Last week, the European Commission published its much-anticipated draft revised Horizontal Guidelines and two Horizontal Block Exemption Regulations for comment, in addition to five accompanying expert reports. The Commission aims to adapt current rules to economic and societal developments, in particular the digital and green transition.
The Horizonal Guidelines include a new Section that is entirely devoted to sustainability agreements. The Commission recognises that competition enforcement contributes to sustainable development – which is marked as a policy priority for the EU – by ensuring effective competition. However, individual production and consumption decisions can have negative effects on the environment, that are not sufficiently taken into account by the entities that cause them. Such market failures can be addressed through, amongst others, collective action.
A guide to sustainable cooperation
The new draft Guidelines steer companies wishing to collaborate in genuinely pursuing one or more sustainability objectives, such as addressing climate change, eliminating pollution, limiting the use of natural resources, respecting human rights, ensuring animal welfare, etc., in the right direction. To this end, the Guidelines provide clarification on, amongst others, the following aspects:
- Sustainability agreements that do not raise competition concerns: The Guidelines provide specific examples of types of sustainability agreements that are generally permissible under antitrust rules. One specific example of unproblematic cooperation involves agreements on internal corporate conduct that do not concern economic activity, such as to eliminate single-use plastics in business premises.
- Setting sustainability standards: The Commission clarifies that standardisation agreements in the sustainability field, such as manufacturing methods or input standards, are generally unproblematic from an EU competition law perspective, provided various conditions are met. Such conditions include that the standard developing procedure must be open, transparent and non-discriminatory, and companies must remain free to pursue better standards. Additionally, no commercially sensitive information may be exchanged that is not needed for developing the standard, and the standard may not lead to price increases.
- Exemption based on the benefits: Even if an agreement has negative effects on competition, the Commission recognises that the sustainability aim can benefit consumers in several ways, e.g. cleaner production and distribution technologies, more resilient supply chain or better quality products, and the agreement may therefore be exempted from the rules on anticompetitive agreements.
A key element in this assessment is whether consumers receive a ‘fair share’ of the benefits under the agreement, which occurs when the benefits deriving from the agreement outweigh the harm. Thus, controversially, the Commission essentially requires full compensation of the consumers on the relevant markets, and despite criticism following its previous policy paper, it has not given away ground on this.
The Guidelines provide much-needed clarity on the Commission’s approach to sustainability agreements, yet they arguably do not go far enough. The Commission has signaled its willingness to issue comfort letters in relation to proposed sustainability agreements and we anticipate companies will avail of this process while the new rules are finding their feet.
The Commission is now consulting on the Guidelines and Block Exemptions. Stakeholders have until 26 April 2022 to submit their comments on these drafts. The final revised rules are due to enter into force in January 2023. And in the UK, the Competition and Markets Authority is also due to publish an update on its sustainability guidance in the coming months.
For more detail on the Guidelines and consultation, see our blog post.