More regulations come into play, especially when it comes to reporting on due diligence along the supply chain. Companies may want to – and are to some extent actually required by these regulations to – join forces to ensure compliance. Any collaboration with competitors or suppliers may however face antitrust hurdles. To mitigate such risk and to foster collaboration for achieving ESG-goals, antitrust authorities and legislators around the globe are increasingly debating the right balance between competition and sustainability. Should competition law take ESG-goals or ESG-standards into account? In a recent statement, the Scientific Advisory Board at the German Federal Ministry for Economic Affairs and Climate Action has shared its views on this. It states that antitrust law as it stands already allows for enough sustainability cooperation. Moreover, striking a balance between sustainability goals and consumer welfare is a genuinely political task that should not be left to antitrust authorities. To do otherwise would risk politicising antitrust and blurring the boundaries between antitrust and regulatory law. We will take a closer look at on how companies can already cooperate within this mechanism. This is Part I of our series.

Achieving regulatory ESG compliance requires companies to cooperate to achieve the necessary scale or combine the required know-how, not only for practical reasons. Companies should be able to cooperate also but not only with competitors in compliance with EU law when their goal is to prevent adverse impacts on human rights and the environment.  This is also one of the principles set out in the forthcoming EU Corporate Sustainability Due Diligence Directive ("CS3D"). Similarly, Section 7(2) of the German Supply Chain Due Diligence Act ("SCDDA") mentions that companies should join forces in sector initiatives and sector standards to increase their ability to influence the entity causing or likely to cause harm.

While regulatory law encourages companies to meet environmental, social and governance (short "ESG") values, antitrust law limits these possibilities. Sharing information between companies – both in vertical and horizontal relationships with suppliers and competitors – is not pe se allowed simply because they are pursuing sustainable goals with their behaviour. Cooperating or even looking for a joint solution for ESG compliance carries a significant risk of antitrust hurdles.

Notably, sustainability and competition are not as such in conflict. ESG is increasingly becoming a competitive parameter as companies across all industries strive to become more sustainable and environmentally friendly. Where consumers prefer (more) products that have been produced fairly and sustainably throughout the supply chain, sustainability and competition become partners. There may however be cases where protecting competition and sustainability are in conflict, for example where consumers are unwilling to pay higher prices to achieve sustainability goals.

Where there is a conflict, competition authorities and legislators around the globe are grappling with the question whether antitrust law can, may or should be used as a tool to steer economic discourse. In Germany, delivering on its promise in the Competition Policy Agenda up to 2025 on “sustainable competition as a pillar of the socio-ecological market economy”, the German Federal Ministry for Economic Affairs and Climate Action announced that sustainability will play a role in the next reform of the German Act against Restraints of Competition (“ARC”). However, just now, on 5 July 2024, the Scientific Advisory Board (“SAB”) at the same Ministry issued a statement on whether antitrust law should be reformed arguing that antitrust law as it stands already provides sufficient means to take account of sustainability.

This article aims to pick up on this, summarising the status quo of ESG in antitrust law in Part I, and examine the debate on reforms and prospects in Part II.

Part I – ESG and Antitrust Law - Status quo

Sustainability is relevant to all three pillars of antitrust law: merger control, the prohibition of abuse of a dominant position and the prohibition of anticompetitive agreements between companies. We have reported in detail on the first pillar – green mergers – in a previous article, here. With regard to the second pillar – the prohibition of abuse of a dominant position – discussions on the link between sustainability and antitrust law centre in particular on the question of whether non-compliance with ESG principles – similar to non-compliance with data protection law – may be “a vital clue, among the relevant circumstances of the case, of whether that conduct involves recourse to methods governing normal competition” (cf. Court of Justice of the European Union, Case C-252/31, Meta Platforms and Others, para. 44 et seq.). This article however focuses on the status of the third pillar – the prohibition of anticompetitive agreements between businesses – and, in particular, on the question whether sustainability cooperations are permissible under antitrust law despite the prohibition of anticompetitive agreements.

