Legal Framework
The 2011 Brazilian Competition Act (Law No. 12,529/2011) prohibits any acts that have as their object or may have the effect of ‘limiting, restraining or in any way injuring free competition or free initiative’ (article 36, main section). The Competition Act also provides a non-exhaustive list of examples of such acts, which includes ‘promoting, obtaining or influencing the adoption of uniform or agreed business practices among competitors’, ‘creating difficulties for the establishment, operation or development of a competitor company or supplier, acquirer or financier of goods or services’, and agreeing on prices, dividing markets, and restricting the supply of products and services (article 36, paragraph 3).
The Competition Act does not contain any express exemption for agreements among competitors that have the legitimate purpose of protecting, preserving or restoring the environment. In our view, however, this does not mean that such agreements are illegal in and of themselves or that CADE cannot take into account environmental benefits in its analysis. The Competition Act must be interpreted in keeping with the 1988 Brazilian Constitution and the international treaties incorporated into the Brazilian legal system, which establish the protection of the environment as a fundamental principle and a collective right.
The Brazilian Constitution lists the ‘defense of the environment, including through differentiated treatment according to the environmental impact of products and services and their production and provision processes’ as one of the pillars of the Brazilian economic order (article 170, item VI). The Brazilian Constitution also warrants the right to an ecologically balanced environment and imposes on the public authorities and society alike the duty to defend and preserve it for present and future generations (article 225, main section). Moreover, Brazil has assumed obligations related to the protection, preservation and restoration of the environment through the incorporation of international treaties, such as the Convention on Biological Diversity and the Paris Agreement. The Brazilian Federal Supreme Court has recently ruled that ‘treaties on environmental law are a species of the genus of human rights treaties’ and have a supra-legal status.
Therefore, the Competition Act, interpreted in accordance with the Brazilian Constitution and the international treaties adopted by Brazil, allows CADE to balance the benefits of environmental sustainability in analyzing agreements among competitors that have the legitimate purpose of protecting, preserving and restoring the environment. In fact, the Competition Act itself allows CADE to consider issues not related to price and quantity in its analysis. Article 88, paragraph 6 of the Competition Act establishes that mergers implying the elimination of competition in a substantial part of a relevant market, that may create or reinforce a dominant position, or that may result in control of a relevant market of goods or services may be authorized if they (i) aim to achieve one or more of the following objectives: (i.a) to increase productivity or competitiveness; (i.b) to improve the quality of goods or services; or (i.c) to foster efficiency and technological or economic development; (ii) are essential to achieve these benefits; and (iii) allow a relevant part of the benefits resulting from the merger to be passed on to consumers.
Although this provision is in the chapter of the Competition Act concerning merger control, CADE’s Tribunal has already held that it also extends to conduct control. Indeed, there is no logical basis to assert that, while merger agreements restricting competition are authorized if they meet the requirements of article 88, paragraph 6 of the Competition Act, agreements not constituting a merger cannot be subject to the same rule.
Article 88, paragraph 6 of the Competition Act lists collective purposes which, when interpreted in light of the constitutional precepts and international treaties incorporated into the Brazilian legal framework, undoubtedly include objectives linked to environmental sustainability. For example, the development of goods or services that are more environmentally sustainable certainly entails an improvement in the quality of those goods or services, while the development and deployment of new sustainable technologies may just as well be characterized as a technological development.
Case Law
From 2012 to 2016, CADE dealt with some cases involving agreements related to compliance with rules on pollution reduction, waste management and reverse logistics, which could be regarded as containing some aspects of sustainability agreements. They were not called ‘sustainability agreements’ by then, but did contain several aspects of agreements that have been recently regarded as ‘sustainability agreements’ by some authorities. During this period, various competitors submitted such agreements for prior approval by CADE as ‘associative agreements’. In some cases, CADE imposed some conditions concerning the access to information to be exchanged among companies and the governance of their joint efforts to manage waste.
However, due to a change in the concept of ‘associative agreements’ adopted by CADE in 2016, CADE decided, in 2018, that a waste management scheme involving direct competitors should not be analyzed by CADE, as the companies involved did not share risks and results regarding the operation. As a result, since 2018, companies need no clearance decision from CADE approving their waste management / reverse logistics arrangements even when those companies are organizing production factors in the pursuit of a common sustainability objective if they are not sharing risks and results.
Recently, CADE’s Commissioner Victor Fernandes rendered an important vote when reviewing a consultation on a proposed joint venture, whose business strategy would be to create Special Purpose Entities (SPEs) between Grupo Lara and Grupo MDC to capture, process, and commercialize biogas from landfills. According to him, “Grupo Lara, which manages the landfills, will supply the biogas to the SPEs, which in turn will be responsible for building and operating biomethane plants. This structure allows Grupo Lara to monetize a byproduct of its landfills, while Grupo MDC gains preferential access to a valuable input. The SPEs will have operational autonomy, with Grupo Lara holding a majority stake and Grupo MDC a minority stake. The business initiative, therefore, aims to enable the transformation of potentially harmful waste (landfill biogas) into a renewable energy source (biomethane). This not only reduces landfill emissions but also contributes to diversifying the national energy matrix with a clean energy source. The project aligns with public sustainability policies and demonstrates how innovative business models can create economic value from environmentally responsible practices”.
