European Commission Clarifies Sustainability Rules In Revised Horizontal Guidelines

On 1 June 2023, the European Commission published its long-awaited revised guidelines on horizontal cooperation (Guidelines) which include a specific chapter on sustainability agreements, helping businesses to better assess the compatibility of their cooperation agreements with EU competition rules, where such agreements genuinely pursue (broadly defined) sustainability initiatives. The sustainability chapter remains largely unchanged from the draft revised guidelines published on 1 March 2022. 

The green transition

Inclusion of the sustainability chapter aligns with policy incentives under the European Green Deal, which aims to help the EU reach climate neutrality by 2050. It also serves as another example of a competition authority seeking to facilitate collaborative efforts to meet sustainable goals within (clearly defined) boundaries of competition law.  In the UK for example, we have seen similar intentions from the Competition and Markets Authority (CMA) with the publication of its draft guidance on the application of UK competition law to sustainability agreements. [1]   

Sustainability agreements and Article 101(1) 

Some clarity is offered as to which sustainability agreements between competitors will not likely be caught by the prohibition on anti-competitive agreements and practices contained in Article 101(1) TFEU (Art. 101(1)). The Guidelines include four broad categories of such agreements, being agreements: 

• imposing restrictions solely aimed at ensuring compliance with legally binding international treaties or conventions (e.g., use of certain pollutants);
• covering only the internal conduct of competitors (e.g., agreeing on measures to eliminate single-use plastics from their business premises) and not their economic activity;
• on the creation of databases on suppliers in efforts to make more informed choices as to (un)sustainable value chains/production processes, without imposing requirements on the parties (i.e., to purchase from specified suppliers); and
• relating to the organisation of industry-wide campaigns on sustainability (providing such agreements do not amount to joint advertising of specified products).

Restriction of competition by object/effect

Typically, where an agreement clearly has as its object the restriction of competition (i.e., price fixing or market sharing), it is not necessary for the enforcing authority to prove that the agreement will produce anti-competitive effects as the ‘object’ itself demonstrates a sufficient harm to competition. Examples provided in the Guidelines of sustainability standardisation agreements (i.e., agreements between competitors relating to the adoption of an industry standard on sustainability) deemed to be anti-competitive by nature include:  

• agreements between competitors to pass increased costs resulting from the adoption of a sustainability standard onto customers; and
• an agreement between competitors to limit technological development to the minimum sustainability standards required by law, instead of cooperating to achieve more ambitious environmental goals.

However, the Guidelines go on to state that where the parties to an agreement substantiate that the main object of an agreement is the pursuit of a sustainability objective, and where this casts reasonable doubt on whether the agreement reveals by its very nature, a sufficient degree of harm to competition to be considered a by object restriction, the enforcing authority will have to assess the agreement’s effects on competition.  As such, the Guidelines contain a “soft safe harbour” in the effects analysis for sustainability standardisation agreements (there is no equivalent for other types of sustainability agreements). When the six cumulative conditions are met, the agreement will not be considered to have adverse effects on competition within the scope of Art. 101(1). [2]    

Analysis of sustainable benefits under Article 101(3)

In general, when assessing whether an agreement producing appreciable negative effects on competition may benefit from the exemption provided by Art. 101(3), the parties have to prove that the agreement meets the following four cumulative conditions: (i) that the agreement contributes to “objective, concrete and verifiable” efficiency gains; (ii) that the restriction of competition is indispensable to the attainment of benefits; (iii) that consumers receive a fair share of the purported benefits, when the benefits outweigh a restriction of competition; and (iv) parties continue to compete on at least one parameter of competition (i.e., the agreement does not eliminate competition from the relevant market). 

Condition (iii) – the requirement that consumers receive a fair share of the purported benefits – has proved tricky in the context of sustainability agreements where benefits may accrue to society as a whole rather than specifically to consumers of the relevant product or service. So how has the Commission tackled this issue in the Guidelines?

“Fair share” of benefits?

The Guidelines contain detailed guidance on whether sustainability benefits can be considered efficiency gains for “consumers” – which the Guidelines define as comprising “all direct and indirect users of the product covered by the agreement”.   The Guidelines explain that such assessment includes: 

• the benefits resulting from direct use of the products covered by the sustainability agreement (“individual use benefits” – such as consumers benefitting from better tasting vegetables which were grown organically); and
• those indirect benefits arising from the use of product under a sustainability agreement (“individual non-use benefits” – such as appreciation for a cleaning product which uses less chemicals as the indirect benefit to the consumer (as it is less harmful to the environment) rather than a direct benefit where the product results in a superior clean).

In doing so, the Guidelines maintain an approach that ignores the benefits sustainability agreements may bring to wider groups than simply the end-consumer(s). This differs to the approaches taken by the CMA and the Dutch Authority for Consumers and Markets (ACM), each more ambitious in relation to the fair share criterion. Whilst the Guidelines do provide a mechanism for “out of market” benefits to be considered, as “collective benefits”, this is only permitted in those circumstances where consumers in the relevant market substantially overlap with (or are part of) the beneficiaries outside the relevant market. 

Concluding Remarks

Overall, the Guidelines are a positive development as they provide helpful clarifications for businesses on the interplay between collaboration on sustainability initiatives and the limits of EU competition law. It will be interesting to assess what impact the Guidelines will have in encouraging businesses to invest in new sustainability initiatives, as well as the response of other European competition authorities such as the ACM which is currently assessing whether there is any “leeway” between the Guidelines and its own draft guidelines on sustainability agreements.

[1] See our prior analysis of the CMA's draft guidance here.

[2] See our prior analysis of the Guidelines, including with respect to the “soft safe harbour” presumption here.