In short, the PCA’s Guide lacks certainty and depth in the analysis of sustainability agreements. It is notable that despite the limited amendments made to the final version of the Guide, several recommendations put forth by the various participating stakeholders during the public consultation process were ultimately disregarded.
Notwithstanding the criticisms that can be levelled at the Guide, and which are detailed here, the PCA’s initiative is to be commended, first and foremost, because of the immediate necessity of a framework that can, at least, provide some guidance for companies aiming to engage in pursuing sustainability purposes. Furthermore, the PCA had the opportunity to clarify in the Report on the Public Consultation that its intention is not to discourage sustainability agreements. Rather, it recognizes that, at an early stage, significant investment is required in the production and subsequent marketing of a sustainable product in order to ensure that consumers are aware of the quality of the new product. This acknowledgement, while not eliminating all potential concerns, is crucial for establishing a fundamental foundation.
It is important to recognize that competition law cannot prohibit any and all agreements that restrict competition. The pursuit of a sustainability objective, particularly at an early stage when there may not yet be sufficient “consumer willingness to pay” and when companies may lack the necessary incentives to innovate independently, may require a collaborative approach. It is not within the purview of competition law to impede the realization of sustainability objectives.
In light of this, this article will analyze the PCA’s approach to sustainability agreements put forward in its recently adopted Guide. As such, it will commence with a concise examination of the European Union’s approach to sustainability agreements, followed by an analysis of the Portuguese Guide and some of its shortcomings. For that purpose, the main criticisms, and suggestions of the participating stakeholders in the public consultation will be analyzed and reflected upon. Finally, it will be argued how the identified shortcomings may be addressed or mitigated through a dialogical approach to enforcement by the PCA.
2. Competition Law and Sustainability in a European Union with Uncertain (Green) Agendas
While the relationship between competition law and sustainability (in particular, environmental sustainability) has been a topic of discussion for some time, the advent of ESG (Environmental, Social and Governance) considerations in corporate practice and discourse, alongside the growing perception of sustainability as a core value, driver of demand and competitive advantage, or as a principle that transcends national and European actions and policies, has inevitably prompted a reexamination of the fundamental principles underpinning competition law.
It is well established that competition rules prohibit agreements and concerted practices that restrict competition. Such practices may have a negative impact on parameters such as price, quantity, quality, or innovation. Nevertheless, it is not within the purview of competition law to impose sanctions on every agreement, commitment, or limitation of contractual freedom. Consequently, sustainability agreements pertaining to internal social responsibility factors (such as the reduction of printing or lighting hours) or aimed at ensuring compliance with binding human rights standards will not be subject to the jurisdiction of competition rules. There is no conflict.
The framework becomes more complex when the pursuit of sustainability objectives is (potentially) associated with some restriction of competition or when it could have a negative impact on consumers in the relevant market for the product or service. To illustrate this, the pursuit of a goal of reducing the fat or sugar levels of a given product may entail limiting production. Furthermore, adherence to food welfare standards may result in a reduction in supply, thereby limiting consumer choice. Additionally, the implementation of more sustainable processes may result in an increase in final prices.
It is precisely in scenarios where competition can or is even restricted, and where its potential scope of application is triggered, that the debate over its role in the pursuit of the SDGs becomes more urgent.
Two opposing viewpoints tend to be espoused in this regard.
The first perspective posits that strict competition enforcement is the “way forward to promote welfare”. In essence, rivalry is regarded as a pivotal driver of higher levels of sustainability, with competition serving as a catalyst for sustainable development in its capacity as a regulatory mechanism for agreements and concerted practices among corporations. It is argued that competition should play a role in inhibiting cooperation, thereby ensuring the potential for sustainability. In this sense, it would not be within the purview of competition policy to relax the framework for agreements that restrict competition, or even to adopt a more permissive stance in this regard. Conversely, individual action would represent the optimal approach towards sustainability objectives. This interpretation of competition objectives and policy is characterized by a conservative, traditional, economistic, and potentially reductive or restrictive approach.
In contrast, a second interpretation gives competition rules and authorities a more active and broader role in the pursuit of sustainability objectives, albeit with varying degrees of intensity or following different paths. This alternative reading considers that the current competition law rules offer possibilities for due consideration of sustainability concerns. This is because competition is read in light of its fundamental principles, which may entail interpreting its rules in accordance with other objectives, resolving conflict scenarios, and striving to facilitate regulatory convergence. Under this reading, legal scholarship recognizes that cooperation between companies may be a necessary (or even indispensable) means of addressing negative externalities and responding to market failures. Furthermore, it may serve to bridge the gaps in public policies and regulatory frameworks, and to complement the shortcomings of individualism.
The aforementioned duality of positions represents not merely a doctrinal delight, but also a divergence of perspectives among national competition authorities. These authorities have adopted varying approaches to sustainability agreements, exhibiting a spectrum of attitudes, from more progressive to more conservative or skeptical.
Despite the advantages of discussion and dissent, which precisely make it possible to reach a more democratic result, the current status quo is one of undeniable uncertainty for companies and, by extension, for the future of sustainability.
The contemporary business environment presents companies with a series of contradictory messages. On the one hand, companies are required to demonstrate that they are sustainable, thereby making sustainability the primary objective of their mission and the defining feature of their offering. On the other hand, they are precluding from invoking sustainability as a justification for any sustainability-related decision that would otherwise be deemed unacceptable on the grounds of its adverse impact on economic efficiency or the consumer in the relevant market.
This uncertainty is particularly prevalent in the context of competition law, where the responsibility for assessing the legitimacy of agreements and practices lies with the companies themselves.
2.1. The European Commission’s Perspective: Guidelines on Horizontal Cooperation Agreements
The European Commission sought to participate in this discussion through the adoption of specific Guidelines. These Guidelines can be attributed to a number of different factors and developments. On the one hand, the Commission is aware of the pioneering action of some national competition authorities in this area and is therefore keen to avoid being left behind. Furthermore, it seeks to prevent fragmentation by trying to harmonize the level playing field of enforcement across the Member States. On the other hand, the Commission is conscious of its own pledge to facilitate the green transition as set out in the European Green Deal.
The concept of sustainable development as one of the EU’s objectives and the standard of a high level of environmental protection are referenced in several articles of the Treaty on the European Union (‘TEU’), including Articles 3(3), 3(5), and 21(2)(f), as well as in Article 11 of the Treaty on the Functioning of the European Union (‘TFEU’).
