Sustainability has and will remain top of mind in the European Union. Under the Green Deal, the European Commission (“Commission”) has pushed through a storm of ‘green’ legislation, with 86 acts adopted and 14 more nearing adoption since December 2019. Complying with the numerous sustainability obligations stemming from Green Deal legislation can be both time-consuming and costly for companies. Recognising the potential burden on businesses, the Commission has taken steps to facilitate cooperation in pursuit of sustainability goals. In 2023, the Commission published its revised Guidelines for Horizontal Cooperation Agreements (“Guidelines”), now including a dedicated chapter on sustainability agreements. The Guidelines clarify which sustainability agreements can, in principle, avoid the cartel prohibition and which cannot.
In this contribution, we will discuss the specific conditions under which sustainability agreements between (potential) competitors are permitted under European competition law, particularly as outlined in the revised Guidelines. Additionally, we will provide examples of approved sustainability agreements and compare the international perspectives on sustainability collaborations.
The Guidelines
In general, the Guidelines provide guidance for assessing the compatibility of horizontal cooperation agreements with EU competition law, specifically Article 101 of the Treaty on the Functioning of the European Union (“TFEU”), also known as the “cartel prohibition”. The Guidelines contain the so-called “Block Exemptions” for Research and Development Agreements and Specialisation Agreements. These Block Exemptions ensure that certain research and development agreements, as well as specialisation agreements, benefit from a “safe harbour” if they meet specific criteria. In the latest 2023 version of the Guidelines, sustainability agreements have been introduced as a distinct category of agreements. While not granted an automatic safe harbour, sustainability agreements are now subject to a separate framework which may – under specific circumstances – result in agreements being exempted from the cartel prohibition.
Sustainability agreements
The definition of sustainability agreements, which the Commission utilises, is a broad one. This definition is based on the concept of sustainability outlined in the United Nations Resolution 66/288 from 2012 (titled: The future we want), which the EU has committed itself to. In the Guidelines, sustainability agreements are defined as “any horizontal cooperation agreement that pursues a sustainability objective, regardless of the form of the cooperation”. The Guidelines further note that:
“The notion of sustainability objectives therefore includes, but is not limited to, addressing climate change (for instance, through the reduction of greenhouse gas emissions), reducing pollution, limiting the use of natural resources, upholding human rights, ensuring a living income, fostering resilient infrastructure and innovation, reducing food waste, facilitating a shift to healthy and nutritious food, ensuring animal welfare, etc.”
Assessment
Although more leniency has been created for sustainability agreements, this does not mean they always escape the cartel prohibition. Sustainability agreements can still raise competition concerns under Article 101 TFEU if they entail restrictions of competition by object or they lead to appreciable, actual or likely negative effects on competition. Agreements that restrict competition cannot escape the prohibition laid down in Article 101(1) TFEU simply by referring to a sustainability objective.
The Commission categorises three types of sustainability agreements that do not fall under Article 101(1) TFEU or are excluded from its application.
Sustainability agreements that are unlikely to raise competition concerns
The first category concerns agreements which do not negatively impact parameters of competition (e.g. price, quantity, quality, choice or innovation) and therefore do not raise competition concerns. If an agreement can be qualified as such, no further assessment under Article 101(1) TFEU is required. Examples include:
- agreements that allow undertakings to comply with sufficiently precise requirements or prohibitions in legally binding international treaties, agreements or conventions, regardless of whether they have been implemented in national law, and which are not fully implemented or enforced by a Member State;
- agreements that relate to an undertaking’s internal corporate conduct;
- agreements that construct a database with general information regarding sustainability practices of suppliers and distributors, that do not formulate an obligation or a prohibition to purchase from or sell to them; and
- agreements between competitors about the organisation of awareness campaigns (e.g. for consumers on the environmental impact of their consumption), that do not lead to joint advertising of products.
