There is no alternative to sustainable management: The EU wants to achieve climate neutrality by 2050 with its "Green Deal". Sustainability initiatives are effective if they find the broadest possible acceptance in the respective industry. To achieve this, companies must work together and agree on uniform standards. This raises questions under antitrust law: How closely may competitors cooperate? When are the "red lines" crossed? Is it even permissible to forge a cartel for the good of the environment?
Dilemma: Cooperation for the sake of sustainability not without problems
The decision was a bombshell: The EU Commission fined five major German car manufacturers a total of 875 million euros. They had agreed on a technology that could reduce harmful emissions beyond the requirements of the EU emissions standards. Specifically, the manufacturers specified the sizes and the ranges of the AdBlue tanks and reached a common understanding on the expected AdBlue consumption. In the view of the EU Commission, this constituted an impermissible restriction of competition because the manufacturers had failed to exploit the full potential of this technology.
This assessment caught not only some of the fined car manufacturers off guard. After all, this was not a classic price or customer cartel, but a coordination of technical parameters of an environmentally friendly technology. For reasons of sustainability, the cooperation between the carmakers had fundamentally seemed a welcome idea - or so it was thought.
With its decision, the EU Commission has made it clear that antitrust law protects not only price and customer competition, but also technology and innovation competition. Agreements on technical, environmental or other sustainability standards - even if they are made with honest intent - can therefore be just as harmful to competition as the coordination of prices, production volumes or customers.
The EU Commission's decision is representative of the situation in which many companies are finding themselves. On the one hand, they are expected to operate more sustainably. On the other, considerable investment is sometimes required for this, which can lead to competitive disadvantages – certainly if the majority of the industry does not follow suit.
This dilemma is causing a high degree of legal uncertainty among companies and industry associations. In principle, they must conduct a self-assessment to determine whether a cooperation with competitors is permissible under antitrust law or not.
Guidance from new Horizontal Guidelines of the EU Commission
Help comes from the EU Commission: The draft of its Horizontal Guidelines, which are currently being revised, includes a separate chapter on sustainability cooperation. It is intended to provide companies with guidance in the antitrust assessment of sustainability cooperations.
The Commission considers agreements that do not relate to competition parameters (price, quantity, quality, selection or innovation) to be unobjectionable under antitrust law. This includes, for example, agreements on the creation of joint databases with information on suppliers who have sustainable value chains.
However, if competitors submit to common "sustainability standards", e.g. in production or purchasing, the scope of application of the cartel prohibition may be opened. The Commission envisages a new "soft safe harbor" rule for assessing these cases. According to this rule, a common sustainability standard should generally not fall under the ban on cartels if the following seven conditions are cumulatively fulfilled:
- the procedure for developing the sustainability standard is transparent and all interested competitors can participate in the development process;
- the sustainability concept must not oblige companies that do not wish to participate in the standard to comply with it;
- companies must be free to set a higher sustainability standard for themselves than the one agreed with the other parties to the agreement;
- the parties to the sustainability standard do not exchange commercially sensitive information unless it is necessary for the development, adoption or amendment of the standard;
- effective and non-discriminatory access to the results of the common standard process is ensured; in addition, non-discriminatory access to the requirements and conditions for obtaining an agreed label must be ensured;
- the sustainability standard should not lead to a significant increase in price or a significant reduction in the choice of products; and
- there should be a monitoring system to ensure that companies adopting the sustainability standard actually meet the requirements of the standard.
Guidance from national antitrust authorities
National antitrust authorities have also published guidelines to help companies assess the antitrust compatibility of sustainability cooperations.
Such guidelines have been issued by the Dutch antitrust authority, among others. Its guidelines explain which sustainability agreements are permissible and how it deals with questions about sustainability agreements in practice. For their part, the British and Greek antitrust authorities have also published guidelines on assessing the compatibility of sustainability agreements with competition law.
The German Federal Cartel Office [Bundeskartellamt] has also established initial guidelines (in German only) for the assessment of sustainability initiatives between competitors in a concept paper and several case reports: According to this, cooperations that pursue public welfare objectives often do not fall under the ban on cartels if they create an expansion of choice for consumers and are not associated with the coordination of sensitive competition parameters such as prices and production. In the case of the Fairtrade sustainability initiative, the Bundeskartellamt did not make use of its official right of intervention. The Bundeskartellamt also had no competition concerns regarding a voluntary commitment by food retailers to common standards on wages in the banana sector. For a transitional period until 2024, the authority also tolerated an initiative in the sector of milk production. According to this initiative, additional costs for compliance with animal welfare criteria are to be financed by an "animal welfare surcharge".
In contrast, the antitrust authority showed the limits of what is possible for another initiative by milk producers in the Milk Agricultural Dialogue (in German only): a planned coordinated financing concept in favor of raw milk producers was classified as an impermissible price agreement because - according to the Bundeskartellamt - it was primarily intended to serve a higher income level for milk producers rather than sustainability aspects. The Bundeskartellamt also saw a need for improvements to the Animal Welfare Initiative, which has been in place since 2014. The agreement by the food retail sector on a uniform surcharge in favor of animal welfare had been tolerated by the authority for a transitional phase. However, in view of the fact that the label is now well established and widespread, and given the existence of competing labels without a binding price element, the initiative has since replaced the uniform surcharge with a more competition-compatible recommendation system under the urging from the Bundeskartellamt.
This shows: The "devil" is - as so often - in the details and individual contact with the antitrust authority can often be helpful.