Furthermore, sustainability constitutes a priority objective of the Union’s general policies in particular in the light of the SDGs. In accordance with this commitment, the European Green Deal sets out a growth strategy to transform the Union into a fairer and more prosperous society, with a modern, resource-efficient, and competitive economy. This strategy aims to achieve net emissions of greenhouse gases from 2050 onwards and to decouple economic growth from resource use. In this regard, it is also incumbent upon the Commission to anticipate the emergence of questions and doubts surrounding sustainability agreements and to be at the vanguard of developments in this area.
Irrespective of the motivation, it is evident that the Commission has endeavored to facilitate progress, as proven by the adoption of Guidelines on sustainability agreements. Without detracting from the work that preceded it, 2023 can be described as the year of the Sustainability Guidelines in the European Union. Firstly, the Commission’s new Horizontal Guidelines, published on 1 June 2023, include a ninth chapter dedicated to sustainability agreements alone, with a particular focus on sustainability standardization agreements. Subsequently, on 7 December 2023, Guidelines on sustainability agreements of agricultural producers were adopted with the specific aim of elucidating the conditions for applying Article 210a of Regulation (EU) No 1308/2013 of the European Parliament and of the Council establishing a common organization of the markets in agricultural products (‘CMO Regulation’).
As it might have been anticipated, the Guidelines in question are of a disparate nature, encompassing a distinct scope and, consequently, a varying degree of detail. In the first case (Horizontal Guidelines), no exclusion is applicable to sustainability agreements. The situation is characterized by a greater degree of uncertainty and a paucity of illustrative examples. In contrast, the Guidelines for sustainability agreements in agriculture, due to their stricter personal and material scope, are more developed, including references to a system of opinions that allows producers and producer associations to request an assessment from the Commission regarding the compatibility of their sustainability agreements with Article 210a of the CMO Regulation.
In light of the comprehensive nature of the Horizontal Guidelines and the Portuguese Guide, it is beneficial to delineate the fundamental principles that define the recently introduced chapter on sustainability agreements. In terms of structure, the ninth chapter of the Commission’s Horizontal Guidelines is divided into six sections. These comprise (i) an introduction, (ii) a list of sustainability agreements that are unlikely to give rise to competition concerns, (iii) the principles for the assessment of sustainability agreements under Article 101(1) TFEU, including the conditions of a soft safe harbor applicable to sustainability standards, and (iv) the assessment of a sustainability agreement restrictive of competition under Article 101(3) TFEU and its four conditions (efficiency gains, indispensability, pass-on to consumers and no elimination of competition). The chapter concludes with a discussion of the involvement of public authorities and a selection of illustrative examples.
The European Commission begins by acknowledging that there are instances where sustainability agreements are not inherently concerning from a competitive standpoint. Sustainability agreements are not deemed to restrict competition, either (i) when they are designed to ensure compliance with and respect for legally binding national or international regulatory frameworks on sustainability and human rights; (ii) when they pertain to internal business conduct; (iii) when they are intended to guarantee transparency of the value chain without affecting the freedom of action of the parties (for example, the creation of a database containing information on operators with sustainable behaviors and practices); or (iv) when they are aimed at organizing awareness campaigns (distinct from a joint advertising scenario).
The simplicity of the list contrasts with the considerable diversity of contexts in which it is applied. Indeed, while all the scenarios in their purest form do not give rise to doubt, it is possible to envisage sub-hypotheses in which the absence of a restriction on competition is no longer evident. One illustrative example is the agreement to create a database containing information on sustainable companies. While such information may be pooled, it cannot, for the purposes of this safe harbor, be associated with a prohibition or obligation for the parties to source or purchase from operator x or y, depending on their adherence to sustainability standards.
Having established that none of the pure scenarios of non-application of competition law rules applies, it is then necessary to refer to the dialogue between paragraphs 1 and 3 of Article 101 TFEU. Paragraph 1 prohibits agreements and practices that restrict competition by object (more serious) or by effect (lacking substantial proof of inherent harmfulness). Paragraph 3, in turn, contains the famous economic balance test, which allows certain agreements restricting competition to be justified in light of their (i) efficiency gains, (ii) indispensability, (iii) positive impact on consumers and (iv) non-elimination of competition.
The pursuit of sustainability objectives is pertinent at both levels. Firstly, it will justify a retreat from the application of Article 101 TFEU in favor of pursuing an overriding public interest. Secondly, it will frame the distinction between restriction by object and restriction by effect(s), thereby softening the harmfulness associated with the restriction. Such a softening, however, must be applied to the specific case in question, as the Commission rightly notes, given that restrictions on competition by object can also be found in sustainability agreements.
The analysis becomes particularly problematic at the second level, namely the justification of a sustainability agreement that restricts competition, under Article 101(3) TFEU. It is evident that certain assumptions are irrefutable. Examples include the assertion that sustainability agreements can contribute to a very wide range of objective efficiency gains; the proposition that efficiency and speed in achieving the Sustainable Development Goals may make it possible to qualify a particular agreement as “indispensable”; and the hypothesis that consumers may perceive the impact of their choices (more or less sustainable) on other citizens. Furthermore, it is important to consider the potential for collective benefits to be enjoyed by consumers in the relevant market, even if they are affected by an increase in prices or a reduction in supply.
Nevertheless, there are reservations and concerns regarding the manner in which the Commission’s Guidelines delineate the various requirements of Article 101(3) TFEU, which are essential for the justification of an agreement, and which may be perceived as being inimical to legal certainty.
Firstly, the Commission stipulates that the efficiency gains must be objective, concrete and verifiable. This places the burden of proof on the parties to demonstrate a certainty or truth that, with regard to sustainability objectives, may not be within their reach. Given the associated costs of the endeavor, such an approach carries the risk of discouraging any attempt at measurement. Furthermore, there is the question of whether intergenerational justice can even be quantified.
Secondly, the Guidelines stipulate that, irrespective of the circumstances, consumers in the relevant market should be entitled to a fair share of the benefits accruing from the agreement. The limiting WTP (‘willingness to pay’) test then becomes relevant. It implies that collective benefits (i.e. those that are experienced outside the relevant market, in the interest of society at large) will only be considered if there is a significant overlap with consumers in the relevant market and if they are adequately compensated for the harm incurred. Furthermore, the overlap and compensation must be demonstrated by the parties in question. It is possible that both conditions may become highly restrictive and problematic.
