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The Competition to Collaborate: Competition law shouldn't obstruct collaboration for the purpose of sustainability

Posted on 25 August 2020

As we rebuild from the COVID-19 pandemic, the need for collaboration in the private sector has never been greater.  Business has a vital role to play in the recovery and in ensuring that we build back better than before.  With the frequency of extreme weather events increasing, and less than 10 years remaining to achieve the Sustainable Development Goals, consumers and governments are exhorting companies to work together to innovate and find new, more sustainable, ways of working.

However, a lack of legal certainty and fear of running foul of competition law can often act as a road-block to vital collaboration, with potential collaborators pulling out of projects due to perceived competition law risk.  Indeed, the European Commission's EUR c.315m fine imposed on Unilever and Proctor & Gamble for anti-competitive behaviour arising out of an initiative to improve the environmental performance of detergent products may still be at the forefront of potential collaborators' minds.

Thankfully, recent developments suggest that European competition authorities are looking to take an increasingly supportive and pragmatic stance regarding companies working together for the greater good.  While there is still plenty more work for regulators to do to provide potential collaborators with complete comfort, these developments should encourage companies to pursue collaborative initiatives for environmental benefit.  Provided that initiatives are pursued in good faith and structured properly, competition law should not get in the way.

Recent developments

The private sector has responded globally to the pandemic, with many companies pivoting to provide social goods to assist the fight against the disease.  The pandemic has also focussed minds on the existential and ever more evident challenge of climate change. 

In the 2016 Paris Agreement, countries committed to keeping the global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius.  The British Government has legislated for a net carbon zero UK by 2050.  The European Commission's main policy response is the European Green Deal, which has the overarching aim of making Europe climate neutral within the same period.

Why then should competition law potentially prevent achieving these commitments?  In a series of articles, Simon Holmes (one of the members of the UK's Competition Appeal Tribunal, albeit writing in a personal capacity) has argued that the restrictive approach that competition authorities have taken in the past with regards to sustainability is "certainly not inevitable".  Importantly, he argues that at an EU level, this approach is potentially illegal due to its conflict with the constitutional provisions of the EU Treaties that require sustainability and environmental protection to be taken into account when implementing all EU policies and activities.  In his view, it is not so much the law that is the problem, but how it has been applied.

Competition authorities across Europe now appear to have cottoned on to this school of thought and are more focused on the potential to take sustainability considerations into account when it comes to the application of the law.  Margrethe Vestager, Executive Vice-President of the European Commission, recently declared that “all of Europe’s policies – including competition policy – will have their role to play” in achieving the European Green Deal.  In addition, the UK Competition and Markets Authority's ("CMA") Annual Plan for 2020-2021 states that “We will develop our understanding of how climate change affects markets and consider how, when exercising our functions, we can act in a way that supports the transition to a low carbon economy”.  A similar statement can be found in the French Competition Authority's 2020 mission statement.

But making statements is one thing; taking positive action is another.  In this regard, the Dutch Competition Authority ("ACM") should be applauded for its recent consultation on its draft Guidelines on Sustainability Agreements.  The draft guidelines set out the ACM's proposed approach to sustainability agreements, explaining when such agreements would fall outside of the competition rules altogether, as well as proposing an innovative approach to taking sustainability into account when evaluating agreements that do fall within the rules.

The consultation prompted the European Commission to declare its support for "the need for clear guidance on agreements aiming at reducing greenhouse gas emissions that would be compatible with competition law" and at the same time confirm that it is currently looking into these issues as part of its review of the Horizontal Block Exemption Regulations and the Horizontal Co-operation Guidelines.

Perhaps most encouragingly however is the ACM's statement that it would not impose fines for agreements where businesses clearly followed its guidelines in good faith, but ultimately did not meet all of the conditions (in such a scenario, the ACM would seek amendments instead).  This more collaborative approach between competition authorities and the private sector is itself key to removing competition law as an impediment to change. 

During COVID-19, the European Commission has been open to providing informal guidance to companies on whether their collaboration falls on the right side of competition law.  If the Commission took a similar approach to sustainability agreements going forwards, this could also help provide the private sector with the comfort it needs.

Brexit

While many of the recent developments have come from authorities on the continent, based on the CMA's Annual Plan for 2020-2021 this is clearly an area of focus in the UK as well and is likely to continue to be one after the end of the Brexit transition period.  Indeed, with the CMA seeking to position itself as a leading competition authority post-Brexit, it may well look to become a pioneer in this space.  Brexit might also grant the UK Government greater flexibility to consider any necessary amendments to UK competition law to further this goal.

While any collaboration that affects EU markets will still fall within the remit of EU competition law, one would hope that a progressive stance taken by the CMA might strengthen the Commission's resolve to do the same.

Conclusions

The international policy environment increasingly expects – and indeed demands – private sector collaboration to tackle climate change and drive the shift towards sustainability.  Competition law should no longer be seen as an impediment to such collaboration, with progressive regulators working to provide greater certainty and comfort to companies seeking to work together for these purposes.

Of course, collaboration that operates as a front for or otherwise facilitates anti-competitive behaviour remains unacceptable, as the Commission found to be the case with regards to Procter & Gamble, Unilever and Henkel in 2011.  But initiatives for good that are properly designed and meet certain criteria should enable companies to do the right thing – and it's in all of our interests that they do.

Mishcon de Reya's expert competition lawyers are working closely in collaboration with the firm's innovative sustainability offering, Mishcon Purpose, to support businesses looking to collaborate safely for positive impact.

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