Merger control: The EU’s dark horse to support green investment?

The current debate in relation to competition law and sustainability focuses largely on competitor cooperation to realise green objectives that can’t be achieved alone and the framework for analysis under existing competition rules. State aid is also cited as an important tool to drive the EU green agenda – it’s top policy priority. But what about the role of merger control in fostering green investment?

At the European Commission’s recent conference (see our rundown of the main takeaways), merger control was given relatively short shrift. The EC stressed that green killer acquisitions (i.e. attempts to remove green innovators from the market) would be under scrutiny. But the merger control framework can and should do more than this to support the Green Deal.

Currently, it is more likely that a reduction of competition in terms of sustainability parameters or a reduction in sustainability innovation would be used as an additional reason for blocking an anti-competitive merger. It is much harder to see how sustainability benefits (e.g. lower carbon emissions in the long term) could be used as a reason for clearing a deal. This reflects a broader asymmetry well established in merger control: factors restricting competition are generally subject to a lower standard of proof than efficiencies stemming from the merger. The result? The EC has never cleared a problematic merger based on efficiencies.

Beyond efficiencies, we think there is scope within the existing legal framework to factor environmental and other sustainability goals into the substantive merger analysis, insofar as they are considered parameters of competition – as we expect them increasingly to be.

There are already some early signs of this, in line with a broader move in Europe and elsewhere towards consideration of the wider effects of a merger on issues like innovation competition, long-term investment incentives and impact on small businesses and employment.

The pressure to go green and the resultant rewards for businesses are increasing. Dealmakers will largely drive the merger control agenda based on the deals they do in pursuit of their investment strategies. It will be vital to bring forward relevant merger notifications with clearly articulated business rationales and well-evidenced efficiency analyses.

The EC has intimated that it does not intend to issue separate guidance on lawful sustainability collaborations before its general review of the competition rules due in 2022. While we wait for guidance, merger cases could push the EC to conclude on some of the key issues – crucially, in published decisions. This will in turn provide greater certainty over the assessment framework for other merging parties keen to pursue green M&A agendas. It could even help to shape the EC’s wider thinking on sustainability cooperation.

We discuss these and other themes related to green M&A in-depth in our paper published as part of Concurrences’ Competition Law, Climate Change & Environmental Sustainability.