It would be inaccurate to suggest that the Guidelines are entirely without merit. While it could be argued that the Guidelines’ cautious stance may result in a continuation of the current state of uncertainty, they are to be welcomed with an open and receptive attitude as a significant step in acknowledging the distinct nature of sustainability agreements.
First and foremost, the non-binding safeguard for standardization agreements pertaining to sustainability is delineated in relatively clear terms. It is believed that this soft safe harbor will undoubtedly facilitate the dissemination of labels or brands associated with compliance with minimum sustainability requirements, thus contributing to the creation of new products or markets for sustainable products, empowering consumers to make informed (and sustainable) purchasing decisions, and promoting a level playing field between producers subject to different regulatory requirements.
Continuing with a more positive vein, it should also be noted that although an opinion system akin to that outlined in Article 210a(6) of the CMO Regulation is not included in the Horizontal Guidelines, this does not preclude companies from seeking the Commission’s input in the event of uncertainty. Indeed, the Commission may provide informal guidance through a guidance letter in accordance with its Notice on informal guidance. The procedure applies to novel or unresolved questions, meaning, those where the substantive assessment of an agreement poses a question of the application of the law, where there is insufficient clarity in the existing Union legal framework, as well as a lack of sufficient publicly available general guidance at Union level in decision-making practice or previous guidance letters. It is therefore within the Commission’s prerogative to deliver such guidance, provided that it would offer added value with respect to legal certainty. An open-door policy by the European Commission will be key to “provide the answers to all the questions that businesses and others will have on what they can, and cannot, do in this area.” We concur with Simon Holmes, emphasizing the necessity of “practical cooperation between the private sector and the Commission to define and develop what the guidelines mean in practice. This will improve both legal certainty for businesses and help the Commission develop its decisional practice.”
The comprehension of the Commission’s Guidelines and their inherent limitations is crucial for an understanding of the content of the Portuguese Guide. As will be shown, the Portuguese Guide relies heavily on the Commission’s Guidelines and therefore suffers from the same and even more serious shortcomings.
3. The Portuguese Competition Authority’s Best Practices Guide on Sustainability Agreements
The Portuguese Best Practices Guide on Sustainability Agreements was designed by the PCA to provide companies with information regarding the exemptions, safeguards, and compatibilities afforded by competition rules (both existing and as they have been interpreted) for agreements between competing companies seeking to achieve economic, social, or environmental sustainability objectives. According to the PCA, the Guide, which must be understood in the context of the PCA’s advocacy mission, is designed to ensure that competition and sustainability are reconciled. According to legal scholarship, “[i]t is undeniable that there is a tension between European competition law and sustainability-focused agreements between undertakings. Whether it should, and how it could, be resolved is less clear.”
In accordance with the criticisms that can also be directed at the European Commission, the PCA’s Guide is constrained to initiatives and agreements between competing companies and does not delineate the framework and position of the PCA with regard to vertical agreements. This is a cause for concern, given the significance of the value chain in the context of sustainability, and thus the anticipated proliferation of issues pertaining to this category of agreements.
Additionally, the Guide does not address the conduct of business associations (or associations of undertakings), despite their presumed inclusion within the scope of horizontal agreements. In light of the pivotal role of sectoral associations, particularly in the context of mounting regulatory uncertainty and heightened scrutiny, it would be invaluable to delve deeper into the regulatory framework governing the decisions of business associations in the realm of sustainability requirements.
In its Report on the Public Consultation, the PCA justifies this delimitation of the Guide on the grounds of the greater importance and degree of harmfulness of horizontal agreements, as well as the confusion and complexity potentially generated by the introduction of vertical agreements. According to the PCA, vertical agreements should be evaluated in accordance with the European Commission’s overarching Guidelines. This response is not satisfactory. Regrettably, the PCA has failed to seize the opportunity to enhance the existing legal framework and genuinely contribute to the legal certainty inherent in its mandate.
In terms of form, the PCA has elected to present its findings and approach to sustainability agreements in the format of a Best Practices Guide, rather than Guidelines. Through the use of a Guide, the PCA demonstrates its specific position on sustainability agreements and a reluctance to introduce novel elements to the existing legal framework that governs horizontal agreements in general. In particular, the PCA does not propose the introduction of an open-door policy, nor does it suggest amending national competition law to provide a legal basis for a specific form of regulatory dialogue. It is also important to note that the PCA does not offer any concrete examples to substantiate its claims, relying instead on examples drawn from existing decision-making practice. In short, the Guide appears to be a synthesis of the recommended practices that, in the context of existing instruments, or perhaps more accurately, in the context of the PCA’s restrictive interpretation of competition rules, companies should consider.
While the Guide is not structured into formal chapters, five main divisions are readily discernible. In an introductory section, the PCA provides a brief overview of the relationship between competition and sustainability, delineating the scope of the Guide and the sustainability objectives covered. In a second division, it presents a self-assessment scheme comprising a set of screening questions that companies should take into account. These questions include references to exclusions, safe harbors, and potentially applicable exemptions. Subsequently, the PCA elucidates the implications of the involvement of public authorities in the conclusion of sustainability agreements and finishes the section with a checklist of considerations to be considered by companies when designing and implementing a sustainability agreement. A fourth section is devoted to public procurement. The Guide concludes with a summary of the consequences of non-compliance with competition law rules, as well as a reference to the possibility of filing complaints and requests for leniency.
In consideration of the public consultation process, during which a number of comments were proffered regarding the draft Guide, it is necessary to provide a concise overview of these comments before undertaking an in-depth examination of the Guide’s particulars.
3.1. From Draft to Final: an Overview of the Public Consultation Behind the PCA’s Best Practices Guide
The PCA’s Guide, which was submitted for public consultation, received 12 contributions from a wide range of stakeholders. These included the Office of the Secretary of State for Economic Affairs, the Portuguese Development Bank (Banco de Fomento), four business associations, three law firms, two consumer associations and an economic consultancy. The response to the public consultation reflects stakeholders’ commitment to sustainability and their call for enhanced legal certainty and security. A successful green transition requires the establishment of a well-defined framework that provides companies with clear guidance on how to integrate sustainability into their business models.
