The green collective: European Commission clarifies whether – and how – competitors are allowed to work together on sustainability
The European Commission (the “Commission”) has recently launched a public consultation inviting interested parties to comment on two draft revised Regulations and the draft revised Horizontal Guidelines. The revisions are being proposed to give greater certainty to companies in respect of horizontal cooperation agreements and, in particular, to make it easier to cooperate in ways that advance the digital and green transitions.
The public consultation on the two draft revised Horizontal Block Exemption Regulations on Research and Development and Specialisation agreements and on the draft revised Horizontal Guidelines (the “Draft Horizontal Guidelines”) follows a review and evaluation process launched in September 2019. The evaluation process found that certain economic and societal developments (such as the digital and green transitions) meant that the current rules were no longer fit for purpose and no longer provided sufficient legal certainty. The Draft Horizontal Guidelines seek to address this. The new rules will be entering into force in January 2023.
The Draft Horizontal Guidelines
To provide more legal certainty for companies who wish to work together with competitors on sustainability issues such as improving animal welfare, reducing waste or limiting pollution, the Commission has included a chapter in the Draft Horizontal Guidelines on how it would assess such “sustainability agreements”.
The Commission clarifies, as a preliminary point, that sustainability agreements are only caught by Article 101(1) TFEU if they entail serious restrictions of competition by object or produce appreciable negative effects on competition. Where sustainability agreements do not affect the main parameters of competition (such as price, quality and innovation) they are not caught by, and therefore by definition allowed under, competition rules.
Where sustainability agreements are caught and restrict competition, they cannot escape the prohibition of Article 101(1) for the sole reason that they are necessary for the pursuit of a sustainability objective. They can however be exempted under Article 101(3) TFEU. The Draft Horizontal Guidelines aim to provide additional guidance on assessing the conditions of Article 101(3) TFEU, in particular by clarifying when (in)direct sustainability benefits can be taken into account as “qualitative or quantitative efficiency gains”.
Benefits to “the collective”
The Commission makes clear in its Draft Horizontal Guidelines that, even where cooperation leads to price increases for consumers, a sustainability agreement can still be approved provided that it is reasonably necessary for the claimed sustainability benefits to materialise, that there are no other economically practicable and less restrictive means of achieving them and that it will ultimately benefit consumers.
Those benefits for consumers can both be direct or indirect, as long as the benefits outweigh the impact on competition (for example higher prices). Such indirect, non-use value benefits can be measured by investigating the consumers’ willingness to pay, for instance, through customer surveys. The parties to an agreement need to provide persuasive evidence demonstrating the actual preferences of consumers, according to the Draft Horizontal Guidelines.
Most significantly, the Commission is willing to take into account benefits that benefit society (‘collective benefits’). For example, consumers may be unwilling to pay a higher price for a product produced with a green but costly technology. To ensure that the benefits related to the use of that green technology materialise, an agreement to phase out the polluting technology may be necessary. These benefits are referred to as ‘collective benefits’ as they “occur irrespective of the consumers’ individual appreciation of the product and objectively can accrue to the consumers in the relevant market provided that this consumer is part of this larger group of beneficiaries”.
Where consumers in the relevant market substantially overlap with, or are part of, the beneficiaries outside the relevant market, the collective benefits to the consumers in the relevant market occurring outside that market can be taken into account if they are significant enough to compensate consumers in the relevant market for the harm suffered.
Conversely, consumers may buy clothing made of sustainable cotton that reduces chemicals and water use on the land where it is cultivated. Such environmental benefits could in principle be taken into account as collective benefits. However, there is likely no substantial overlap between the consumers of the clothing and the beneficiaries of these environmental benefits that occur only in the area where the cotton is grown. Therefore, it is unlikely that these collective benefits would accrue to the consumers in the relevant market. The Commission notes it is less likely to take into account benefits paid for by consumers in one collective that accrue to another collective altogether. Only to the extent that consumers are willing to pay more if their clothing is made of sustainably grown cotton can the local environmental benefits be taken into account, and cogent evidence must be provided of the consumers’ preferences.
For collective benefits to be taken into account, parties should be able to:
- describe clearly the claimed benefits and provide evidence that they have already occurred or are likely to occur;
- define clearly the beneficiaries;
- demonstrate that the consumers in the relevant market substantially overlap with the beneficiaries or are part of them; and
- demonstrate what part of the collective benefits occurring or likely to occur outside the relevant market accrue to the consumers of the product in the relevant market.
In the last few years, competition law has often been cited as an obstacle to sustainability initiatives. The lack of clarity and the debate amongst competition authorities has contributed to the hesitation of companies to roll out more sustainable plans in fear of either the “first mover disadvantage” or regulatory repercussions.
Within the EU, the Dutch competition authority (the “ACM”) has been leading the debate on this, releasing final guidelines in early 2021 that indicated that sustainability agreements between competitors could be approved if they resulted in benefits to wider society that outweighed the disadvantages to direct users of price increases. With respect to the Commission’s consultation, the ACM has welcomed the EU’s guidance but noted that it is “worried that more leeway is needed to eliminate any reluctance companies have to enter into urgently needed meaningful sustainability initiatives to speed up the energy transition from carbon to renewables”.
The ACM's concern is understandable in circumstances where those “meaningful sustainability initiatives” are likely to lead only to collective benefits on other markets. Thus far it seems this was a bridge too far for the Commission, save where consumers were prepared to pay more. It will be interesting to see whether the Commission amends its Guidelines in light of the comments from the ACM and whether these revisions, in whatever form, will provide the added comfort needed and lead to greater engagement by companies in sustainability agreements.
 “EU sustainability cooperation guidance welcome but needs more leeway, Dutch antitrust watchdog says”, mlex, 2 March 2022, https://content.mlex.com/#/content/1363087?referrer=email_dailycontentset&dailyId=4ec20ce1c93e4ae5ac9095d5ad52d3c2