Antitrust law can indeed allow cooperation to meet ESG standards

Cooperation on ESG compliance must take into account the limits of Article 101 of the Treaty on the Functioning of the European Union ("TFEU") and similar national provisions (e.g., Section 1 ARC). These prohibit agreements between independent market participants operating either at the same level of the production or distribution chain (horizontal agreements), often as actual or potential competitors, or at different levels of the production or distribution chain (vertical agreements), mostly as producers and distributors, which have the object or effect of restricting competition between them. Hence, agreements between companies aimed at ensuring the sustainability of production or products without having the object or effect of restricting competition are in principle allowed. But where exactly to draw the line?

A quick look at national approaches to assessing sustainability collaborations

Competition authorities around the globe tend to take a case-by-case approach when assessing sustainability cooperations under antitrust law.

In Germany, the Federal Cartel Office ("FCO") has decided on a number of initiatives (see for more insights our previous articles here and here in German). So far, the FCO has not yet issued any guidelines on the requirements for sustainability cooperation to be legally compliant. Instead, it continues to assess each case on a case-by-case basis and, if it considers that a collaboration does not raise any concerns, it may choose – in exercise of its discretion – not to initiate (administrative offence) proceedings or to close the case. In its 2023/24 Annual Report, the FCO clarified the factors it may consider when assessing sustainability initiatives on a case-by-case basis. These include:

• How strong are the restrictions on competition, for example through the equalisation of cost components?
• Does this affect sales prices?
• Is there non-discriminatory access to the cooperation?
• Have the sustainability criteria been developed in an open process?
• Is there sufficient transparency for consumers ("labelling")?

In contrast to the FCO, the Dutch ACM was the first national authority to issue draft guidelines in 2020 to provide formal guidance to companies on agreements with competitors or companies at other levels in the vertical value chain that pursue sustainability objectives. While the ACM emphasises that this is not a free ticket for companies to enter into anticompetitive agreements, its 2023 revised policy rule towards oversight of sustainability agreements make clear that there are two types of agreements in particular against which the ACM will ”in principle” not take enforcement action:

• Agreements that aim solely to ensure compliance with sufficiently precise requirements or prohibitions in legally binding international treaties, agreements or conventions; and
• Environmental-damage agreements that contribute efficiently to compliance with an international or national standard or to the achievement of a specific policy objective to prevent environmental damage.

The ACM is one of the pioneers in the field of ESG and antitrust and has commented several times on specific cases of sustainability agreements in various industries. Examples include joint agreements by beverage companies to stop using plastic handles on their packaging, joint purchases of wind energy by members of a business energy users' association, a uniform price for CO2 used by distribution system operators in their calculation models for grid investments or price-fixing by Shell and Total Energies collaborating on a newly established market for CO2 storage in empty gas fields.

The HCC in Greece has launched an initiative (so called ”Sustainability Sandbox”) to foster innovation and provide incentives for companies to explore sustainable business ideas. The aim is to enable the new green economy in Greece to be built on a solid, competition-compliant foundation.

In Australia, the ACCC very recently released draft guidance on sustainability collaborations and Australian competition law. An initial review of the draft guidance suggests that the ACC will consider a wide range of public benefits that may give rise to a legal exemption from competition rules under the Australian competition law. This may also be evidenced by the ACCC’s clearance of a recent merger in the energy sector which was cleared on the means of environmental factors outweighing potential competitive harm.

Last October, the CMA in the UK adopted the “Green Agreements Guidance” focusing on two types of agreements, environmental sustainability agreements and climate change agreements. The guidance underscores the CMA's commitment to integrating ESG considerations into antitrust through a more "permissive approach". In contrast to the EU Horizontal Guidelines (see below), the CMA's approach relaxes rules for "climate-change agreements" by potentially allowing cooperations that benefit customers more broadly, even if they do not directly benefit the immediate consumers of the products or services in the “relevant market“ (so-called "out-of-market efficiencies").

In May, the French competition authority adopted an ”open door” policy, inviting companies wishing to team up on sustainability initiatives to submit them for informal guidance within four months. In June, the French competition authority published it first informal guidance in the animal nutrition sector on a standardised methodology for calculating the environmental footprint of products.

A spotlight on case practice and guidelines at the European level

At the latest when a collaboration crosses national borders, companies need to look beyond national case law or guidelines.

