The European Commission (EC) recently published its updated Horizontal Guidelines, including a new section on competition and sustainability agreements (see our July 2023 newsletter). This section contains policy rules to assess horizontal cooperation between competitors in the light of sustainability goals. Following the EC’s publication, the Netherlands Authority for Consumers and Markets (ACM) has updated its Sustainability Policy Rule to close the gap between the EC’s and the ACM’s assessment of sustainability collaborations. The approach set out by the ACM is largely consistent with the EC’s approach as set out in its Horizontal Guidelines. However, the two differ in some respects, particularly on the approach relating to the so-called ‘fair share’ principle. Meanwhile, the UK competition authority (CMA) has opted for a middle-ground approach in its recently published Green Agreements Guidance. As a result, although limited, there remains room for divergent outcomes in the assessments of sustainability agreements by the EC, ACM and CMA respectively. Consequently, companies will still need to mind the potential gap when contemplating green cooperation (see our September 2020 newsletter).
Like Article 101 TFEU, Article 6 of the Dutch Competition Act prohibits agreements restricting competition. This prohibition also applies to ‘Sustainability Agreements’, defined by the ACM as collaborations that pursue a sustainability objective. However, the ACM does not want the competition rules to stand in the way of agreements contributing to a more sustainable society while not significantly restricting competition. It has therefore issued guidance, setting out the circumstances under which it does not consider it expedient to investigate agreements that both restrict competition and generate environmental benefits. The most important points are discussed below.
Compliance with binding sustainability rules
Similar to the EC in its Horizontal Guidelines, the ACM finds that, in principle, agreements that aim solely to ensure compliance with international treaties, agreements or conventions fall outside the scope of the cartel prohibition, regardless of whether or not they have been implemented in national law. The ACM however even goes a step further and states that it will also not take enforcement action against agreements that aim solely to ensure compliance with national or European sources of law. This is because the ACM does not consider it expedient to protect competition that would not have existed if binding sustainability rules had been complied with. Accordingly, while such agreements coordinate behaviour, they essentially ensure that there is a level playing field and avoid illicit competition of those who apply a lower standard than prescribed by law.
Assessment of environmental damage agreements
The ACM defines environmental damage as environmental damage in the production, transport and consumption of goods or services. As environmental damage caused is not reflected in the price charged, the damage should be seen as a negative externality. Environmental damage agreements seek to reduce or prevent damage to the environment, thereby contributing efficiently to compliance with international or national standards or to the achievement of a specific policy objective to prevent environmental damage. When undertakings reduce or prevent environmental damage by cooperating, they generate environmental benefits. The ACM highlights the importance of that cooperation and the role that collaborations between undertakings can play in that context. Therefore, if it is apparent from an initial investigation by the ACM that:
- it is plausible that the agreement is necessary to achieve environmental benefits;
- such benefits outweigh the potential competitive disadvantages;
- the consumers active in the relevant market belong to the group benefitting from the agreement; and
- a sufficient degree of residual competition remains;
the ACM will not further investigate such agreements. They are then considered to serve the public interest by contributing to the environment and sustainability.
The ACM’s approach thus differs slightly from the ‘fair share’ approach adopted by the EC in its Horizontal Guidelines. The EC requires that the benefits deriving from the agreement outweigh the harm caused by the agreement, so that the overall effect on consumers within the relevant market is at least neutral. The ACM finds that, by definition, the environmental benefits realised by environmental damage agreements extend to a wider group than the consumers that form part of the relevant market. As such, like the EC, the ACM requires that the consumers within the relevant market benefit from the agreement (in-market benefits). However, the ACM also takes into account the out-of-market benefits in its assessment of the sustainability agreement, i.e. the benefits that accrue in markets not affected by the agreement. The EC is only willing to consider such out-of-market benefits to the extent they can be accrued to consumers within the relevant market via their individual valuation of the effect on others, including on non-users outside the relevant market. An example thereof could be the willingness to pay a higher price for a product if its production process prevents deforestation. In conclusion, sustainability agreements that restrict competition but are considered permissible by the ACM, may still be subject to scrutiny by the EC. Such agreements are therefore not guaranteed to evade the risk of incurring a fine.
In its recently published Green Agreements Guidance, the CMA has opted for a middle ground approach to the ‘fair share’ principle. The principle adopted by the CMA in its criteria for the assessment of sustainability agreements largely mirrors the EC’s fair share approach. The CMA stipulates that only in-market benefits that accrue to the consumers harmed by the agreement are taken into account. However, the CMA has created an exception for environmental sustainability agreements that combat or mitigate climate change (‘climate change agreements’), for which the ‘fair share’ condition can be satisfied by taking into account the totality of the climate change benefits to all consumers. The CMA argues that this exception is appropriate given the sheer magnitude of the risk that climate change represents, including the need for urgent action.
Conclusion
The EC, ACM and CMA have published guidance on their oversight of agreements that generate environmental benefits. The criteria adopted are largely similar. However, they leave room for subtle differences in their assessment of the benefits accrued to consumers generated by the sustainability agreements. Companies may therefore still face a patchwork enforcement pattern for green initiatives across Europe. The ACM’s Sustainability Policy Rule closes the gap with the EC’s Horizontal Guidelines, but leaves room for divergent assessments relating to the ‘fair share’ principle. In its decision to investigate environmental damage agreements, the ACM also takes into account out-of-market benefits (irrespective of the valuation of such benefits by in-market consumers). Meanwhile, the CMA has introduced a middle ground approach to the ‘fair share’ principle in its recently published Green Agreements Guidance. That guidance provides that the CMA will only take out-of-market benefits into account in its assessment of ‘climate change agreements’. Despite a mutual eagerness by the three authorities to promote sustainability initiatives with clear guidance, the subtle differences in approach require companies to mind the potential gaps when structuring their green cooperation.