Commissioner Fernandes stated that the joint venture would be “a form of cooperation between competitors that is pro-circularity, as it aims to utilize biogas to offer a new product”. He concluded that “initiatives of this kind may be added to the list of cooperations that are unlikely to raise competition risks. The only caveat to be verified in concrete terms would concern possible exchanges of competitively sensitive information, which could also be mitigated through antitrust protocols”.
In his vote, Commissioner Fernandes went further to indicate his understanding that “cases of sustainability agreements that would require the authority to exercise balancing or efficiency assessments in the form of general benefits to the community tend to be exceptional. In general, the literature and the experience of foreign antitrust authorities tend to agree that certain types of business cooperation rarely raise competition concerns a priori. This particularly applies to collaborative arrangements that: (i) seek to comply with mandatory international standards; (ii) promote the adoption of better sustainable practices within companies; (iii) develop open databases and green labels; or (iv) coordinate sectoral awareness initiatives. Such agreements are generally seen as having low potential to harm competition and, therefore, would not even require balancing exercises. Therefore, even while firmly committed to its mission of preserving undistorted competition in markets, CADE has much to contribute to the debate by recognizing convergence zones where horizontal agreements promote sustainability and are generally pro-competitive.”
In any event, as this was an opinion of one of the CADE’s Commissioners and no guidelines have been issued as of yet, companies remain unable to advance even further on the sustainability agenda in Brazil for fear that joint actions involving competing companies may be challenged by CADE’s General Superintendence, which is in charge of the investigations. Uncertainty looms large, the more so after CADE’s enhanced focus on cooperative arrangements and on the exchange of information among competitors.
All things considered, there is a demand for guidance from CADE regarding the precautions that must be observed by companies interested in collaborating with competitors for the adoption of environmental sustainability measures / agreements. Companies are understandably concerned to share their strategies with the antitrust authority without a clear sign that CADE is in fact willing to evaluate their joint efforts in a manner to help companies avoid unnecessary anticompetitive effects and challenges related to compliance with antitrust rules.
Proposals by the ICC Brazil
Given this lack of clear guidance from CADE, the Competition and Sustainability Task Force of the International Chamber of Commerce (ICC), Brazil Chapter, has recently released a working paper on competition and sustainability, proposing measures for CADE to adopt in order to ensure that the Competition Act does not discourage legitimate and desirable collaborative actions among companies aimed at protecting the environment and combating climate change. The working paper prepared by us and other members of the Task Force emphasizes legal feasibility and the need for clear directives to encourage cooperation among companies to address sustainability issues, including the pressing matter of climate change, while ensuring compliance with the Competition Act.
One of the main proposals referred to the creation of a specific system of consultation for companies interested in entering into environmental sustainability agreements, understood as any agreement that pursues a sustainability objective, regardless of the form of cooperation. The Task Force suggested that this system of consultation should be independent, specific, and detailed, and should allow companies to seek clarification from CADE about the legality of their proposed agreements, as well as to adjust them if necessary to comply with the Competition Act. The proposed consultation system should rely on the following general standards:
- The set of information to be submitted by the companies should be reduced and contain a self-assessment of the sustainability nature of the initiative, with reference to the criteria of analysis established in the guidance and the law;
- The companies should indicate the benefits to the environment generated by the agreement and how these benefits will be passed on to consumers;
- The authority should respond to the consultation in a timely manner;
- The response of the authority should be simple and objective, confirming or not the legality of the agreement or indicating that no further investigation will be conducted;
- The guidance should be made public, respecting the confidentiality of information on the parties and on the agreement; and
- The decision should have a binding nature, ensuring greater legal certainty in implementing the proposed sustainability measures.
The working paper also suggested that, in addition to the formal consultation system, CADE should establish an open-door policy, whereby businesses considering entering into an environmental sustainability agreement can approach CADE for informal guidance on their proposed agreement if there is uncertainty over application of the guidance. This initiative would resemble other initiatives adopted by CADE in the past, such as the petition procedure admitted by CADE during the Covid-19 pandemic to facilitate the parties’ understanding of the legality of cooperative arrangements put in place to cope with the pandemic fallout.
CADE Expected to Issue Guidelines for Collaboration Between Competitors in 2025
CADE has recently implemented a selection process for consultancy services to support the preparation of guidelines for collaboration between competitors. The draft guidelines are expected to include a chapter on environmental sustainability agreements and their limits to be considered lawful under the Competition Act, although CADE’s officials have not confirmed that possibility as of yet. The draft guidelines are to be released for public consultation by the end of 2024 and eventually issued in 2025.