Sustainability standardisation agreements (sustainability standards)
Whereas the first category of sustainability agreements by their nature do not require an assessment under Article 101(1) TFEU, the second category is different. The Commission formulated a “soft safe harbour” for sustainability standardisation agreements that are unlikely to generate anticompetitive effects. Sustainability standardisation agreements have distinct characteristics that set them apart from other types of agreements. One key feature is that these agreements often result in the creation of labels, logos, or brand names that identify products meeting specific sustainability criteria. Companies adopting these standards must comply with the requirements that come with it, and failure to do so results in the loss of the right to use these identifiers. Adhering to sustainability standards therefore can be costly, as businesses may need to alter their production or distribution methods, potentially leading to higher product prices.
While these agreements can promote sustainable development and market growth by providing sustainability criteria, they can also raise competition issues. For example, sustainability standards may lead to price coordination, foreclosure of alternative standards, or exclusion of certain competitors from the market. These agreements can restrict competition, particularly when used to fix prices, allocate markets, or limit output and innovation. Further concerns may rise when competitors agree to pass on increased costs to consumers through higher prices for products meeting sustainability standards.
Against this background, sustainability standardisation agreements must fulfil the following six cumulative conditions to be exempted from the cartel prohibition:
- the procedure for the creation of the sustainability standard must be transparent;
- the sustainability standard must not be (indirectly) obligatory for non-participating undertakings;
- participating undertakings must be allowed to apply higher sustainability standards than the standard they agreed upon;
- participating undertakings must not exchange commercially sensitive information with each other that is not necessary for the development, implementation, adaptation or modification of the standard;
- effective and non-discriminatory access to the outcome of the standard-setting process must be guaranteed; and
- the sustainability standard must not lead to a significant price increase or a significant decrease in the quality of the products concerned and/or the combined market share of the participating undertakings must not be higher than 20% on any relevant market affected by the standard.
If an undertaking does not meet one or more of these criteria, an individual analysis of the anti-competitive effects under Article 101(3) TFEU is necessary to assess whether the sustainability agreement may still be justified.
Sustainability agreements justified under Article 101(3) TFEU
As a last safety net, sustainability agreements that do infringe Article 101(1) TFEU may still be justified under Article 101(3) TFEU when the advantages of the restriction of competition outweigh the disadvantages. The sustainability agreement must therefore meet the following four cumulative criteria:
- the agreement must yield efficiency gains (e.g. better quality of products or the use of less polluting distribution technologies);
- the agreement must impose restrictions on competition that are necessary to achieve the sustainability benefits and there must be no other economically practicable and less restrictive way of attaining those goals;
- consumers must be provided with a fair share of the sustainability benefits, ensuring they belong to the group benefiting from the agreement; and
- the agreement must not eliminate all competition on the market.
Competition enthusiasts might observe that the Article 101(3) TFEU assessment outlined above follows a relatively standard approach. However, when it comes to sustainability agreements, the Commission has framed the third criterion (fair share for consumers) differently, or rather, more broadly, than in the traditional context. Typically, the consumer benefit criterion focuses narrowly on ensuring that the efficiency gains (such as improvements in production, distribution, or innovation) resulting from the agreement are passed on to consumers in some tangible form.
For the assessment of consumer benefit in the context of sustainability agreements, this “consumer benefit” can apply to different consumer groups. The Guidelines identify three types of potential benefits for consumers, any one of which, or a combination, may satisfy the consumer benefit criterion. These include:
- individual advantages (“individual use value benefits”): advantages for the individual consumer resulting from the use of the product (e.g. improved product quality due to vegetables produced with organic fertilisers);
- indirect individual advantages (“individual non-use value benefits”): advantages for the individual consumer resulting from the appreciation of the impact of his sustainable consumption on society or future generations (e.g. a driver pays more for a certain type of less-polluting fuel, not because it drives better, but because it produces less emissions); and
- collective benefits: advantages to society regardless of consumers’ individual appreciation, outside the relevant market (e.g. drivers purchasing less polluting fuel also benefit from cleaner air). To show that there are collective benefits, the undertakings must clearly portray the advantages and beneficiaries of the sustainability agreement, that this group of beneficiaries greatly overlaps with the consumers in the relevant market, and that the collective benefits outweigh the harm suffered by those consumers (i.e. via valued reports).