At European level (too), the legal framework evolves. In December 2021, Article 210a of the European Regulation establishing a common organisation of the markets in agricultural products (“CMO”) entered into effect. Under certain conditions, this rule provides for a special exemption from competition law for sustainability agreements concluded between producers of agricultural products. In December 2023, the EU Commission issued guidelines on how to apply Article 210a CMO. In June 2023, the EU Commission published its revised guidelines on horizontal cooperation agreements (“EU Guidelines”). These contain a new chapter on the assessment of sustainability agreements, defined as "any horizontal cooperation agreement that pursues a sustainability objective, irrespective of the form of cooperation". Given the importance of these rules for any cooperation initiative in the context of the European single market, we will now take a closer look at the key features of the new sustainability chapter.

The EU Guidelines basically cover three types of sustainability agreements, along with guidance on each.

Sustainability agreements outside the scope of Article 101 TFEU

First of all, not all sustainability agreements are caught by Article 101 TFEU. Where such agreements do not affect parameters of competition, such as price, quantity, quality, choice or innovation, they are not capable of raising competition law concerns. This includes, for instance, agreements

• aimed exclusively at ensuring compliance with precise requirements or prohibitions in legally binding international treaties, agreements or concentrations such as fundamental social rights or prohibitions on the use of child labour, the logging of certain types of tropical wood or the use of certain pollutants;

• that do not relate to the economic activities of competitors but to their internal behaviour, for example to take measures to eliminate single-use plastics from their premises, to maintain a certain ambient temperature in their buildings or to limit the volume of internal documents they print;

• to set up a database containing general information about suppliers that have (un)sustainable value chains, use (un)sustainable production processes, or supply (un)sustainable inputs, or information about distributors that market products in a(n) (un)sustainable manner, but which do not forbid or oblige the parties to purchase from such suppliers or to sell to such distributors.

Sustainability agreements that do not restrict competition (neither by object nor by effect)

Secondly, where sustainability agreements negatively affect one or more parameters of competition, they have to be assessed under Article 101(1) TFEU. In doing so, the EU Guidelines indicate that, unless a sustainability agreement is used to disguise cartel activity, such agreements will typically not be treated as by object restrictions, but their effects on competition will have to be assessed on the basis of a number of factors set out in the EU Guidelines. These parameters include:

• the market power of the parties participating in the agreement;

• the degree to which the agreement limits the decision-making independence of the parties in relation to the main parameters of competition;

• the market coverage of the agreement;

• the extent to which commercially sensitive information is exchanged in the context of the agreement; and

• whether the agreement results in an appreciable increase in price or an appreciable reduction in output, variety, quality or innovation.

The EU Guidelines also include a new "soft safe harbour" for sustainability standardisation agreements. These are a sub-category of sustainability agreements that set out the criteria that producers, processors, distributors, retailers, or service providers in a supply chain have to meet in relation to a wide range of sustainability metrics, such as the environmental impacts of production. To qualify for the soft safe harbour, the agreement must meet six cumulative criteria:

1. the procedure for developing the sustainability standard must be transparent, and all interested competitors must be able to participate in the process leading to the selection of the standard,
2. the sustainability standard must be voluntarily, i.e., not impose on undertakings that do not wish to participate in the standard any direct or indirect obligation to comply with the standard,
3. to ensure compliance with the standard, binding requirements can be imposed on the participating undertakings, but they must remain free to apply higher sustainability standards (open end),
4. the parties to the sustainability standard must not exchange commercially sensitive information that is not objectively necessary and proportionate for the development, implementation, adoption or modification of the standard (need-to-know),
5. there must be effective and non-discriminatory access to the outcome of the standard-setting process – even subsequently, and
6. the sustainability standard must either not lead to a significant increase in price or a significant reduction in quality of the products concerned or the combined market share of the participating undertakings must not exceed 20 % on any relevant market affected by the standard.

To align with these criteria, the Dutch ACM has updated its national guidelines in 2023 (see above). Also, reinforcing some of the criteria named above, the German FCO, for instance, issued a press release stating that it had no serious antitrust concerns about introducing a reuse system in the plant trade to cut down on plastic waste. While arguing that sustainability standards can also restrict competition and constitute coordinated behaviour that falls under the prohibition of anticompetitive practices, the FCO explained that it was able to support the project mainly because the exchange of information between (market) participants is limited to the necessary minimum, participation in the reuse system is voluntary, and open to all market participants at different levels of the value chain.

