Sustainability and Antitrust – Do the EU Commission’s New Horizontal Guidelines Bring Fresh Momentum to the Debate and Provide Legal Certainty for Companies? 

On June 1, 2023, the EU Commission (EC) adopted its New Horizontal Guidelines on the applicability of the EU’s prohibition of anticompetitive agreements (Art. 101 Treaty on the Functioning of the European Union (TFEU)), accompanied by a Q&A document. In line with the EC's strategy to implement the Green Deal, the New Horizontal Guidelines include a new chapter providing general guidance on the assessment of agreements between competitors that pursue sustainability objectives. The New Horizontal Guidelines’ aim is to increase clarity with respect to the assessment of sustainability cooperations between competitors under Art. 101 TFEU. This client alert provides an overview of the novelties related to sustainability cooperations between competitors and an outlook on the impact of the New Horizontal Guidelines.

Sustainability objectives – What is included?

The New Horizontal Guidelines define “sustainability objectives” broadly. These objectives are not limited to environmental initiatives (such as reduction of greenhouse gas emissions, reducing pollution, limiting the use of natural resources, etc.) but will also address other non-economic goals such as upholding human rights, labor standards, and animal welfare.

What are the key points?

The New Horizontal Guidelines contain three important aspects for the assessment of sustainability cooperations between competitors under Art. 101 TFEU:

1. Exemption for certain sustainability cooperations

While the New Horizontal Guidelines clarify that sustainability-related agreements are generally subject to Art. 101 TFEU if they negatively affect competitive parameters such as price, quantity, quality, choice, or innovation, the EC also provides a non-exhaustive list of cooperations that do not raise concerns:

• Internal conduct cooperations: Agreements between competitors that solely affect internal actions, e.g., eliminating single-use plastic in the canteen or limiting the volume of internal documents that employees are allowed to print, do not fall under Art. 101 TFEU.
• Awareness cooperations: Agreements between competitors on the organization of industry-wide awareness campaigns (e.g., showing the environmental impact of certain behaviors of consumers) do not generally restrict competition if such campaigns do not include the joint advertising of specific products or services.
• Compliance cooperations: Agreements between competitors aimed solely at ensuring compliance with requirements or prohibitions in legally binding international treaties or conventions, or compliance with fundamental social rights or prohibitions, (e.g., the use of child labor or the logging of certain types of tropical wood) do not fall under Art. 101 TFEU.
• Knowledge database cooperations: Agreements between competitors to establish databases that provide general information about sustainability issues in value chains (e.g., data about production processes used by suppliers or about marketing methods applied by distributors) do not generally restrict competition if they do not prohibit the contractual parties from buying or selling to such participants in the value chain (i.e., the respective suppliers or distributors).

2. Introduction of a “soft safe harbor” for sustainability standards

Standardization is probably the most relevant area when it comes to sustainability cooperations. Sustainability standardization agreements are used to set certain requirements regarding a product or service to achieve a certain sustainability goal. For instance, companies may wish to replace or reduce certain non-sustainable products, or replace certain non-sustainable production processes, or introduce certain standards to improve labor conditions or animal welfare. The EC acknowledges that such sustainability standardization agreements can have positive effects, particularly when they provide information to consumers (e.g., via labels or quality marks) and enable them to make informed decisions. Since the EC also notes that negative effects cannot be excluded, particularly exclusion or discrimination of certain competitors, and exclusion of alternative standards, it has established a “soft safe harbor” providing for six cumulative conditions to be met to fall outside the scope of Art. 101 TFEU:

• Transparency: The process for developing the sustainability standards must be transparent and interested competitors must be allowed to participate in the standard-setting process.
• Neutrality: Competitors that do not wish to participate in the standard must not be required to comply with the standard.
• Freedom for higher standards: Even if binding minimum requirements can be imposed on participating companies, the companies must remain free to apply higher sustainability standards.
• Only necessary competitively sensitive information: The exchange of competitively sensitive information among parties must be limited to the extent that is objectively necessary and proportionate for the development, implementation, adoption, or modification of the standard.
• Non-discriminatory access: Effective and non-discriminatory access to the standard (e.g., label, name, or logo) must be ensured, and companies that did not participate in the standard setting must be given the opportunity to adopt the standard at a later stage.
• Price/quality and market power threshold: To benefit from the so-called soft safe harbor, the standard setting must either (i) not lead to a significant price increase or a significant decrease in quality, or (ii) the parties’ combined market share must not exceed 20% on the affected markets.

