Net Zero Tolerance? Competition Law & Sustainability Agreements

Sustainability goals can often be promoted through industry collaboration, but this may not always align with competition law; regulators are busy trying to square the circle

Last month, the Dutch competition authority (ACM) cleared a joint agreement among soft-drink suppliers including Coca-Cola to discontinue plastic handles on multipacks to make the packaging more recyclable and reduce plastic. Applying its draft sustainability guidelines, the ACM found that the arrangements did not harm competition given that evidence showed the handles did not play a role in the competitive process and participants remained free to decide on, e.g., when and how to discontinue the handles.

The ACM has been at the forefront among competition authorities in trying to find a workable approach to balancing competition policy and sustainability goals. A key challenge of these efforts has been how to apply the exemption criteria which permit agreements which do restrict competition law but offer countervailing benefits because:?

• the agreements offer benefits in the form of improving production or distribution, or promoting technical or economic progress;
• the users of the products in question are allowed a fair share of those benefits;?
• the restriction of competition is necessary for reaping the benefits, and does not go beyond?what is necessary;?and
• competition is not eliminated in respect of a substantial part of the products in question.

Lack of clarity as to how these criteria apply to sustainability initiatives (e.g., how 'benefits' and 'fair share' is measured in this context) make it difficult for businesses to self-assess whether a given agreement would merit exemption, potentially leading to a ‘chilling effect’ inhibiting cooperation agreements that might improve environmental sustainability.

The UK's Competition and Markets Authority (CMA) has said that it will produce guidance designed to alleviate this chilling effect. Meantime, in its advice to the UK Government, the CMA has sketched out its views on some of these problem areas.

In the CMA's view, if an agreement leads to environmental benefits to a broader group of consumers than just those adversely affected by the restriction of competition, such benefits, in principle, can be taken into account in the ‘fair share’ assessment. However, this would not, in principle, permit a situation where benefits to one group of consumers are offset against net harm to an entirely different group of consumers (without sufficient benefit accruing to the harmed consumers).

Overall, the CMA thinks that there is some flexibility under the current UK legal framework to accommodate environmental benefits brought about by agreements that restrict competition. However, it has advised (perhaps with an eye to the planned overhaul of the UK competition law regime), that there may be merit in making the law more explicit. It also notes that, meantime, if there are situations where the flexibility proves insufficient and there are exceptional and compelling reasons of public policy to do so, the Government could to consider instead the use of exclusion orders.