The public consultation brought together various criticisms, reflections, and suggestions. The majority of respondents highlighted three key recommendations: (i) the need for an “open-door” policy of the PCA; (ii) the need for greater clarity and detailed explanation of relevant legal concepts, including through more examples; and (iii) the adoption of a clear methodology for the substantive legal analysis of sustainability agreements. Stakeholders also identified areas where the Guide lack guidance, in particular with regard to associations of undertakings and vertical agreements.
First, the overwhelming majority of stakeholders responding to the public consultation stressed the need for the PCA to adopt an “open-door” policy to help companies navigate sustainability initiatives with competitors. Such a policy would address the uncertainties surrounding the analysis of sustainability agreements by allowing companies to request informal guidance and to submit questions and substantiated concerns to the PCA. The PCA would provide a case-by-case assessment of potential anti-competitive risk, which would then be useful to other companies in the process of self-assessing their sustainability agreements. This recommendation is in line with the practices already implemented in other jurisdictions, namely Greece, the United Kingdom, and the Netherlands, as well with the European Commission’s approach to sustainability agreements of agricultural producers in light of the powers established by the recently revised OCM Regulation.
Stakeholders expressed different perspectives on the scope of the PCA’s powers and competence to review or assess sustainability agreements under the “open-door” policy, though. BCSD Portugal stressed that this mechanism should not replace the responsibility of companies to self-assess the compatibility of an agreement with competition law. GRACE suggested that the PCA’s review should be reserved for particularly complex agreements. Similarly, ICC Portugal suggested that the PCA establish a specific contact point within its services and ensure that the review process is streamlined, requiring only essential information from companies. In addition, ICC Portugal recommended that the PCA prioritize assessments, publish results in an accessible manner, and protect commercially sensitive information. The Morais Leitão law firm recommended that the “open-door” policy include safeguards against penalties for companies that seek the PCA’s guidance and act in good faith based on its advice. It also advocated for the publication of the PCA assessments, while ensuring the confidentiality of sensitive business information. Ultimately, these reflections highlight the need for a well-structured, transparent and supportive framework to facilitate and promote the continuous improvement of sustainable practices through the establishment of sustainability agreements that are compatible with competition law.
Secondly, stakeholders identified the need for greater clarity in the Guide, as the language used was considered to be overly complex and inaccessible, which posed a significant barrier, in particular for certain sectors (such as agriculture and industry) and small and medium-sized enterprises (‘SMEs’). This recommendation covered three main areas for improvement: (i) adopting more positive language, (ii) simplifying technical terminology and (iii) providing additional illustrative examples.
Firstly, stakeholders underscored the importance of framing sustainability agreements in a more encouraging and optimistic tone. ICC Portugal highlighted that explicitly recognizing the benefits to the wider community of companies’ involvement in sustainability initiatives could motivate businesses and reduce apprehension about entering into such agreements. Similarly, Morais Leitão and Telles law firms suggested that collaboration and multilateral initiatives to achieve sustainability goals should not be framed in negative or skeptical terms. In this context, they also criticized the inclusion of references to the whistleblowing channel at the end of the Guide, arguing that this was counterproductive and discouraged engagement in sustainability efforts, which is the very purpose of the Guide.
Many stakeholders noted that the Guide uses too much legal and technical language, limiting its accessibility and usefulness to companies and their employees. They argued that the complexity of the language, or rather the lack of simplification of the terminology used, made the document difficult for non-experts to understand, thereby limiting its potential reach and impact on the target companies. To address this issue, DECO proposed the inclusion of a glossary to clarify technical terms and improve the Guide’s accessibility to businesses of different sizes. In addition, the Office of the Secretary of State for Economic Affairs requested clarification of certain terms such as “significant price increase” and suggested that metrics or criteria should be provided to define such terms. It also recommended clearer definitions of key concepts such as the delimitation of markets affected by sustainability standards. Other stakeholders, including ICC Portugal and Cruz Vilaça law firm, highlighted additional legal concepts requiring clarification, such as “horizontal agreements”, “concerted practices”, “relevant markets”, or “indispensability”.
Finally, stakeholders also emphasized the need for more practical examples to enhance clarity and to educate companies and their employees. In particular, while the Guide provides examples, they lack sufficient variety and depth and most of them are copies of the examples provided by the European Commission in its Horizontal Guidelines. In this respect, ICC Portugal and AASO suggested the inclusion of examples from decisions of other national competition authorities, accompanied by brief explanations of the reasoning behind their assessments. This would provide businesses with a broader understanding of the practical application of the provisions of the Guide.
Stakeholders also requested examples of agreements that are unlikely to be considered anti-competitive, as well as examples relating to Research and Development (R&D) and specialization agreements, which are exempted under the Block Exemption Regulations. In this context, the Morais Leitão law firm, together with the Office of the Secretary of State for Economic Affairs, highlighted the need for additional examples in these areas. Furthermore, the Office of the Secretary of State for Economic Affairs recommended the inclusion of examples of agreements that (i) fall outside the scope of competition law, (ii) qualify for exemptions, (iii) are safeguarded from the application of competition rules, and (iv) are compatible with competition law, as well as the inclusion of further examples of standardization agreements that benefit from the soft safe harbor and are therefore exempt from being considered as restrictive of competition. By addressing these recommendations, the Guide could become a more practical, comprehensive, and effective resource for companies of all sizes and sectors.
Finally, stakeholders made a number of recommendations to address substantive legal challenges in the assessment of sustainability agreements and the conditions under which they may qualify for exemption from the prohibition of entering into restrictive agreements between competitors.
The law firms Cruz Vilaça and Morais Leitão criticized the Guide for adopting an overly simplistic methodology, noting that the complexity of sustainability agreements is incompatible with a document structured in bullet points and checklists. They emphasized that the Guide fails to clarify the PCA’s position or policy on these agreements, or to adapt the legal framework to the specific challenges posed by sustainability initiatives. Morais Leitão further argued that the methodology does not address many practical issues that arise in business contexts and are not sufficiently covered by the European Commission’s Horizontal Guidelines on Cooperation Agreements.
Ius Omnibus, for its part, proposed the inclusion of two specific sub-categories of sustainability agreements, namely: (i) agreements aimed at mitigating or eliminating climate change and (ii) “mixed agreements”. These sub-categories would help to raise awareness among companies on the distinct economic challenges posed by climate change and inadequate environmental protection, and to promote the elimination of negative externalities.