With regards to the collective benefits, the required overlap between beneficiaries and the consumers in the market is remarkable. Due to cross-border transactions, consumers are often not located in the same area as the beneficiaries of the environmental benefits, which means that the collective benefit criterion is not fulfilled (e.g. the environmental benefits of clothing made of sustainable cotton that uses less water during cultivation, only occur in the area where the cotton is grown and not where the consumers buying this clothing are located). If we are truly committed to the shared responsibility of caring for the planet and each other, as reflected in the Green Deal legislation, it is – from our perspective – somewhat surprising that consumer benefit is excluded if European consumers do not experience a direct positive effect. Sustainability issues, such as air pollution, transcend national borders, are harder to be achieved.
We note, however, that the Dutch Authority for Consumers and Markets (“ACM”) previously developed an assessment framework in its second draft guidelines on sustainability agreements, which considered the benefits of sustainability agreements outside the market for environmental sustainability agreements. However, given that the Commission’s approach is now the prevailing one, the ACM has now aligned itself with this interpretation as well.
Approved sustainability agreements
Different companies have taken the opportunity to utilise the abovementioned framework and requested approval of their sustainability agreements. Some national competition authorities already allowed specific sustainability agreements after requests by initiators.
In September 2024, the ACM found that Dutch banks are permitted to collude with regard to their sustainability reports, primarily because this would make these reports more similar and easier to compare. Other initiatives allowed by the ACM include the collaboration between commercial waste collectors to incentivise the recycling of waste and the partnership between producers of coffee capsules to stimulate the recycling of these capsules.
The German Bundeskartellamt (“Bka”) allowed the initiative of an association of multiple undertakings operating in the market of the trade and production of plants to implement a shared reuse system for plastic trays. The Bka and the Belgian Competition Authority both approved the cooperation in the food retail industry to agree upon sustainability standards with regard to living wages in the banana sector.
International perspective
The way national competition authorities around the world perceive sustainability agreements is incoherent. Whereas the ACM aligned its approach with the one taken by the Commission (or the other way around?), as discussed in this article, there are also authorities with a different view.
For example, in the United Kingdom the assessment of sustainability agreements under competition law is largely in line with the approach of the Commission. Albeit with one main difference: the scope of the definition of sustainability agreements. The definition of “sustainability agreement” in the CMA’s guidelines solely includes on environmental sustainability agreements and does not incorporate other sustainable objectives. Moreover, the UK’s Competition and Markets Authority (“CMA”) is more lenient in assessing which consumers have received a fair share to determine whether the anticompetitive collaboration can be justified. In its Green agreements guidance, it takes into account the totality of the climate change benefits to all UK consumers instead of only those consumers within the market affected by the agreement.
On the other side of the Atlantic, a conservative approach towards sustainability agreements still prevails. U.S. antitrust law currently does not provide exemptions for sustainability collaborations between competitors. In principle, these sustainability agreements infringe the American equivalent of the cartel prohibition, creating “climate cartels”. The only potential justification for these agreements is the ‘rule of reason’, which requires a balancing test between the pro-competitive benefits and the anti-competitive effects of the agreement.
Conclusion
Sustainability agreements can offer a valuable solution for undertakings seeking to achieve their sustainability objectives in a (cost-)efficient manner. The creation of exemptions and the soft safe harbour by the Commission is therefore a very welcome and relevant development. However, the real challenge lies in applying these frameworks to a globalised economy, where environmental benefits often extend beyond national borders and where varying legal frameworks in different jurisdictions create complexity. Navigating this complexity will require ongoing coordination between regulators and businesses to ensure that sustainability goals are achieved without compromising competition laws or creating regulatory conflicts.
