European Union Legal Framework
In the EU, the legal framework for assessing sustainability initiatives has evolved. In June 2023, the EC revised Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal cooperation agreements (“Horizontal Guidelines”). These now also include a chapter on how to deal with sustainability initiatives.
The Horizontal Guidelines use a broad definition of “sustainability” so as to include social objectives (e.g. labor and human rights), as well as environmental initiatives. The EC also takes a broad view of the “benefits” that are relevant to the competitive analysis, including: (i) individual use value (e.g., improved product quality or variety); (ii) individual non-use value (where the consumers’ use experience with the product is not directly improved, but consumers value the impact of their sustainable consumption on others); and (iii) collective benefits (where, irrespective of the consumers’ individual appreciation of the product, objective benefits accrue to a larger group of which the consumer is part). The Horizontal Guidelines provide examples of four type of agreements that are unlikely to raise competition concerns. These examples are merely illustrative and non-exhaustive: (i) agreements that aim to comply with legally binding international agreements whether they have been implemented by national law; (ii) agreements that do not concern the economic activity of undertakings but their internal corporate conduct; (iii) agreements to set up a database containing general information about suppliers that have (un) sustainable values chains; and (iv) agreements between competitors relating to the organization of industry-wide awareness campaigns raising customers ‘awareness of the environmental impact or other negative externalities of their consumption.
The Horizontal Guidelines also introduce a “soft safe harbor” for sustainability standards. A sustainability standardization agreement is unlikely to raise concerns where it secures transparency, open and non-discriminatory access, voluntary participation, freedom to adopt a higher standard and does not involve exchange of commercially sensitive information. At the same time, at least one of the following conditions should be satisfied: (i) the sustainability standard must not lead to a “significant” increase in price or “significant” reduction in quality of the products; or (ii) combined market share of the participants must not exceed 20% on any relevant market. Sustainability standardization agreements will raise competition concerns if they restrict competition by object or lead to “appreciable actual or likely negative effects on competition”.
The Horizontal Guidelines encourage companies to rely on the EC’s Informal Guidance to provide clarity on “novel or unresolved questions on individual sustainability agreements”.
Overall, compared to the expectations and approach taken by other (national) competition authorities, the guidelines are slightly underwhelming with their strong focus on standards, but they do open the door a little bit to a novel approach to recognizing out of market efficiencies. Only case-law practice will tell how far the EC will be willing to go to move into new territory and show flexibility.
In addition, Article 210a of the Regulation on the Common Organization of the Markets in Agricultural Products (CMO) came into force on December 7, 2021. This provides for an antitrust exemption for sustainability agreements between agricultural producers under certain conditions, which the Federal Cartel Office takes into account in its cases. The EU Commission published guidelines on the application of Article 210a CMO in December 2023.
Sustainability Considerations in Vertical Agreements
In May 2022, the EC adopted its revised guidelines on vertical restraints (“Vertical Guidelines”), which provide guidance on how to self-assess vertical agreements under EU competition law. When assessing the qualitative criteria for distributors to be part of a selective distribution system, the Vertical Guidelines specify that sustainable objectives may be taken into account, including (i) climate change; (ii) environmental protection; and (iii) limiting the use of natural resources. Finally, the Vertical Guidelines make reference to the fact that non-compete clauses of a longer duration may be justified in order to offset the investment risk in a project aiming to produce sustainable products or services.
No Specific Rules in Germany
Germany currently does not have any specific legislative rules or exemptions for sustainability collaborations, and the FCO – contrary to the EC and other national competition authorities in the EU - has also not issued its own guidelines. The German Federal Ministry for Economic Affairs and Climate Action announced in September 2022 that a 12th amendment of the German Act against Restraints of Competition (“GWB”) shall be expected in this legislative period that will focus on sustainability initiatives. The Ministry conducted a public consultation in that regard which ended in December 2023 and also commissioned a study on Competition and Sustainability in Germany and the EU, which was published in March 2023. The study assesses how antitrust law affects achieving sustainability goals and what options for developments there are. In November 2023, the Ministry also highlighted its role in the adoption of the European Commission’s new horizontal guidelines. Repeatedly pointing out the problem, the Ministry reaffirmed its commitment to greater legal certainty and appreciation of sustainability cooperations and the increased consideration of “out of market efficiencies”. In March 2024, representatives of the Ministry announced a first draft of the revised legislation with specific proposals regarding sustainability cooperations by approximately the end of April 2024, but such draft has not been presented and given the recent collapse of the governing coalition, any such proposal will be subject to the position of the new government following elections in 2025, so we do not expect any legislative changes in the short term.
By contrast, in Austria, the Austrian Cartel and Competition Law Amendment Act 2021 (“KaWeRÄG 2021”) includes the aim of increasing sustainability initiatives. Austria was amongst the first countries to formally address sustainability considerations in its legislation. In particular, the KaWeRÄG 2021 introduces the so called “sustainability exception” (Section 2, paragraph 1 KaWeRÄG 2021, reflecting Article 101(3) TFEU): “Consumers shall also be considered to be allowed a fair share of the resulting benefit if the improvement of the production or distribution of goods or the promotion of technical or economic progress contributes to an ecologically sustainable or climate-neutral economy”.