With regard to the valuation of collective benefits, ICC Portugal recommended that the PCA adopt a less conservative approach than the European Commission when assessing the economic balance of sustainability agreements. This would involve giving greater weight to collective benefits that extend beyond the immediate market or markets directly affected by the agreement. Similarly, the Morais Leitão law firm pointed out that the Guide does not clarify critical aspects of efficiency gains, such as their scope, the type of evidence required to demonstrate them, the definition of indispensability for the agreement, or how to assess the impact of efficiency gains on consumers. For its part, Frontier Economics suggested that the Guide should outline methodologies for quantifying efficiencies and clarify the relationship between consumers and citizens who are not directly involved in the relevant market of the agreement, as this affects the analysis of collective benefits to be taken into account in the legal competition analysis of such agreements. It also suggested that the PCA should provide more precise guidance on the scope of collective benefits that it will take into account in its assessments.
With regard to the scope of the Guide, stakeholders identified a lack of guidance on the role of business associations and vertical agreements, as well as a lack of guidance on specific sectors that are particularly exposed to sustainability risks. Firstly, stakeholders highlighted the significant impact that associations of undertakings can have in promoting sustainability objectives through initiatives such as codes of conduct, ethical guidelines, and by pooling sustainability initiatives of their members. In addition, associations of undertakings can have a major impact on their members through awareness-raising and/or training activities for entrepreneurs, workers or public contractors. In this respect, it is essential that the Guide includes examples and guidelines for initiatives developed by associations of undertakings to promote sustainability objectives. Secondly, it was also pointed out that the Guide does not cover vertical agreements, despite the growing importance of collaboration between business partners across the value chain (which has become a legal obligation under the recently adopted Directive on Corporate Sustainability Due Diligence). In this context, there were calls for the inclusion of guidance on vertical agreements and their role in sustainability initiatives, in particular in view of the increasing cooperation between direct and indirect business partners and the related due diligence obligations, which require a comprehensive competition law response, which the Guide does not provide. Finally, some stakeholders, namely the Secretary of State for Economic Affairs, DECO and the Telles law firm, highlighted the importance of addressing specific sectors – such as industry and energy, agriculture, textiles, and sustainable mobility – which are particularly prone to collaboration in order to achieve sustainability goals. It was argued that the Guide should provide more detailed analysis and examples tailored to these sectors.
Lastly, the Secretary of State for Economic Affairs emphasized the need for the Guide to contextualize Portugal’s approach to the European Commission’s new Horizontal Guidelines. It called for an understanding of how flexible the PCA’s position is compared to other EU Member States, particularly those with a more favorable stance on sustainability-focused competition policy. Accordingly, the Morais Leitão law firm proposed the inclusion of a final chapter dedicated to the PCA’s role in promoting sustainable competition, going beyond the European Commission’s Horizontal Guidelines.
Overall, stakeholders argued for a more nuanced and comprehensive approach, addressing methodological shortcomings, clarifying key legal and economic concepts and providing more detailed guidance on associations of undertakings, vertical agreements and sector-specific considerations. A strong alignment with international best practice is necessary, especially in view of the fact that mechanisms already exist, such as the open-door policy, which is of paramount importance and essential to ensure compliance with competition law while striving for sustainable practices.
In the light of the contributions received during the public consultation period, the PCA has prepared a Report that addresses the criticisms and suggestions put forth by the various parties involved. This Report is analyzed in the following section.
3.2. Core Principles of the PCA’s Cautionary Approach: Practical and Legal Challenges
The PCA’s approach, as reflected in the Guide, evinces a markedly cautious, conservative, and somewhat skeptical disposition toward sustainability agreements. While the PCA’s openness to the positive valuation of sustainability agreements is to be commended, it is important to highlight certain shortcomings that, despite the public consultation process, have not been adequately addressed and have the potential to negatively impact legal certainty.
For the sake of clarity, the principal points of contention will be enumerated in the order in which they are presented in the Guide.
With regard to the relationship between competition and sustainability, the PCA relegates sustainability agreements and their legitimacy to a subsidiary or exceptional scenario, reserved for cases in which individual production and consumption decisions have negative effects that are not covered by regulation. The opaque manner in which the PCA addresses this matter renders it challenging to ascertain its stance in the context of contentious arguments, including those pertaining to free riding, the necessity for economies of scale and scope to achieve sustainability objectives, and the dearth of information for consumers in the relevant market.
As has been demonstrated, the structure of the Good Practices Guide incorporates a self-assessment scheme and a checklist, through which the PCA endeavors to assist companies in determining whether their agreement, whether planned or in practice, restricts competition in the market and, if so, in what manner.
In accordance with the stipulations of this scheme, the preliminary phase of the self-assessment entails an evaluation of whether the agreement falls within the purview of competition law rules, specifically insofar as it restricts any pertinent competitive parameter. In this regard, the Guide is limited in scope, confining itself to listing examples resulting from the European Commission’s Horizontal Guidelines. As a result, it is constrained by the same shortcomings. To illustrate this, in accordance with the European Commission’s Horizontal Guidelines, only those agreements which comply with binding requirements or prohibitions set forth in international law are deemed not to affect competition law. This raises the question of whether the same logic of exclusion should apply to compliance with binding impositions or prohibitions contained in European Union or national law. Furthermore, the permeable nature of international law, which is typically presented in the form of programmatic rules rather than as enforceable provisions, may present challenges in determining whether there is a binding requirement or prohibition, and to what extent or what the potential scope of a sustainability agreement aimed at such compliance may be. Since the imposition of appropriate measures, for instance in the context of due diligence requirements, is not unconditionally applied, but rather contingent upon an assessment of the circumstances of the specific case, there will undoubtedly be uncertainty as to what is or is not excluded and covered by the prohibition of restrictive agreements.
In the second stage of the assessment, which is focused on understanding the nature of the restriction in question, the Guide limits itself to providing an overview of the types of restrictions that may be encountered. It is notable that the Wouters case law is not referenced at any point in the analysis, despite its potential to shed light on the relationship between the pursuit of sustainability objectives and the classification of an anticompetitive restraint. Furthermore, the PCA does not elucidate the extent to which the pursuit of a sustainability objective is pertinent for excluding the category of “restriction by object”. Rather, it stresses that sustainability agreements cannot disguise a cartel.
In the absence of clarity on the specifics of the approach to be taken in classifying a sustainability agreement as restrictive of competition, by object of by effects, companies are uncertain as to how the PCA will respond, for instance, to an agreement to achieve a sustainability objective through the voluntary discontinuation of a less sustainable product (limiting production and supply) where there is no legal obligation to do so. Will the objective in question be regarded by the PCA as a quality dimension that must be considered alongside the restrictive potential?
