No one ever said that saving the planet would be easy. In fact, while the goals of sustainable development are easy to state, delivering them is an arduous process. Central to delivery is partnership and collaboration across governments, business and financial institutions. Indeed in such eloquent fashion, the UN Sustainable Development Goals recognise that ‘To build a better world, we need to be supportive, empathetic, inventive, passionate, and above all, cooperative.’
The case for cooperation and collaboration in tackling planetary risks like climate change and social ills such as poverty and inequality is clearly compelling. However, the implications for marketplace competitors that collaborate is unclear, especially in light of the inherent tension between upholding the principle of competition, and furthering environmental goals that are more far-reaching and powerful when achieved as a collective.
Recent competition law advances
We reflect on recent developments in UK, EU and US competition law that may have an impact on how environmental collaborations (some of which are multi-jurisdictional in nature) can remain compliant with the principles of competition law. As noted in our recent blog on the UK Competition and Markets Authority’s (CMA’s) draft guidance on environmental sustainability agreements, the CMA has positioned itself amongst other leading authorities seeking to drive the global debate on how competition laws should accommodate environmental collaborations. While the European Commission has so far taken a more traditional stance, it is clearly aiming to balance antitrust restrictions against environmental and social benefits, as seen in its 2022 draft guidelines for sustainability agreements.
Similar exercises are being carried out by authorities worldwide. In contrast to the EU and UK, there is less clarity in the US about how environmental collaborations should be approached from the perspective of competition law. The Biden Administration has advocated for strong public policy on climate change, whereas certain Republican states have taken an opposing view, with their Attorneys General pursuing investigations into supposed antitrust infringements by ESG-linked collaborations. Clearly, the lack of an international consensus is a significant hurdle to companies looking to engage in multi-jurisdictional initiatives.
Risks to environmental collaborations
Organisations, initiatives, collaborative projects or simply groups of companies wishing to work together on environmental goals face a number of competition and consumer law risks. As a firm, we have seen a marked increase in clients consulting us on how to mitigate these risks in order not to be deterred from achieving important environmental goals.
(i) Collective choice not to deal with a third party
The collective exclusion or decision not to deal with a third party, such as a purchasing agreement to eliminate unsustainable products from the supply chain or a decision not to invest in unsustainable products, constitutes an agreement between competitors.
There has been an increase in regulatory scrutiny on misleading environmental claims, particularly in the UK and EU. Accusations of greenwashing have been levelled at a number of industries, including financial institutions.
(iii) Heightened political risk
In the US, both the members and secretariats of environmental collaborations face heightened risks due to a political backlash against so-called ‘woke’ capitalism, and indeed almost any initiative harbouring under an ‘ESG’ label. For example, some US States have enacted or are considering laws to bar their state pension funds from investing in companies that collectively choose not to invest certain industries or from including ESG factors in investment decisions. These proposals – which many argue may undermine returns for investors rather than enhance them – are part of a larger political and ideological debate on ESG that includes disagreement over its overall definition and whether consideration of ESG issues conflicts with a company's fiduciary duties.
Navigating environmental collaborations
The speed with which developments in this space are unfolding highlights how important it is for companies to keep competition law at the forefront of their thinking when engaging in environmental collaboration.
Competition law, however, does not need to be viewed as a barrier. We consider it is absolutely possible for participants to join environmental collaborations while remaining on the right side of competition law, especially in light of the practical guidance provided by authorities aiming to assist companies in self-assessing the risks. In such scenarios there are three key principles that we advise companies keep in mind:
- Independent decision-making. The initiative itself cannot dictate the behaviour of its members, and while members can utilise guidance prepared by the initiative they must always retain individual discretion over decision-making. Target setting is a good example: an initiative can prepare guidance setting out appropriate targets, however individual members must retain discretion to set their own targets, whether these align with the guidance of the initiative or otherwise.
- Members must not discuss or agree amongst themselves to collectively choose not to invest in specific companies or companies in a given sector. While an initiative can provide guidance as to best practice or scientific data to enable members to make decisions as to their targets / plans, members should not agree to choose not to invest (or divest) specific companies or companies in a given sector. Use of language within an initiative (both publicly and among its membership) is very important here to avoid it being taken out of context and misconstrued.
- Members should never share commercially sensitive information. Examples include sharing information on the nature of specific investments, divestments or planned M&A activity, forward looking sustainability plans (to the extent that these are not publicly available), and pricing or customer lists.
Participants should keep the principles above in mind when engaging in environmental collaborations. Provided that appropriate safeguards are in place when conducting meetings, preparing opinion papers or best practice guidance and, most importantly, when setting individual targets, participants should take some comfort that they are collaborating in a compliant manner.
We delve further into this topic in the latest episode of our Essential Antirust podcast series, discussing in detail the global ESG and antitrust landscape and implications for regulatory strategies. Click here to listen now.
Head of Client Sustainability and Environment, Freshfields Bruckhaus Deringer
Senior Associate, Antitrust, competition and trade, Freshfields Bruckhaus Deringer
Associate, Antitrust, competition and trade, Freshfields Bruckhaus Deringer