Sustainability agreements that restrict competition but generate sustainability efficiencies that outweigh the competitive harm

Third, even an agreement that restricts competition is not generally prohibited, but may fall under the exception of Article 101(3) TFEU.

This is a tough challenge as the parties to such an agreement must prove (i) that the agreement will lead to efficiency gains, (ii) that the agreement is indispensable to obtain its benefits, (iii) that consumers will get a fair share of the claimed benefits and (iv) that the agreement will not eliminate competition in respect of a substantial part of the products.

Examples of such efficiencies include, for instance, the use of less polluting production or distribution technologies, improved conditions of production and distribution, more resilient infrastructure, or better quality products.

Consumers receive a fair share of the benefits when the benefits deriving from the agreement outweigh the harm caused by the agreement. These benefits can be divided in three categories:

• Individual use value benefits derived from the consumption, or the use of the products covered by the agreement. These benefits may take the form of improved product quality (e.g., vegetables that are cultivated using organic fertilizers) or product variety resulting from qualitative efficiencies (e.g., use of more expensive sustainable materials), or take the form of a price decrease as a result of cost efficiencies.
• Individual non-use value benefits resulting from consumers’ appreciation of the impact resulting from consumers’ appreciation of the impact. A consumer may, for instance, opt for a particular washing liquid not because it cleans better but because it contaminates the water less.
• Collective benefits that arise independently of the individual consumer's appreciation of the product and that accrue to a wider part of society than just the consumers in the relevant market. For example, a less polluting – but more expensive – fuel may lead to cleaner air, not only for the respective car owner, but also for other citizens. However, in order to justify a restrictive agreement on the basis of collective benefits, the EU Commission requires undertakings – inter alia – to demonstrate that there is a substantial overlap between the consumer in the relevant market and the group of beneficiaries outside the relevant market.

In practice, proving such benefits poses significant challenges. Moreover, different standards are used in different jurisdictions, in particular in relation to collective benefits. For example, while the EU guidelines state that collective benefits cannot justify a restriction of competition under Article 101 TFEU if they serve the interests of society in general, the new Section 2(1) of the Austrian Cartel Act states that consumer benefits already exist if the benefit resulting from the improvement of the production or distribution of goods or the promotion of technical or economic progress contributes significantly to an environmentally sustainable or climate-neutral economy. In addition, as noted above, the CMA's approach in the UK relaxes the rules on climate change agreements by including out-of-market efficiencies and potentially allowing cooperation that benefits customers more generally. In addition, Germany is said to include out-of-market efficiencies in its revised ARC. We will take a closer look at these updates in Part II of our series.

What does this mean for sustainability agreements and ESG alliances?

As seen above, the EU Guidelines provide guidance not only to companies on how to design their sustainability agreements that affect one or more EU member states in a way that is compliant with antitrust law, but also to national authorities on how to assess them – ultimately because EU law takes precedence over national law. They are therefore an important starting point in particular for any sustainability alliance with EU dimension.

While the EU Guidelines aim to provide greater legal certainty, some of the details remain rather vague. Moreover, they only apply to horizontal agreements, i.e., agreements between competitors at the same level of the production or distribution chain. For vertical and conglomerate sustainability agreements, there are no guidelines yet.

In addition, although national competition authorities – at least within the EU – seem to align with the EU Guidelines, they have – at best – published their own guidance or simply developed their own criteria without issuing formal guidelines, resulting in divergent approaches. Where sustainability initiatives cross borders, the landscape of competition authority decisions on sustainability cooperation, if any, differs widely.

It is worth noting that the competition authorities do not usually declare that a cooperation is legal, but rather, if a cooperation meets their criteria, use their discretion not to investigate such cooperation. In Germany, for instance, all cases so far have been decided by means of a so-called "chairman's letter". This is an informal letter from the competition authority stating that it will refrain from initiating proceedings within the scope of its discretionary powers (in Germany Section 32c (2) ARC). Even if the effect of such a letter is important, e.g., for other authorities, its binding effect is limited.

In Part II we will examine the ongoing debate on reforms and future prospects and provide practical guidance for companies to deal with ESG in their antitrust compliance.

Authored by Christian Ritz, Elena Wiese, Julia Gingelmaier, and Kyra Harmes.