The European Commission has adopted its new guidelines for agreements between competitor (“Horizontal Guidelines”) – which for the first time – contain specific guidance on the antitrust assessment of sustainability agreements.  The guidelines are part of an evolving dialogue among antitrust regulators in the EU and globally to ensure competition law supports legitimate cooperation to pursue climate and other sustainability goals.

The final sustainability guidelines follow the Commission’s original proposal (discussed here), with a few important additions.

  • The guidelines define a “soft safe harbor” for sustainability standards e.g., common criteria for minimal waste packaging or climate-friendly products. The draft already provided for this, but the final version now explicitly allows for minimum requirements that are binding on participating firms. In addition, the soft safe harbor now applies even where the standard could significantly increase price or reduce quality for the products concerned, so long as the combined market share of participants does not exceed 20%.
  • The guidelines now make clear that firms may cooperate to achieve a higher sustainability standard than applicable regulation requires. Cooperation may also be justified if it means the objective can be achieved more quickly, and not just more cost-efficiently.
  • The guidelines explain that agreements fall outside the competition rules if they “aim solely to ensure compliance with sufficiently precise requirements or prohibitions in legally binding international treaties”, which are “not fully implemented or enforced by a signatory State.” This covers so-called “compliance agreements” that serve to avoid parties taking advantage of inadequate implementation of international obligations – what is sometimes called “illicit competition”. Thus, businesses can work together to further international obligations on sustainability goals, even if these are not fully implemented or enforced by signatory States.
  • The guidelines suggest that the weighing of costs and benefits of sustainability agreements must be made at the level of end-consumers, rather than intermediate levels of trade.  As an example, the Guidelines explain that an agreement between clothing brands to respect minimum wage levels would not be problematic, even if it led to increased labor costs of 20%, so long as it has a negligible effect on the average price of clothing sold in the EU to end-consumers.

The final guidelines are a positive step forward, although there were opportunities to be even more ambitious.  In particular, unlike the proposals of the Dutch and UK competition authorities (discussed here), the guidelines maintain that when assessing whether consumers receive a “fair share” of the benefits of sustainability agreements, the EU Guidelines only count benefits to consumers who are negatively impacted by the agreement – ignoring benefits to others.  The following diagrams illustrate the difference:

When analysing climate change agreements in relation to energy companies, there should not be much difference in practice between the EU and proposed UK approach. Since everyone uses energy, there are few or no “out of market” consumers.  Accordingly, the average benefit for the person that buys the product should be equal to the average benefit for all UK/EU consumers.  But for other agreements, the difference could be material.  And both the EU and UK approaches could be criticized for focusing only on EU and UK consumers.  This may make it harder to justify certain initiatives, for example, agreements to stop using cotton from plantations outside the EU that employ toxic herbicides, where most of the negative externalities avoided (such as health risks to farmers) accrue to a different set of consumers or to society at large.  The Guidelines suggest that such an agreement may not be justified under Article 101(3) TFEU, because the costs are borne by EU consumers, whereas the benefits of eliminating the toxic materials mainly accrue to communities outside the EU.  This is a potentially problematic analysis.  It is also inconsistent with the “polluter pays” principle for European Union policy that is enshrined in Article 191(2) TFEU, as well as the worldwide scope of Article 3(5) TEU (the EU “shall contribute to (…) the sustainable development of the Earth”, and not just the EU).

In addition to providing welcome clarity for businesses, the new guidelines should prompt further thinking and greater alignment across antitrust jurisdictions globally.  This is particularly important for high-impact global initiatives such as industry climate alliances.  The NZIA for example has seen recent departures following antitrust allegations by US state attorney generals inspired by political considerations, even as the Commission’s new guidelines confirm this initiative is compliant with EU antitrust law.