While CADE is currently discussing the introduction of guidelines for agreements between competitors, some contend that it would be important to define a list of examples of environmental sustainability agreements that do not raise competition concerns and, as such, should be deemed lawful by CADE. The list below, based on documents published by competition authorities of other jurisdictions, contains examples of such agreements:
- Agreement to influence internal corporate conduct, without restricting the strategic decisions of the companies, such as eliminating the use of single-use plastic, moderating / reducing the use of air conditioning in the offices, or limiting the number of printed materials by the companies;
- Agreement to jointly raise funds and expertise for the development of activities for each company to mitigate, adapt, or compensate the effects of greenhouse gas emissions generated in production;
- Agreement to develop training activities for people working in the industry to achieve environmental sustainability goals;
- Agreement to carry out a joint campaign to raise awareness about environmental sustainability issues within an industry or among customers, as long as the campaign is not a joint sale or advertisement of specific products;
- Agreement to establish environmental sustainability goals for the entire industry, without mechanisms of punishment or exclusion of competitors in cases of non-compliance with the goals;
- Agreement to raise awareness about the environmental impact or other negative externalities of consumption habits;
- Agreement to ensure compliance with requirements or prohibitions already defined in international treaties or conventions that deal with environmental sustainability, even if such instruments are not yet in force in Brazil (because they have not gone through the process of internalization);
- Agreements to create a database containing information on environmentally sustainable suppliers or distributors, without requiring that the parties necessarily buy or sell from them;
- Agreement to establish criteria for granting a green label for a certain agricultural good, provided that the traders buying such products remain free to negotiate the products under other labels or without labels, participation is voluntary and non-exclusive, there is no exchange of sensitive information (such as prices, production volumes, margins, etc.), and there is no definition of surcharges or mandatory minimum prices; and
- Agreements to develop environmental sustainability standards for the industry as a whole, aiming to make products more ecologically sustainable.
Our expectation is that the new guidelines on agreements between competitors to be issued by CADE in 2025 will include not only a chapter on sustainability agreements, but also a list similar to the one above with examples of agreements not raising competition concerns at all. Such a list would provide legal certainty and transparency to companies doing business in Brazil, and would allow them to conduct a preliminary self-analysis and to move forward with their initiatives without consulting with the antitrust authority.
Further, it would also be important for CADE’s guidelines to contain additional orientation on the exchange of competitively sensitive information, including: (i) the concept of competitively sensitive information; (ii) the types of information exchanges that may pose restrictions to competition; (iii) the possible pro-competitive effects of information and data pooling practices; (iv) indirect forms of information exchange, including hub-and-spoke arrangements; and (v) practical measures that companies can adopt to avoid infringements, such as limiting the scope of the exchange (in terms of time, aggregation, and precision of data), using clean teams and independent trustees to intermediate the relationship, among others. However, it is unclear to us whether CADE will go that far.
What to do While Waiting for CADE’s Guidance?
Until CADE rolls out specific guidelines, a possible path for companies to mitigate risks in the cooperation between competitors in Brazil is to carefully design the governance rules for these arrangements. Through well-established governance rules, it may be possible to set forth mechanisms that reduce the risks of antitrust investigations. Some examples of measures along these lines involve the creation of (i) ethical walls to prevent access to competitively sensitive information; and (ii) decision-making bodies that preserve as much as possible the independent sphere of action between the parties. Companies willing to enter into sustainability agreements with effects towards the Brazilian market should also make sure to look for legal advice to discuss the terms and potential effects of those arrangements.
At this point, companies should make efforts to be able to clearly demonstrate that: (i) the proposed arrangements translate into environmental benefits; (ii) these benefits could not be achieved by other means; (iii) consumers will receive a fair share of those benefits; and (iv) there will still be sufficient competition in the affected markets. The problem is that these conditions may not be enough to shield cooperation agreements in case of antitrust challenges, in view of the lack of specific guidelines from CADE.
Conclusion
The integration of sustainability considerations in antitrust enforcement is a timely and relevant topic, given the urgency and complexity of the global climate crisis and the need for coordinated action from all stakeholders. There are legal grounds and policy reasons for the Brazilian antitrust authority, CADE, to incorporate environmental sustainability benefits in its analysis of agreements among competitors. Nonetheless, CADE has not yet developed a clear and consistent approach to assessment of this type of agreement, leaving businesses in a state of uncertainty and discouraging them from engaging in pro-environmental cooperation.
However, pressure is increasingly brought to bear on CADE to provide clear guidelines on the subject, which brings hope that the guidelines for collaboration between competitors, expected to be published by CADE in 2025, may contain a specific chapter on sustainability agreements. Until CADE provides clear directives on the matter, companies interested in collaborating to meet more ambitious environmental sustainability goals should be careful with the governance rules of arrangements made and seek specialized legal advice to discuss the terms and potential effects of collaborations.