The issue of ‘ancillary restraints’ also remains open to doubts. To give an example, in view of the fact that any collaboration will entail the exchange of potentially sensitive information at the initiative and implementation stages, it would be beneficial to gain insight into the extent to which the precautions adopted by the companies will be adequate to address the PCA’s concerns.
As anticipated, the PCA recalls in its Guide the existence of a set of exclusions, safeguards, and safe harbors potentially applicable to sustainability agreements (as, indeed, to any agreement that meets their criteria). In this context, the PCA makes reference to four specific types of safeguards: (i) the safe harbor applicable to de minimis agreements; (ii) the soft safe harbor introduced by the European Commission in its Horizontal Guidelines and relating to sustainability standardization agreements; (iii) the Block exemptions applicable to Research and Development (R&D) and Specialization agreements; and (iv) the exclusion under Article 210a of the CMO Regulation.
As is the case elsewhere in the Guide, the PCA merely recalls the assumptions for the application of the safeguards, without providing concrete examples or aligning them with the reality of sustainability agreements, as it was highlighted by the stakeholders as a necessary development in the Guide. For instance, the PCA does not delineate what should be considered a “significant increase in price” or a “significant reduction in quality”. Both of these are pertinent criteria for evaluating the applicability of the soft safe harbor pertaining to sustainability standardization agreements. The Report on the Public Consultation attempts to justify the indeterminacy by appealing to the non-measurable nature of the condition, which is seen as dependent on the characteristics of the product and the relevant market in question. However, it should be noted that the PCA does not provide a single example of a price increase for a product whose characteristics and market allow it to fall under the advanced requirement.
The fourth point of consideration in the self-assessment process pertains to the justification of an agreement that restricts competition, in light of the economic balance enshrined in Article 101(3) TFUE and similarly supported by Article 10 of the Portuguese Competition Act. In this context, the PCA begins by exemplifying the type of efficiency gains associated with a sustainability agreement. These include the reduction of CO2 or water pollution, as well as the introduction of more sustainable products. The PCA stipulates that the gains in question must be proven, objective, concrete, and verifiable and outweigh the damage to competition. With regard to the type and means of proof that companies may present, the PCA introduced, in the final version of the Guide, a reference to the possibility of using various methodologies to substantiate the demonstration of benefits. These include methodologies that incorporate the results of consumer surveys on “willingness to pay”, and reports from public authorities or recognized academic organizations. Nonetheless, it is thought that the Guide would benefit from greater clarity on the mobilization of environmental economic instruments, which have the potential to convert environmental efficiencies into monetizable values. In addition, the Guide would gain from a more concrete articulation of the concept of “willingness to pay” and its relationship with the shortcomings and negative externalities of individual decision-making.
With regard to the second requirement, namely the indispensability criterion, the PCA offers the example of the need to overcome a first mover disadvantage. According to the PCA, however, if the benefits can be achieved without the agreement, the indispensability requirement will not be met. In light of the challenges associated with establishing an “absolute impossibility” and given that, in the majority of instances, individual pursuits are, in fact, conceivable, even if not equally effective, the Guide leaves a number of questions unanswered. To what extent can economic considerations, such as the inability to reach sufficient scale, justify collaboration between companies? What about the absence of particular expertise within a specific market sector? What factors should companies consider in order to assess the necessity of collaboration in comparison to the pursuit of unilateral action?
While the “non-elimination of competition” may not give rise to similar concerns and doubts, the impact of efficiency gains on consumers is another contentious issue that the Guide does not address. The initial uncertainty arises from the question of how to assess and value the sustainability benefits perceived by the consumer in the relevant market. This is followed by the question of how open the PCA is or will be to the valuation of collective benefits. Furthermore, the time horizon that the PCA will take into account remains unclear. Indeed, while the PCA does make an allusion to the admissibility of “duly discounted future benefits”, the actual time horizon that it will accept is not specified.
In contrast with the approach taken by the Dutch competition authority (Autoriteit Consument & Markt, ‘ACM’) in its Guidelines on Sustainability Agreements, the PCA does not dedicate any attention to the specific topic of green sustainability agreements (or environmental-damage agreements). Despite the assertion in the PCA’s Public Consultation Report that agreements aimed at mitigating climate change (e.g., the progressive elimination of a production process associated with higher carbon dioxide emissions) or environmental protection (e.g., the mitigation of deforestation in production chains) should not be singled out, it is believed that this differentiation would align the Guide with the specialty of those agreements (also in terms of relevant efficiencies) and particular importance for the purposes of the green transition. As a matter of fact, these are agreements that address environmental objectives and, as such, are of interest to all members of a given community. As a result, they should be associated with a different interpretation with regard to the requirement that consumers in the relevant market are allowed a fair share of the benefits of the agreement.
Another aspect that deserves special criticism is the scope of the term “affected consumer(s)” in the relevant market. In particular, it is uncertain whether the PCA will extend its analysis to indirect and future consumers, in addition to direct (and current) consumers.
The Guidelines’ approach to the relevant efficiencies in justifying a restrictive sustainability agreement is particularly illustrative of the PCA’s adherence to a traditional and conservative interpretation of competition law. As the Report on the Public Consultation makes evident, the PCA deems it appropriate that affected consumers in the relevant market should receive a fair share of the benefits so that the overall effect is at least neutral. According to the PCA, efficiency gains in related markets can only be accepted if the group of consumers affected and the group of consumers benefiting from the efficiency gains are substantially the same. Furthermore, the efficiency gains must be substantial enough to compensate the affected consumers, and the share of the collective benefits accruing to the affected consumers must be greater than the loss suffered by those consumers. The traditional answer by the PCA contrasts with new approaches which suggest including benefits to non-consumers who suffer from the negative external effects caused by consumption.
Prior to finalizing the successive steps of the self-assessment scheme presented to companies, and in accordance with its cautious and skeptical stance on sustainability agreements, the PCA takes the opportunity to recall the restrictive interpretation of the ‘state action defense’, emphasizing that the liability of companies is not waived in instances where public authorities merely encourage or facilitate the conclusion of agreements that restrict competition. Conversely, this defense is applicable solely when public authorities impose or compel the parties to engage in anti-competitive conduct. As elucidated in the PCA’s Report on the Public Consultation, this interpretation is a consequence of established decision-making practice and a body of consistent national and European case law. While the PCA reiterates this interpretation, it acknowledges that the nuances of a specific case may warrant judicial assessment.
