In recent years, the intersection of competition law and sustainability has become a focal point for competition authorities and thus for legal professionals and businesses alike all around the world. Mexico is no exception.
In Mexico, the concept of sustainability tends to include environmental protection, social equity, and economic development but the uses of the concept also tend to be erratic. Sustainability goals are often aligned with international commitments such as the United Nations Sustainable Development Goals (SDGs) and others but have their particularities depending on the context of discussion.
As global awareness of environmental, social and governance issues grows, companies are increasingly seeking ways to integrate sustainable practices into their operations. Even when consumers in the country are still not aware of the issues, the trend is currently driven by companies and organizations. In Mexico, this trend is particularly significant given the country's unique social, economic and environmental challenges but in some respects, competition regulation could be considered as an obstacle or a risk for sustainability projects. Of course, competition authorities do not want to be perceived as obstacles to these very important social objectives, and new trends are emerging where competition agencies try to complement or even try to promote sustainability objectives.
The legal risks with some sustainability initiatives are varied and complex. Ranging from the risk of incurring in some reportable joint ventures or standard setting to the risk of incurring in criminal activity for price fixing, the issue is becoming more and more relevant in the country.
This article aims to provide a brief analysis of how competition law in Mexico interacts with sustainability initiatives, mainly environmental sustainability and focus on green agreements, including the analysis of the main risks, and will try to offer specific insights for lawyers and in-house counsel in how to deal with new initiatives.
On the competition side, the primary legislation governing competition in Mexico is the Federal Economic Competition Law (Ley Federal de Competencia Economica or LFCE), enforced to date by the Federal Economic Competition Commission (Comisión Federal de Competencia Economica, COFECE). The LFCE strictly aims to promote free market competition, prevent monopolistic practices, and ensure consumer welfare. There are no other mandates for COFECE.
On the environmental side, Mexico's environmental regulations are primarily governed by the General Law of Ecological Balance and Environmental Protection (Ley General del Equilibrio Ecológico y la Protección al Ambiente, LGEEPA). This law sets the framework for sustainable development, environmental protection, and the use of natural resources. Of course, many other laws and regulations apply to environmental and sustainable development but will not be referred to in this work for lack of space and relevance.
In Mexico, there are other sustainability Incentives for sustainable practices, such as some subsidies for renewable energies, regulations for electric cars, real estate regulations, etc, that can impact competition.
We can identify various points of contact where the intersection becomes relevant, and we can classify them in the following categories:
One of the key areas where competition law and sustainability intersect is through "green agreements." These are collaborations between companies aimed at achieving environmental goals, such as reducing carbon emissions or promoting recycling. While such agreements can lead to significant environmental benefits, they may also raise competition concerns, particularly if they involve price-fixing, market allocation, or other anti-competitive practices. Mexico has a especially strict regulation of exchanges of information, so the risk is higher than in most other countries.
There is discussion about the important risk of greenwashing where companies falsely advertise their products as environmentally friendly. In Mexico, many schemes of greenwashing have been discovered by the press, consumers or regulators. This can mislead consumers and also distort competition. COFECE can play a role in monitoring and addressing such practices and coordinating with other consumer protection regulators, help in preventing or sanctioning this problematic behavior.
COFECE has analyzed very few cases that touch on the relationship between competition and sustainability. Some of the most interesting are:
Investigation in the Electricity Market: COFECE has investigated anticompetitive practices in the electricity market, which includes the generation of energy from renewable sources. Promoting competition in this sector can facilitate the adoption of cleaner and more sustainable technologies.
This investigation has prevented practices that affect innovation and new technologies and could be considered as indirectly promoting new technologies.
Investigation in the Transport Market: COFECE has conducted investigations in the transport sector, including public and private transport. Competition in this sector can incentivize the adoption of more efficient and less polluting technologies. In the investigation, COFECE analyzed, among others, issues related to old versus new technologies and the impact on sustainability as an effect on consumers.
Investigations in the Agricultural Inputs Market: COFECE has investigated anticompetitive practices in the market for agricultural inputs, such as fertilizers and seeds. Competition in this sector can promote more sustainable agricultural practices and COFECE has identified the issue when analyzing the lack of innovation in specific markets. In an investigation on barley, COFECE identified that companies had not invested in more sustainable processes due to the lack of competition and beer companies agreed and remedied the situation in their supply chain, for example.
Investigations into the Construction Materials Market: COFECE has investigated anticompetitive practices in the construction materials market. Competition in this sector can incentivize the use of more sustainable and efficient materials.