New special rule for the agricultural sector
Since the entry into force of Article 210a of the Regulation on a common organization of the markets in agricultural products on December 7, 2021, a new special rule for the assessment of sustainability initiatives under antitrust law has applied in the agricultural sector at the European level. Accordingly, under certain conditions, antitrust exemptions will be possible for sustainability initiatives involving agricultural producers. Not covered by the new exemption are collusions on prices that are not aimed at applying a higher sustainability standard than that prescribed by European or national law. Nonetheless, the new provision significantly expands the scope for sustainability initiatives between agricultural producers and along the entire supply chain.
Criteria for sustainability cooperations that do not restrict competition
In summary, one can glean criteria from the various sustainability papers of the cartel authorities which, if met, are already likely not to constitute a restriction of competition:
- The cooperation does not lead to an alignment or standardization of purchase and/or sales prices of products and services or production.
- Participation in the sustainability initiative is voluntary, non-discriminatory (e.g. without discrimination against smaller companies) and non-exclusive. Non-discriminatory access to the initiative must also be guaranteed.
- There is transparency about the sustainability standards so that everyone, including consumers, can inform themselves.
- Each company is free to decide which certifier it chooses to monitor the implementation of the standard.
- It must be ensured that no competitively sensitive information is exchanged between competitors or that the exchange is limited to what is necessary.
- The cooperation must promote sustainability aspects and must not only serve the general economic objectives of the companies involved. For example, it is not sufficient if, as in the case of raw milk producers, a price increase is only intended to cover costs on the producer side.
Possible justifications for sustainability cooperation that restricts competition
However, even if sustainability initiatives have a (potentially) anticompetitive character, e.g. if the cooperation partners agree on production volumes, this does not necessarily mean that they are illegal under antitrust law. European antitrust law and all national antitrust regimes of the EU member states provide for exemptions for agreements that restrict competition. In order to be deemed justified, the cooperation must, inter alia, (1) lead to efficiency increases and (2) ensure that consumers reasonably participate in the efficiency increases.
The question currently under intense debate is: Can sustainability and public welfare goals generate efficiencies in which consumers have an appropriate share?
In principle, sustainability objectives only lead to efficiencies relevant under antitrust law if they lead to objective and sufficiently predictable benefits and the effect of the agreement is at least neutral from the consumer's point of view. As a rule, such efficiency gains are measured in terms of consumer welfare. Thus, if sustainability collaborations lead to a wider choice of products or to an increase in the quality of products, they usually also include efficiency gains that can be taken into account.
However, sustainability initiatives often do not trigger directly measurable benefits for consumers, but rather have long-term effects (e.g., in the context of environmental protection or animal welfare). Moreover, sustainability initiatives can sometimes even have disadvantages for consumers in the form of higher prices or reduced product choice. In its concept paper, the German Federal Cartel Office therefore expressed skepticism as to whether public welfare and sustainability aspects can be taken into account in the antitrust justification of cooperations.
In contrast, the EU Commission seems to take a more liberal approach in its draft of the new Horizontal Guidelines. In addition to the "classic" direct consumer benefits ("individual use value benefits"), such as improved product quality, it also recognizes indirect consumer benefits ("individual non-use value benefits") of a sustainability initiative as a possible justification element. This is the case, for example, when consumers are willing to pay a higher price for a sustainable product in order to benefit society or future generations. Then consumers perceive the product to be of higher quality precisely because of the benefit to others. However, proving such indirect consumer benefits may not always be easy in practice. In such cases, the Commission requires "substantial" evidence to prove the actual preferences of consumers.
However, the Commission goes one step further and in its draft Horizontal Guidelines for the first time recognizes the category of “collective benefits” as an element of justification for a restrictive initiative. These are benefits which do not accrue to the individual consumer (e.g. in the form of cheaper or higher quality products) but to an undefined group of consumers. In the Commission's view, these include, for example, benefits in the form of environmentally friendly/sustainable products. However, the Commission only wants to recognize such “collective benefits” as justification for a restriction of competition if the collective benefits have a direct positive impact on consumers in the affected EU market. In other words, a sustainability initiative which benefits do not accrue to consumers in the EU but almost exclusively to people in a third country (e.g. in the form of a more sustainable and environmentally friendly extraction of resources in the respective third country) cannot, in case of doubt, invoke "collective benefits".
So far, only our neighbor Austria has taken a different view: There, the legislator has expressly clarified in Section 2 (1) KartG that justification under antitrust law can also be considered if the cooperation makes a significant contribution to an ecologically sustainable or climate-neutral economy. However, this provision is so far unique in Europe.
Antitrust law does not per se prevent sustainability agreements between competitors. Under certain conditions, they are not even subject to the ban on cartels. However, price, customer and market sharing cartels under the guise of sustainability goals remain prohibited.
Companies face challenges if the joint initiative affects factors that are relevant to competition, such as technical developments or production conditions, and can thus have (potentially) restrictive effects on competition. On the one hand, a per se prohibition cannot be assumed here, unlike in the case of price and customer agreements. On the other hand, under the current legal situation, it is still fraught with a great deal of legal uncertainty to justify antitrust law restrictive sustainability initiatives. In such cases, contacting the relevant antitrust authority usually helps.
Until further support is provided by the legislator, it is therefore important to examine sustainability projects carefully in each individual case and to design them as competitively neutral as possible in order to minimize antitrust risks.