In particular, while maintaining this strict position with regard to the state action defense, the context of uncertainty as to what is required of companies in terms of due diligence and what is forbidden in a legal-competitive context, justifies a dialogical approach on the part of the PCA, which clearly falls short of what would be expected. Conversely, the PCA maintains its stance on the application of competition rules to undertakings where the anti-competitive conduct is not imposed or required by national legislation and where such legislation does not establish a legal framework that precludes competitive conduct by undertakings. In other words, the PCA will continue to apply competition law rules if the law of a Member State only authorizes, encourages or facilitates anti-competitive collaborations. In the words of the PCA, “the importance of sustainable development does not change this paradigm.” Which is to say that the importance of sustainable development has no effect on the application of competition policy.
With regard to the chapter on public procurement, which includes a further specific checklist, the PCA makes reference to the National Strategy for Green Public Procurement 2030. The reference is not arbitrary; rather, it seeks to establish the premise from which the PCA begins: the internalization of sustainability issues already results from the framework applicable to public procurement. Consequently, for the PCA it seems that competition law should limit itself to punishing collusion in public procurement and remain skeptical about the opportunities of consortia, also in terms of pursuing sustainability objectives.
The approach adopted by the PCA is not without its limitations. Firstly, it is unclear what factors justify the necessity for joint participation in a particular tender. Secondly, the principle of strict necessity that the PCA considers should guide the exchange of information, as well as the efficiency gains that it imposes as a result of the consortium, are not subject to any further elaboration, even through the use of illustrative examples. Moreover, the ultimate evaluation item on the checklist, which is to assess the consortium’s alignment with competition law at the national and EU levels, appears to lack a clear rationale in relation to the overarching objective of the self-assessment, which is to ascertain such compatibility.
The PCA concludes its Guide with a reference to fines and civil liability, which companies, associations of companies and members of the governing and supervisory bodies should be aware of. Furthermore, the Guide notes the possibility of submitting anonymous complaints through a whistleblowing channel and makes reference to the special regime of leniency, for waiving or reducing fines. As stated in the PCA’s Report on the Public Consultation, this reference is intended to guarantee legal certainty for companies.
Nevertheless, the result is an overarching message to businesses that sustainability is a potential threat rather than a core objective. In other words, the message conveyed by the PCA is one of intolerance towards sustainability agreements, or best, the assertion that these agreements have no particular justification for the need for adjustments or a more dialogue-based policy. With regard to the existence of complaint channels, it must be noted that, in a domain where companies are already expected to be subject to extensive scrutiny, the reference to this complaint channel introduces an additional factor of uncertainty.
3.3. Final Remarks on the PCA’s Guide
The adoption of a Guide summarizing the good practices expected of companies is of course commendable and while the Guide has shortcomings, these do not detract from its importance.
However, while the adoption of a Best Practices Guide may be seen as an indication of the PCA’s intention to align with European Union law and the European Commission’s Guidelines in this regard, and while alignment with the European Commission’s position is desirable in a context where legal fragmentation is to be avoided, the expectations of companies and society in general would be better served by the availability of more detailed and practical guidelines on the design of sustainability initiatives in line with the requirements of competition law. Furthermore, the Horizontal Guidelines themselves do not provide responses to numerous questions that may arise in business practice. In this context, it is believed that, even if the PCA had intended to align with the European Commission’s position, it could have used the flexibility and ambiguity of the Guidelines to address specific concerns and doubts. In particular, it could have used this opportunity to elucidate the extent to which the de minimis safeguards and the Block Exemption Regulations on R&D and specialization apply, particularly to sustainability agreements.
The core tenet upon which the PCA is predicated is the necessity for a harmonious coexistence between competition and sustainability. As evidenced by the title of its Press Release 12/2024, dated May 29, 2024, the PCA’s intervention is predicated on the imperative to reconcile sustainability and competition. In other words, competition and sustainability are seen by the PCA as mutually exclusive. As a result, the Guide is imbued with a restrictive emphasis on the scope for action by companies, rather than allowing or enabling action in line with the requirements of the 2030 Agenda.
The authors challenge this perspective, which they view as a narrow and conservative interpretation of competition policy. It is argued that this approach is inadequate in that it fails to acknowledge the subordination of competition policy to the principle of harmonization and integration with other European Union policies, as set forth in Article 7 TFEU. Without prejudice to the importance of competition as a process of allocative efficiency that generates consumer welfare, and without ignoring the potential of unilateral action by companies in the pursuit of the SDGs, collaboration and multilateral initiatives aimed at achieving sustainability objectives should be framed in a more positive and constructive manner. In other words, the objective of the Guide should be to clarify that, although competition law is skeptical of certain collaborative practices and strategies between companies, it nevertheless favors and is open to the pursuit of sustainability goals in collaboration.
In terms of content, while the Guide is acknowledged to be a valuable resource, it is nevertheless considered to have shortcomings. In particular, it does not address pivotal issues that may emerge, such as the assessment and classification of a restriction of competition in a sustainability agreement, whether based on its objective or its effects. It is true that in scenarios of indifference (in which a sustainability agreement does not give rise to anti-competitive concerns) or alignment (in which an anti-competitive agreement is equally detrimental to sustainability objectives), no significant concerns will arise. However, in instances of conflict - that is, when an agreement that appears to be anti-competitive is nevertheless useful or necessary for the pursuit of sustainability objectives - the situation is different. In such instances, what stance will the PCA adopt? What is the impact of pursuing a sustainability objective on the classification of an agreement as restrictive of competition, particularly in terms of whether it constitutes a restriction by object or effects? What types of benefits, defense, and/or justification can the parties claim? What criteria will the PCA utilize to assess the efficiency gains associated with a given action?
