Sustainability and competition law: European Commission publishes draft horizontal guidelines

The European Commission has published draft regulations designed to make it easier for companies in a horizontal relationship to work together in achieving sustainability initiatives.

8th April 2022

Traditionally the focus of competition law has been on economic goals. Arguably, that is on the assumption that non-economic public goals are better served through other areas of law. Change does, however, appear to be on the horizon. In the context of an increasing climate change threat, it is clear that coherent efforts will be required across all fields to achieve ‘net zero’. Though this will inevitably require public action, cooperation amongst the private sector will also be important to deliver sustainability outcomes.

At present, EU competition law provides businesses with little by way of exception or guidance to encourage the introduction of sustainability initiatives. On this point more generally, the UK Competition and Markets Authority published a blog post in January 2021 that acknowledged the difficulties for businesses and NGOs, despite the guidance available, in navigating the competition law framework to the extent that they may abandon sustainability initiatives which are unproblematic from a competition law perspective or which may benefit from an exemption.

EU draft rules/guidelines on Horizontal Cooperation Agreements

On 1 March 2022, the European Commission published for consultation two draft revised horizontal block exemption regulations on research and development and specialisation agreements, as well as draft revised horizontal cooperation guidelines. The Commission’s aim is to make it easier for companies in a horizontal relationship with each other to cooperate in areas such as research and development and production, but also, importantly, in achieving sustainability initiatives.

Horizontal cooperation agreements between two or more competitors operating at the same level in the market can lead to substantial economic and sustainability benefits, particularly if companies combine complementary activities, skills or assets.

Sustainability agreements

The Commission indicates in its draft guidelines that sustainability is an EU policy priority and that sustainability agreements may fall outside the scope of competition rules when they do not affect price, quantity, quality, choice or innovation.

The draft contains a new 19-page chapter on how to self-assess sustainability agreements. This includes a broader definition of 'sustainability' that encompasses social objectives such as labour and human rights, as well as environmental initiatives.

Under the new chapter, sustainability agreements will avoid breaching EU competition law where they fall into one of the following categories:

  • they do not raise competition concerns;
  • they fall within the scope of a ‘soft safe harbour’; or
  • they benefit from individual exemption.

Sustainability agreements that do not raise competition concerns

Article 101(1) on the Treaty on the Functioning of the European Union prohibits agreements between potential and actual competitors that may affect trade between Member States and that have the object or effect of restricting competition. The guidelines provide guidance for businesses on how to interpret and apply the horizontal rules and guidelines and, accordingly, how to self-assess compliance with Article 101(1). Sustainability agreements may not be caught by Article 101(1) if they do not affect parameters of competition (such as price, quantity, quality, choice or innovation). The guidelines provide specific examples of the types of sustainability agreements that are generally permissible under the new rules.

Soft safe harbour

The Commission has also introduced the concept of a ‘soft safe harbour’, limited to sustainability standardisation agreements which are generally considered to be unproblematic from an EU competition law perspective, provided that various conditions are met. Those include that the standard developing procedure must be open, transparent and non-discriminatory, and companies must remain free to adopt higher standards.

Individual exemptions

The chapter also provides guidance on how a sustainability agreement will be assessed where it falls within the scope of Article 101(1) and sets out when it may qualify for an individual exemption pursuant to Article 101(3).

To benefit from an individual exemption, a sustainability agreement must meet all four of the criteria. In particular, it must generate sufficient and substantiated efficiencies, consumers must get a fair share of the resulting benefit, the restrictions must be indispensable to the attainment of the benefits, and it must not eliminate competition.

The guidelines provide guidance to businesses on interpreting and applying the cumulative criterion.

Next steps

The draft EU guidelines on sustainability represent a welcomed step in achieving legal certainty for businesses when assessing sustainability agreements, and more generally, towards achieving ‘net zero’ in the context of the Commission’s ‘Green Deal’.

The Commission is inviting views on the drafts and parties who wish to respond may do so by 26 April 2022. Notably, the new horizontal rules (and guidance) will enter into force on 1 January 2023.

The EU approach appears to be broadly aligned with that of the UK. From a UK perspective, the CMA published advice to the government on 14 March 2022 setting out how the competition and consumer protection regimes can better support the UK’s transition to ‘net zero’. The CMA has indicated that guidance will be published in due course to assist businesses in assessing whether sustainability agreements restrict competition and could benefit from exemption.

It is important for UK businesses to bear in mind that EU and UK exemptions may still apply in parallel to their agreements.

For more information, please contact Ashley French, Solicitor in our regulation and markets team, at ashley.french@shepwedd.com, or your usual Shepherd and Wedderburn contact.