Part II – ESG and Antitrust Law – Future prospects and practical guidance

Antitrust uncertainty stalls ESG alliances: The need for EU-wide clarity

Given the various numerous national initiatives in antitrust law to enable sustainability cooperations as well as the recent introduction of the new section on sustainability agreements in the EU Guidelines, one might expect that ESG alliances are thriving in Europe. However, according to the EU Commission, the EU Commission has not handled any sustainability agreement cases since publishing its updated EU Guidelines a year ago. One reason for this, as the EU’s Director-General for Competition Olivier Guersent revealed recently at a conference, is that “several discussions for large international alliances” were dropped due to parties’ fear of not receiving antitrust exemptions in other jurisdictions. This highlights the significant lack of legal certainty and homogeneity in the approaches taken by different jurisdictions and their antitrust enforcers.

Practical and useful guidelines and approaches for companies, with concrete standards for quantifying possible efficiencies and considering out of-market efficiencies, have already been implemented for example by the Austrian and UK competition authorities. What can we expect in other jurisdictions, and how can companies get a sufficient level of legal certainty?

More ESG in (German) Antitrust?

In Germany, the Federal Ministry for Economic Affairs and Climate Action announced that sustainability will play a role in the next reform of the German ARC. One focus shall indeed be to provide legal certainty for sustainability cooperations. This goal was reinforced by Thorsten Käseberg, Head of Competition Policy at the German Federal Ministry for Economic Affairs and Climate Action, at a conference in Bonn at the end of June. He stated that the German legislator’s aim is to create a more clearly defined room for manoeuvre for companies to promote innovative and new types of ESG cooperation. It is currently planned to propose an exemption guidance for cooperations that promote environmental and climate protection. Other ESG concerns, such as fair trade, are explicitly not supposed to be per se exempted. Käseberg further emphasizes that, similar to the UK Green Agreement guidance, out-of-market efficiencies should become a suitable defense efficiency for environmental cooperations. Additionally, as recently promoted by the French competition authority, the plan is to enhance opportunities for companies to seek informal guidance on planned (sustainability) cooperations. Section 32c(4) ACR is thus planned to be amended accordingly.

However, the Scientific Advisory Board (“SAB”) in Germany cautioned regarding further relaxation of antitrust laws in its statement published on July 5, 2024. The SAB emphasized the existing range of options within current antitrust laws to permit sustainability cooperations and stressed the importance of maintaining the principle of competition and consumer welfare. It warned that if competition authorities are tasked with broadly weighing the positive and negative effects of agreements beyond consumer welfare, it could overburden them, citing negative experiences in Switzerland as an example. Based on Käseberg’s recent statements, however, such a far-reaching opening of German antitrust law is not to be expected. In particular, with regard to the recognition of “out-of-market” efficiencies, it is to be expected that the German exemption will be limited to cooperations that promote environmental and climate protection – as recommended by the SAB in its opinion. It remains to be seen whether the conditions for such an exemption and its enforcement by the FCO will be clearly regulated in the ARC, serving for legal clarity, or whether it will be rather left to the FCO to define further on a case-by- case basis.

As large international ESG alliances were apparently abandoned due to unforeseen risks of antitrust law in some jurisdictions, the envisaged reform of the German ARC is welcome and necessary. However, purely national solutions are of course not sufficient to achieve the desired and necessary impact on sustainability, regardless of their design. Since European law takes precedence over national law at the latest in cases of mere interstate trade, in particular those sustainability cooperations that extend beyond an EU member state cannot rely solely on national legal frameworks. Even after a potential reform of the German ARC, cooperations serving environmental protection would only be covered by German law if the cooperation has no impact on the European internal market. This will likely only be the case for agreements between smaller companies with a regional footprint that do not impact the whole German market or go even beyond Germany in their effects.

Nevertheless, national initiatives can significantly drive broader reforms and as such hold in all cases more than just a symbolic political weight. Drawing from national reforms such as those in Austria or now Germany, it is anticipated that these will further shape the evolving landscape of ESG collaborations. At the same time, as the SAB rightly points out, it is important to keep in mind that strikingly a balance between sustainability goals and consumer welfare is a truly political task that should not (only) be left to antitrust authorities. This would otherwise risk politicizing antitrust and blurring the lines between antitrust and regulatory law.

Practical guidance: What to keep in mind when implementing ESG collaborations effectively

Based on these dynamic developments, it is crucial to keep several key considerations in mind when implementing ESG collaborations:

Initial key questions for antitrust law self-assessment:

ESG goals promotion: Ensure that the collaboration genuinely promotes specific ESG goals, such as environmental sustainability or social responsibility.
Competition restrictions: Assess whether the collaboration restricts competition, especially concerning critical competitive parameters like prices, costs, or profit margins. Check whether the collaboration can benefit from the concept of indispensable cooperation in working groups, i.e., whether the collaboration allows the parties to participate in projects that they would not be able to undertake individually. In case the collaboration concerns setting standards, antitrust law is more relaxed.
Exemption possibilities: Determine if the collaboration can be exempted from the ban on anti-competitive agreements under competition law, possibly under provisions that allow for cooperation promoting efficiency, consumer benefits, or sustainability.
Be mindful of the differences at national level: Assess whether the cooperation could benefit from a national exemption (eg, out-of-market efficiency defense). Check if your sustainability cooperation goes beyond one Member State. If so, it cannot rely solely on the national legal framework, but must also take into account the EU Guidelines.

Early consultation with antitrust counsel: Engage antitrust counsel from the outset to evaluate potential legal risks and provide guidance on structuring the ESG collaboration to comply with applicable antitrust laws.

Document pro-competitive rationales: Clearly document the anticipated pro-competitive benefits of the collaboration. This documentation should emphasize how consumers will benefit and outline the positive impacts on sustainability and other ESG goals.

Establish information exchange guidelines: Implement robust guidelines and protocols to govern information exchange among collaborating parties. It is essential to prevent sharing competitively sensitive information that could lead to anti-competitive collusion or even its perception.

Update compliance systems: Ensure that your company’s antitrust compliance systems are updated to incorporate considerations related to ESG collaborations. This includes training employees and management to recognize and address potential antitrust issues in the context of ESG initiatives.

Monitoring and adjustment: Continuously monitor the collaboration to ensure that it remains aligned with its stated ESG objectives and complies with evolving antitrust law requirements. Be prepared to adjust strategies or operations as needed to mitigate risks and enhance effectiveness.

Way more guidance, but still too much leeway

It is obvious that more or less isolated national approaches risk legal fragmentation and contradict the goal of a European single market. Thus, creating a cohesive and comprehensive EU-wide framework is crucial to foster sustainable cooperations and ensure that antitrust laws do not impede progress toward sustainability goals. It is difficult for companies that the US currently do not envisage any kind of ESG exception. Therefore, at least legal certainty across all EU member states will be pivotal in encouraging companies to engage in ESG alliances without risking regulatory discrepancies. Until then, “more ESG in antitrust”, and hence more ESG in general, will depend heavily on the initiatives of individual companies and their willingness to test the flexibility, willingness and boundaries of our competition authorities.