Moreover, in September 2022, the Federal Competition Authority (“BWB”) published its sustainability cooperation guidelines. The guidelines aim to provide more legal certainty for companies that envisage entering into cooperations and cover, inter alia, guidance on (i) the scope for application of the sustainability exception, (ii) the parameters companies have to demonstrate and prove with regard to the efficiencies brought about by the cooperation and the indispensability of the restriction of competition, and (iii) the relevance to demonstrate that the efficiencies brought about are substantial (including in certain cases to quantify qualitative efficiencies).
The BWB acknowledges that it is currently a challenge to provide practical examples regarding the various aspects of the newly incorporated sustainability exception and plans to make the guidelines a “living document” that will be updated in the future. The BWB explicitly encourages companies to reach out early on to discuss potential competition law implications of an envisaged initiative.
FCO Practice
The FCO published a note for the OECD Paper on Sustainability and Competition Law, acknowledging that there may be times when competition law and sustainability come into conflict, although this should not generally be the case. The FCO stated that “it is primarily the task of the democratically elected lawmaker to strike a balance between the opposing interests”. The president of the FCO, Andreas Mundt, positioned himself quite clearly publicly in 2021 – he was “not very happy” about the debate to implement more public interest considerations (including sustainability) in competition law, because public and political interests may change quite quickly. He reiterated his concerns during an interview in May 2023, emphasising that competition law becomes “very politicised”, where sustainability is interpreted too broadly, i.e., not only relating to environmental issues, but also broader topics like social and governance issues. In the published FCO annual reports of 2021/2022 and 2022/2023, president Mundt emphasised, however, that antitrust law did not stand in the way of cooperations to achieve sustainability goals – sustainability and competition law rather go “hand in hand”.
Public Interest Objectives in Competition Law
In the FCO’s background paper on public interest objectives in competition law, the regulator acknowledged the work completed by other competition authorities and recognised that “the issue of a more sustainable use of the resources available to us is moving to the centre of the debate on competition policy”. The contribution of the Dutch competition authority was brought into particular focus in the FCO’s background paper.
Assessment of Sustainability Considerations in Cooperation Agreements and Merger Control
The FCO has so far largely given only specific individual guidance to businesses related to cooperation between competitors, rather than issuing more general overarching guidance. The 2021/2022 annual report provided some limited guidance regarding the factors that the FCO has taken into account in its previous decisions, such as the question whether the sustainability criteria have been developed in an open process, whether there is sufficient transparency for consumers, or whether access to the cooperation is non-discriminatory. In the 2022/2023 report, the FCO briefly summarises key points it pays attention to when assessing sustainability initiatives. The FCO focuses on inter alia: (i) the severity of the competition restriction; (ii) the initiatives’ effects on sales prices; (iii) if the access to the initiative is non-discriminatory; (iv) if the sustainability criteria were developed in an open process; and (v) if the initiative is sufficiently transparent for consumers (“labelling”); it repeated these in its most recent 2023/2024 report.
In 2019, the German Federal Minister of Economic Affairs overruled the FCO’s prohibition of a joint venture between Miba AG and Zollern GmbH & Co KG concerning the market of plain bearings by way of a ministerial authorisation. The minister found that public interests, such as safeguarding know-how and innovation, outweighed competitive concerns, and that the deal contributed to energy transition and thus the achievement of environmental policy goals. In January 2022, the FCO assessed an initiative to introduce fair wages in the banana sector and, separately, plans to expand the animal welfare initiative, “Initiative Tierwohl”, finding that these were compatible with competition law, in particular their proposed pricing and financing models. At that time, the FCO encouraged “Initiative Tierwohl” to gradually introduce more competitive elements going forward, upon concern by the FCO, the initiative indeed decided in May 2023 to replace the standard premium with a recommended premium. The FCO emphasised that the initiative was then well-established and thus “a standard premium for animal welfare does not appear indispensable for implementing the initiative and observing animal welfare criteria”. In respect of the banana sector initiative, there are plans to agree to voluntary common standards and strategic goals in order to introduce responsible procurement practices and develop processes to monitor transparent wages. Importantly, no competitively sensitive information will be exchanged, nor are compulsory minimum prices or surcharges to be introduced. In March 2022, the FCO assessed and did not have any material competition concerns related to an initiative to increase animal welfare in the milk sector (the “QM+ program”). The initiative aims to introduce a label for products that meet certain animal welfare criteria and finance the additional costs via an “animal welfare surcharge” to be paid by food retailers. Participating in QM+ program is voluntary.
By contrast, in January 2022, the FCO found that another sustainability initiative in the milk sector amounted to a price fixing agreement that did not ultimately pursue sustainability goals and infringed competition law.
In June 2023, the FCO did not see any reason for detailed examination of the German Initiative on Sustainable Cocoa (“Kakaoforum”) – a joint initiative of public authorities, companies of the cocoa and chocolate industry, retail grocery companies, and NGOs. One of the initiative’s main objectives is to help cocoa farmers in Ghana and Côte d’Ivoire earn living wages by encouraging its members to voluntarily commit to individualized minimum prices, quotas, and premium systems to achieve better farm gate prices for the producers. The voluntary nature of the commitment (i.e. lack of a sanctioning mechanism) was particularly important for the FCO. The FCO also took into account that members’ commitments were published on an anonymized basis and that the producers’ shares account for only a small percentage in price formation along the value chain.
In summary, the FCO is more on the orthodox side of the spectrum, but pragmatic and willing to give informal advice. There are no indications that sustainability collaborations will become a real enforcement priority of the FCO, and we do not expect it to issue specific guidelines on the issues.
