The commission takes a step in the right direction with respect to sustainability agreements under competition law

The European Commission has adopted new horizontal guidelines for applying competition law to cooperation agreements between competitors. The horizontal guidelines will enter into force once they are published in the Official Journal of the European Union.

The most significant reform compared to the previous guidelines is that the new horizontal guidelines include guidance on the competitive assessment of competitor cooperation in pursuit of sustainable development.

Competition rules do not prevent competitor cooperation in pursuit of sustainability objectives

Pursuant to the horizontal guidelines, sustainability agreements refer to any cooperation agreements between competitors that pursue sustainability objectives, irrespective of the form of cooperation. These sustainability objectives include many types of goals concerning climate change, the environment and human rights, such as reducing greenhouse gas emissions, preventing pollution, paying living wages and improving animal welfare.

The premise is that sustainability agreements are allowed under Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”), provided that the agreement does not have the object or effect of restricting competition.

The horizontal guidelines give examples of sustainability agreements between competitors that do not fall within the scope of the cartel prohibition and illustrations of allowed sustainability agreements between competitors:

Sustainability standardisation agreements may benefit from the soft safe harbour in future

In addition to the examples above, the new horizontal guidelines allow certain sustainability standardisation agreements with respect to the EU competition rules. Competing undertakings can use sustainability standardisation agreements to agree on adopting and complying with certain sustainability criteria in order to pursue sustainability objectives. Adopting and complying with sustainability standards may involve, for example, an environmental label.

Sustainability standardisation agreements can be used by competing undertakings to agree, among other things, on replacing non-sustainable products, such as fossil fuels, with sustainable ones, harmonising packaging materials to facilitate recycling, harmonising packaging sizes to reduce waste or purchasing raw materials that have been manufactured in a sustainable manner.

It is recognised that sustainability standardisation agreements usually have positive effects on competition. The horizontal guidelines state that sustainability standards are unlikely to produce negative effects on competition and shall fall within the soft safe harbour, provided that the standards meet the following cumulative conditions:

In practice, the soft safe harbour for sustainability standards will enable a great deal of cooperation between competitors and is a significant step in the right direction.

Even sustainability agreements that restrict competition can be allowed on a case-by-case basis

Pursuant to the EU competition rules, agreements that restrict competition can also be allowed under certain circumstances if the agreements fulfil the cumulative conditions of Article 101(3) of the TFEU, i.e. the efficiency argument. Regarding sustainability agreements restricting competition, the following must be taken into account with respect to applying the efficiency argument:

A step towards reaching the EU’s sustainability objectives

Assessing the reform concerning sustainability agreements in its entirety, it is evident that the Commission is taking significant steps towards reaching sustainability objectives. It is good that the Commission is excluding some sustainability agreements from the scope of application of the cartel regulations. This means that undertakings need not refrain from cooperating due to fear of competition law sanctions. Furthermore, the soft safe harbour for sustainability standards will significantly facilitate cooperation in sustainability issues. Most of all, the guidelines increase legal certainty in the assessment and application of sustainability agreements while observing the competition rules, allowing undertakings to focus on the essentials of their cooperation in sustainability.

Outside of the soft safe harbour, it is still important for undertakings to evaluate the competitive effects of any arrangements and to assess whether the cooperation arrangements can be protected by the efficiency argument. Regarding the assessment of efficiency gains, the Commission continues to place a strong emphasis on the willingness of the consumer to pay for a more sustainable product and requires that the group of consumers benefiting and suffering harm due to the restriction must be substantially the same. In this respect the Commission could have taken a more progressive stand. It is to be hoped that we will see improvements in policy and case law in the future. Combating the climate crisis and loss of biodiversity requires that undertakings work together, even if they are competitors.

Writers: Anna Kuusniemi-Laine, Joona Havunen and Sofia Tuononen.

See also:

Greening Competition Law – Sustainability Agreements and Competition Law