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.
11.7.2023
The commission takes a step in the right direction with respect to sustainability agreements under competition law
Anna Kuusniemi-Laine & Joona Havunen
Related services
Tags
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
Latest news
Latest references
A. Ahlström – ESG advisory and corporate sustainability due diligence process planning
We advised A. Ahlström in establishing a corporate sustainability due diligence process plan which incorporates best practices and tailored solutions based on our expertise within relevant business sectors. Our comprehensive ESG offering also included tailored training for members of the investment team and management team and the board of directors of several portfolio companies. ‘The ESG team at Castrén & Snellman provided us with legal and practical advice around the ESG regulatory tsunami that we need to incorporate in our ESG work,’ comments Camilla Sågbom. A. Ahlström is a family-owned industrial company, developing leading global specialist positions in Forest & Fiber and Environmental technology sectors.
Case published 5.9.2024
Vapaus Bikes Finland – Series A funding round
We represented Vapaus Bikes Finland Oy, a company offering employee benefit bikes, in its international EUR 10 million Series A funding round. The investors behind the funding are private equity investors Shift4Good and Superhero Capital Ltd as well as Tesi together with the European Guarantee Fund of the European Investment Bank. The equity-based funding will support the company’s international expansion, software development, platform automation, and the growth of its concept for the second-hand market of bikes. Vapaus Bikes Finland is at the forefront of sustainable mobility services and has been a pioneer in the Employee Benefit Bikes sector since late 2020. It has been ranked among Finland’s fastest growing companies. Shift4Good is an impact venture capital fund focused on the decarbonisation of the transportation sector. Tesi (officially Finnish Industry Investment Ltd) is a state-owned, market-driven investment company that invests in venture capital and private equity funds and directly in Finnish startups and growth companies.
Case published 21.8.2024
City of Rovaniemi – Former employees ordered to pay damages in an investment decision matter
We successfully acted for the City of Rovaniemi in a matter concerning offence in public office and damages claims in relation to a significant investment decision made by the city. The defendants were the city’s former municipal corporate officer, who was in an employment relationship, and a city treasurer, who was in a public-service employment relationship and acted as the supervisor of the municipal corporate officer. The criminal matter related to the City Board’s decision to invest EUR 2 million of the city’s funds in bonds offered by a newly established investment company in accordance with a decision prepared by the defendants. A significant part of the company’s operations involved quick loan business. The main legal question in the matter was whether the investment of public funds constitutes an exercise of public authority and whether regulation on offences in public office therefore becomes applicable even to a person in an employment relationship. The municipal corporate officer in an employment relationship was charged with aggravated abuse of public office based on her negligence in the preparation and presentation of the investment decision as well as based on a conflict of interest due to the fact that she had invested her own money in a company that received funding from the investment target presented to the City Board. The charges of an offence in public office against the city treasurer concerned his position as the supervisor and reporter of the city’s investment activities. He was also involved in the preparation and presentation of the City Board’s decision. The processing of the matter started in the District Court of Lapland in June 2022. In its judgment given in August 2022, the District Court stated, based among other things on our argumentation, that the investment of public funds constitutes an exercise of public authority and that regulation on offences in public office can therefore be applied to the municipal corporate officer. The District Court deemed that the conduct of the former municipal corporate officer fulfils the characteristics of abuse of public office and that the conduct of the former city treasurer fulfils the characteristics of violation of official duty with respect to the preparation of the investment decision, but the right to bring charges had become time-barred. Punishments could therefore not be imposed on the defendants, but the defendants were ordered to jointly and severally pay the city approximately EUR 114,000 in damages plus interest for late payment. The city treasurer’s share of the amount was 10%. The prosecutor accepted the judgment but the other parties appealed it to the Court of Appeal. Acting for the city, we pursued claims for both punishment and damages in the Court of Appeal. The Rovaniemi Court of Appeal processed the matter in November and December 2023. In its judgment given in June 2024, the Court of Appeal upheld the District Court’s judgment with respect to the abuse of public office and violation of official duty. The Court of Appeal deemed that the municipal corporate officer had failed in her duty to declare the conflict of interest. In addition, she had failed in her duty to ensure that the prepared decision was in compliance with the city’s investment guidelines and that it had been properly put out to tender. The Court of Appeal also found that the text of the investment proposal was insufficient and misleading and that the municipal corporate officer’s conduct was intentional. As regards the city treasurer, the Court of Appeal held that he had failed in his duty to ensure that the investment proposal to the City Board complied with the investment guidelines, that the presentation was not misleading and that risks were taken into account as required by the investment guidelines. With the judgement, the Court of Appeal took a clear position that abuse in public offices and when exercising public authority is not acceptable. The judgment is also significant as it declares that investing public funds constitutes an exercise of public authority and that the liability for acts in office therefore becomes applicable even to persons in employment relationships. In addition, a key question for the Court of Appeal to assess was defining the amount of economic damage in a matter related to investment activities. The Court of Appeal held based on our arguments that the conduct of the municipal corporate officer and the city treasurer had caused damage to the city. The Court of Appeal increased the amount of damages to EUR 210,000 with the city treasurer’s share limited to 10%. The amount was increased because the Court of Appeal deemed that the city had suffered damage not only in terms of the loss of capital but also in terms of the loss of estimated return on investment. The judgement is not final.
Case published 21.8.2024
Tesi – Investment in Sisu Auto
We advised Tesi (Finnish Industry Investment Ltd) in its investment in the heavy duty vehicles company Oy Sisu Auto Ab. With this investment, Tesi became an owner in the company with a share of 24.4 per cent. Sisu Auto is a pioneer in the Nordic market in the development of heavy duty vehicles. Sisu’s core competences are in the product development and production of trucks and military vehicles. Tesi is a state-owned, market-driven investment company that invests in venture capital and private equity funds and directly in Finnish startups and growth companies. The investments managed by Tesi total 2.1 billion euros.
Case published 19.8.2024