The European Commission recognises that DG Competition has a role to play in realising the ambitions set out in the European Green Deal, the comprehensive policy initiative with an overarching goal of reaching climate neutrality within the EU by 2050.
In September, the Commission published a Merger Brief setting out the views of DG Competition staff on how the current legal framework supports the incorporation of sustainability considerations into EU merger control.
For businesses looking at a deal which may have an impact on sustainability, the Merger Brief provides a helpful framework for assessing how the Commission will analyse their transaction.
Defining Relevant Markets: Shifting Paradigms
The Merger Brief highlights sustainability-driven consumer choices as having the ability to impact demand-side and supply-side substitutability and therefore product and geographic market definitions.
For example, the Merger Brief cites the fact that the Commission considered a possible market segmentation between Fairtrade organic coffee and conventional coffee in DEMB/Mondelez/Charger Opco. The Merger Brief also cites Schwarz/Suez as an example in which concerns regarding CO2 emissions from transportation had an impact on geographic market definition.
In addition, the Merger Brief notes that sustainability is mentioned as one of the non-price parameters relevant for the Commission's analysis in the current revised draft of the Market Definition Notice.
Assessing Competitive Impact: Where Sustainability Matters
The Merger Brief notes that consideration of sustainability can also play an integral part in assessing the competitive impact of mergers:
- Closeness of competition: Sustainability capabilities may be taken into account when assessing closeness of competition between merging parties and their competitors. For example, in Sika/MCBCC, the Commission considered innovation efforts in sustainable chemical admixtures when assessing the closeness of competition between the parties.
- Innovation theories of harm: The Merger Brief notes that examining broader innovation spaces as the Commission did in Dow/Dupont, can help protect environmentally friendly technologies where there is a risk of reduced incentives and/or overlapping research efforts. There have been several cases in recent years where the Commission has required divestments to address concerns around impact on innovation, including KPS Capital Partners/Real Alloy Europe and Schwarz/Suez.
- Efficiencies: The Merger Brief notes that sustainability efficiencies (e.g., improvements in product quality, reduced toxicity, lower waste generation, etc) may be taken into account to compensate anticompetitive harm providing they benefit consumers, are specific to the merger and are verifiable. While stakeholders have called on the Commission to take wider societal benefits and out-of-market efficiencies into account for these purposes, the Merger Brief notes that the Commission will only do so if the benefits cover substantially the same customers otherwise harmed by the merger.
Closing the Enforcement Gap: ‘Green Killer Acquisitions’
The Merger Brief makes it clear that the Commission intends to be vigilant against ‘green killer acquisitions’, i.e., where a company acquires an innovative entity to eliminate potential future competition.
The Merger Brief notes that where green innovations originate from small companies with lower turnover, the Commission may rely upon its controversial Article 22 EUMR policy to get around any potential enforcement gap and review deals that fall below the EU Merger Regulation’s thresholds.
Impact on future M&A
While many stakeholders would prefer the Commission to go further in considering the positive and negative environmental impacts of deals when conducting their merger control assessments, the Merger Brief shows that sustainability issues are increasingly taken into account.
For businesses, the Merger Brief provides a framework that is helpful for assessing how the Commission will analyse their transaction where the deal may have an impact on sustainability.
Please see the October edition of our Competition & Regulatory newsletter (Issue 18) for a more detailed consideration of the Merger Brief.