance for many organisations. To make a real impact, it is often way more effective to work together instead of individually when it comes to sustainability. However, these collaborations can raise risks as well. For instance, in May this year the UN’s Net-Zero Insurance Alliance (an alliance for mitigating climate change) lost half its members due to fear of competition law violations, caused by backlash in the US. On the other hand, when competition authorities support these collaborations, a risk of cartel greenwashing arises, when businesses use sustainability goals as a cover for cartels. In this blog, I will explain the headlines of what we need to know about this issue.

Introduction to the cartel prohibition

Competition law aims to protect competition between businesses, so that the market operates as efficiently as possible, keeping prices for consumers low. In competition law, cartels are prohibited. This means competitors with sufficient influence on the market (big companies) are not allowed to collude and make agreements which restrict effective competition, for instance by ‘price fixing’ (agreeing on raising prices together). However, with “new'' sustainability challenges, agreements like collectively raising prices to make sustainable production possible could be beneficial to society, especially when big companies do it (since they also have the highest influence). Many authorities agree that competition law should not form an unnecessary barrier for sustainable development, but there is a thin line between sustainability agreements and greenwashed cartels, which is why rules seem to remain quite strict.

European Union

Following up on the European Green Deal, the European Commission (EC) treats sustainability as a high priority. A clear example is their proposed Corporate Sustainability Due Diligence Directive (CSDDD), which is already extensively discussed in our blogs. Additionally, on June 1st the EC adopted revised Guidelines on Cooperative Agreements Between Competitors, with a new chapter dedicated specifically to sustainability collaborations. This concerns economic, environmental and social (including labour and human rights) sustainability. Remarkable is that the EC exempts two situations from the cartel prohibition with a reference to the CSDDD: i) agreements to live up to international obligations are under circumstances allowed, for instance for the CSDD obligations, and ii) agreements to set up a database containing sustainability information about suppliers’ or distributors’ value chains or production processes, on the condition that it does not forbid or oblige the parties to purchase from or sell to such suppliers/distributors, which can be used to live up to CSDD obligations. Besides these categories, the EC allows agreements which are indispensable and result in objective (e.g. social) sustainability benefits for users on the relevant market (this exemption already exists under EU competition law for “efficiency benefits”, but the EC now clarifies that social sustainability benefits can be considered as such).

United States of America

US competition law is more conservative. It does not exempt collusion for sustainability objectives from the cartel prohibition, even though it can be for scientific and public policy priorities. This year, republican state attorneys general and members of Congress targeted several net zero alliances since they would allegedly be in violation of competition laws. However, democratic state attorneys general and members of Congress go against this view by acknowledging that collaborations could be necessary to achieve sustainability. 

Netherlands

The Netherlands has a more progressive view. Although they are mostly following the European Guidelines, they also published a Policy Rule ACM Oversight on Sustainability Collaborations which allows more than the European policy. While the EC claims that collaborating can not be indispensable to live up to national or European sustainability obligations (but only for international rules), the Netherlands does exempt that situation from the cartel prohibition as well. Additionally, specific agreements on mitigating climate change are allowed if indispensable and resulting in objective (e.g. social) sustainability benefits for society as a whole (even when causing ‘damage’ to users on the relevant market).

United Kingdom

On October 12th, the Competition and Markets Authority (CMA) of the UK published their Green Agreements Guidance. This roughly encompasses the same exemptions from the cartel prohibition as the EU Guidelines, however the Green Agreements Guidance includes only environmental sustainability benefits (and offers extra protection for climate change due to the urgent need thereof). This is quite remarkable, since social sustainability has proven to be of high importance as well. 

Austria

Austria amended their cartel law in 2021, including the following presumption (meaning it is taken to be true): consumers are granted a fair share of the benefit resulting from the improved production, distribution or technical or economic progress, when the agreement significantly contributes to an ecologically sustainable and climate neutral economy. They also published Sustainability Guidelines to help interpret this.

Conclusion

Despite most businesses having sincere intentions, to prevent cartel-greenwashing the rules are still quite strict. The US leaves companies unsure, while some European authorities are providing clearer guidance. Rather remarkable is that some authorities (like the UK and Austria) only include environmental sustainability as a legitimate objective to exempt from the cartel prohibition, which excludes social sustainability thereof. Nevertheless, more authorities are starting to acknowledge the importance of sustainability collaborations. When unsure: most competition authorities provide an informal procedure in which they guide businesses to make sure their sustainability agreements comply with competition laws.