When reviewing mergers and acquisitions, COFECE may consider the sustainability impact of the transaction. For example, a merger that leads to greater efficiency and reduced environmental impact could be viewed favorably. It is an area of discussion to understand if the regulators can introduce such an analysis by expanding the concept of effects on competition and efficiencies as their mandate is very narrow.
Also, high market concentration can stifle innovation, including in sustainable technologies. COFECE must analyze this balance of scale with the need for markets that foster innovation.
COFECE has analyzed various mergers and acquisitions that have a sustainability component, especially in sectors such as renewable energy, waste management, agriculture, and construction. These transactions not only seek to strengthen the companies' market positions but also promote more sustainable and environmentally responsible practices.
Some examples are in the energy sector and renewable energies with the acquisition of Zuma Energía by Actis: Zuma Energía is a Mexican company dedicated to the generation of renewable energy. Actis, an investment fund, acquired Zuma Energía with the aim of expanding its clean energy portfolio in Mexico. Other example in this sector is the merger of Enel Green Power and EF Solare Italia: Enel Green Power, a company dedicated to the generation of renewable energy, merged with EF Solare Italia to strengthen its presence in the renewable energy market in Mexico.
In the waste management and recycling Sector the acquisition of Veolia Mexico by Grupo Rotoplas is an example of assessment of new possibilities to enhance capabilities in sustainable water resource and waste management as the basis for the analysis.
In the agriculture sector, the merger of Bayer and Monsanto, well known for its implications in the agricultural sector, also has a sustainability component. Bayer emphasized to COFECE its commitment to more sustainable agricultural practices and reducing the environmental impact of its operations as an argument for the merger, for example.
Ensuring that consumers have accurate information about the sustainability of products is crucial. COFECE can work with other regulatory bodies to enforce transparency and prevent deceptive practices. Knowledge of specific markets can help understand better the issues at hand for consumers and help other regulators to enforce their own laws.
Promoting competition can lead to more sustainable choices for consumers, as companies innovate to meet the demand for environmentally friendly products.
COFECE has recognized the importance of sustainability and has issued guidelines to ensure that environmental initiatives do not infringe upon competition laws. The commission supports collaborations that promote sustainability, provided they do not restrict competition or harm consumer welfare. For instance, COFECE may allow “green agreements” or joint ventures for research and development of green technologies, if they do not lead to anti-competitive behavior.
As there have not been many real-life cases for COFECE to analyze or for the agency to send clear messages on this matter, the agency has decided to use more of its advocacy tools to take a position. COFECE has organized seminars and public forums to openly discuss issues of sustainability and competition. Its most recent publication is the public presentation named "Green Competition Strategy" published on September 25, 2024.
The document expressly recognizes the need for a more profound dialogue between society and COFECE on the matter to transition to a new phase of competition policy that addresses the challenges and opportunities of the current social and economic context.
In this document, COFECE has identified future actions that will become part of new policy positions, namely: 1. preparing a report addressing the relationship between competition and sustainability from both the supply and demand perspectives, examining how the sustainability approach affects market structures, entry barriers, and the behavior of economic agents. 2. promote international cooperation with countries that have analyzed the intersection between sustainability and competition. 3. Organize forums for various sectors of society and sign collaboration agreements with environmental authorities at different levels of the public administration. 4. Analyze the possible incorporation of sustainable considerations in its actions as a competition authority, whether in the development of guidelines and market studies in specific sectors or in the functioning of the institution itself.
COFECE's definition of this strategy constitutes a significant milestone for COFECE in aligning with an important international trend through its advocacy tools.
The intersection of competition law and sustainability in Mexico presents both challenges and opportunities for legal professionals and their clients. Ultimately, the goal is to promote sustainable business practices while ensuring a competitive market that benefits consumers and the environment alike, but the challenge of aligning policies is clear.
With a new president in both Mexico and the United States and a new competition agency in Mexico which still is unclear, the issue of the relation between sustainability and competition may become less relevant in the short term from an agency perspective but could also be relevant in the context of stricter environmental regulations on the long run. The risk could become more important.
The idea of creating dialogue and understanding between actors of both policy initiatives is very relevant. COFECE´s actions on that front will be key if they continue. Cross sectoral engagement and stakeholder engagement becomes more relevant every day. This includes the effort to promote international dialogue and cooperation, even beyond traditional competition fora such as ICN or OECD. The International Chamber of Commerce already has a devoted group working on the issues that can certainly benefit an expansion of its work which needs to participate more in dialogues at national and local levels.
A second stage of determining if sustainability can become part of the competition policy frameworks is interesting to explore, although I worry of an ever expansion of competition policy goals and the deviation of the agencies in their consumer welfare standards.