4. The Road Ahead: Recommendations to Minimize Uncertainty in the Green Transition
The increasing significance of ESG considerations in business operations, coupled with the legal obligation to uphold human rights and protect the environment, particularly through the implementation of the European Union Directive on Corporate Sustainability Due Diligence, underscores the necessity for a comprehensive approach to sustainability. It is imperative that safe and non-contradictory frameworks are adopted as to what is expected, required and prohibited of companies, particularly in the context of collaboration with other entities with a view to achieving sustainability objectives. Recalling Jurgita Malinauskaite, “Although sector-specific regulations, taxation and investment (including State aid, due to ‘first mover disadvantages’ associated with high investment costs) are the main tools to facilitate the transition to a green economy, it seems that an ‘all hands-on deck’ approach is needed to tackle the climate emergency and isolated ad hoc sustainability related exceptions are no longer an option. Sustainability related matters should be conceptualized in competition practice providing legal certainty to industry, defining a clear set of rules to follow”.
It is our conviction that the field of competition law cannot remain indifferent to the broader macro(socioeconomic) context in which it is applied, particularly in view of the divergent expectations and demands placed upon companies in the context of the green transition. While maintaining a purely conservative and economistic interpretation of competition rules – which the authors do not even deem appropriate to the present circumstances – competition law cannot be applied in a manner that is inconsistent with other general, protected and relevant interests, such as sustainability in its various dimensions.
As has been previously observed, the PCA’s Best Practices Guide on Sustainability Agreements is conspicuously deficient in light of the expectations typically placed upon a national competition authority in this context. Despite the limited scope of its competence, the PCA is a public authority that is bound by duties to respect and enforce fundamental rights. These fundamental rights, enshrined in the national constitution and also in the Charter of Fundamental Rights of the European Union, serve to legitimize the interpretation of competition rules in accordance with these higher parameters. Therefore, the assertion that the mandate of national competition authorities does not permit the evaluation of sustainability arguments is erroneous. Conversely, it is incumbent upon the relevant authorities to give due consideration to sustainability issues when applying competition rules, in collaboration with the companies concerned and on a basis of mutual cooperation rather than unilateral action.
In order to achieve a comprehensive and coherent approach to the regulation of competition within the European Union, it is essential that competition law is applied in a manner that avoids potential conflicts with other EU policies. Furthermore, it should be applied by the relevant authorities in an open-door spirit, which is particularly justified in areas where there is a greater degree of legal uncertainty.
In light of the aforementioned considerations, shortcomings and critical overview, it is deemed that the PCA’s Guide would undoubtedly benefit from a concluding chapter that is specifically devoted to the actions of the PCA and its approach to sustainability agreements. In particular, it was proposed that the PCA adopted an open-door policy, as has been done by other national competition authorities, including the Dutch, the Greek (Hellenic Competition Commission), and the British (Competition and Markets Authority).
Such an approach would mitigate the uncertainty inherent to the analysis of sustainability agreements, as it would enable the submission of substantiated questions and doubts to the PCA. Based on the information provided by the companies, the PCA would be in a position to (i) propose a more specific framework of assessment, and (ii) assist the parties in identifying ways to reconcile their objectives while ensuring compliance with competition rules. Such a policy, if accompanied by a guarantee that no fines will be imposed on companies that have sought the PCA’s help and followed its guidelines in good faith, would enable companies to achieve their sustainability goals in a context of greater legal certainty. Furthermore, it would allow the PCA itself to gather relevant experience for the future drafting of genuine guidelines on this matter. In the meanwhile, the results of these ad hoc assessments could be made public on the PCA’s website in the form of non-confidential versions, thus ensuring transparency and guaranteeing a level playing field for other companies with similar doubts.
In its Report on the Public Consultation, the PCA states that it does not have a procedural mechanism allowing companies or associations of companies to request letters of recommendation. The PCA considers this absence to be inconsequential, given that its actions are informed by an openness to engagement with companies and other interested parties. Furthermore, it believes that companies can resort to the informal guidance mechanism provided by the European Commission.
This position is not justified.
To begin with, if the PCA’s assertion pertains to a lack of legal basis, this is inconsistent with its purported openness to receiving companies informally. Indeed, if the issue is the absence of a legal foundation, a formalized open-door policy would be equally invalid as an informal open-door policy, and the latter will even encounter additional challenges pertaining to the potential risks to legal certainty, transparency, and equality. In any case, the legal basis for such an open-door policy is a false issue. We concur with Giorgio Monti, stressing that “competition agencies’ legitimacy depends on their being seen to contribute to the public interest. Simply enforcing competition law to make markets work may not suffice in an era where the market economy is under challenge and where environmental sustainability is such an important consideration”. As a public authority, the PCA is bound by a set of principles common to the national and European legal systems, including the principles of good administration, good faith, collaboration with private individuals and participation. In essence, these principles give rise to a duty of guarantee through the procedure, whereby the authority is required to design procedures, channels for dialogue and openness that are capable of realizing these rights. In particular, such principles require the PCA to adopt a structure that is closely aligned with the entities it administers, namely companies and other interested parties.
In short, in addition to being both legitimate and based on valid axiological considerations, an institutionalized procedure of regulatory dialogue would also offer practical advantages to both companies and the PCA itself, which would be able to gather relevant elements for reformulating the Guide through “regulatory learning”. The PCA’s negative stance towards an institutionalized open-door policy fails to offer legal certainty to companies, which could potentially undermine the principle of transparency and result in unjust and discriminatory situations for companies. Ultimately, the procedure before the European Commission cannot solve these shortcomings, as it is not only inconsistent with the requirements of the principle of subsidiarity and good administration, but also fails to resolve doubts which may arise from purely internal issues. In such cases, the PCA is the most appropriate body to address the concerns.
Nonetheless, the PCA remains in a position to address the limitations of its skeptical stance towards sustainability agreements. As it has done in other areas related to the digital transition, the PCA could adopt short papers and issue other publications that would provide companies with enhanced legal certainty in this regard. While it has been reluctant to “open its doors” to companies, it is believed that this would add value to such publications, inform the PCA’s decision-making practice, and allow for the anticipation of doubts and problems that both competition policy and the sustainability agenda would want to be anticipated and solved.
The aforementioned considerations do not diminish the responsibility of companies to conduct a self-assessment of their own agreements. Furthermore, they do not neglect the paramount importance and role of legal counsel in advising companies on the risks and optimal design of sustainability agreements. For this to happen, however, it is essential that companies and their legal advisers have a clear understanding of the precise legal framework they need to consider, and the role of the PCA is invaluable in this regard.
Ultimately, the message to convey to companies should be that “we are all in this together”. For such a joint effort to yield results, it must extend beyond the gates of competition authorities. With Simon Holmes, “Climate Change is an existential threat. Competition law must be part of the solution and not part of the problem”.