3. Specification of factors for competitive assessment

The New Horizontal Guidelines finally specify the factors and criteria that are relevant for the EC’s case-by-case assessment if the sustainability cooperations do not fall under the categories described above.

In relation to the assessment of anticompetitive effects under Art. 101(1) TFEU, the EC mentions typical factors such as market coverage of the agreement, including market shares of the companies involved, as well as effects on price and quality.

Regarding the assessment of the four cumulative criteria for the exemption under Art. 101(3) TFEU, the New Horizontal Guidelines highlight that it is up to the companies to substantiate and demonstrate these criteria, which may be challenging – but not impossible – when it comes to sustainability agreements. The EC’s focus is on the “fair share” of the created benefits for consumers. There, the EC still requires that any potential harm by the sustainability cooperation must be outweighed by the benefits, whereas the EC distinguishes between three different types of benefits that are relevant for the assessment:

• Individual use benefits: These are benefits that consumers gain from the consumption or use of the product. These benefits can be classified as “traditional” qualitative efficiencies such as quality improvements, price reductions, or greater product variety.
• Individual non-use benefits: These benefits relate to consumers’ valuation of using sustainable products or services, even if they are more expensive, rather than using the less sustainable alternative for a lower price. Such consumers typically perceive sustainable products or services to be of a higher quality because of the benefits resulting from them (e.g., a positive effect on animal welfare due to the consumption of more expensive organic meat).
• Collective benefits: These benefits occur irrespective of the consumers’ valuation of a product or service and accrue to a larger part of society than just consumers in the market affected by the sustainability cooperation. These so-called “out-of-market efficiencies” may compensate anticompetitive effects if they are significant and if the beneficiaries substantially overlap or are a part of the group of consumers who are directly affected by the sustainability cooperation.

Conclusion and outlook

While this much-awaited final guidance provides some helpful clarifications, it cannot be considered a milestone for the enhancement of sustainability cooperations.

Many companies will be relieved to see that the EC lists exemptions (as described under section 1 above) and the so-called soft safe harbor for sustainability standards (as described under section 2 above). However, with respect to these categories and especially the so-called soft safe harbor, the requirements are narrow, the appropriateness of certain requirements is doubtful, and many questions remain unanswered. Particularly the last criteria (i.e., the price/quality and market power threshold) of the so-called soft safe harbor creates uncertainty. It is already not clear when a price increase or a quality decrease is “significant” and the EC failed to clarify this in the now published final version of the New Horizontal Guidelines. It is also unclear why the EC introduced a 20% combined market share threshold, although the EC does not use such market share thresholds for safe harbors in relation the general standardization agreements. In addition, market share thresholds are generally vague, and the EC does not make the analysis any easier when it states that the “market share of the undertakings’ products in general in the relevant markets affected by the standard [is relevant] and is not limited to the products that are specifically covered by the sustainability standardisation agreement.” Desirable industry-wide sustainability cooperations are in any case hampered by such restrictions.

The explanations of the exemptions’ application under Art. 101(3) TFEU also remain very conservative and stick to traditional (but potentially outdated) dogmas. In particular, it is noteworthy that the EC still requires full compensation of the consumers, although the wording of Art. 101(3) TFEU only mentions that consumers should receive a “fair share.” A more courageous approach to this criteria – comparable to the one outlined by the Dutch Competition Authority in its draft sustainability guidelines – would have been appreciated by market participants, especially if it provided a consistent approach across the EU.

Finally, and considering the bigger picture, the EC also missed the chance to clarify the scope of a potential exemption for sustainability cooperations under the European Court of Justice’s case law in Albany, Wouters, and Meca-Medina. In these judgments, the ECJ held that anticompetitive agreements may not be subject to Art. 101(1) TFEU if they pursue a legitimate objective and are proportionate. One would have expected more than one sentence with an accompanied footnote stating that agreements “cannot escape the prohibition laid down in Article 101(1) simply by referring to a sustainability objective” from the EC as “guardian of the treaties.”  

In sum, the chapter on sustainability agreements in the New Horizontal Guidelines brings little clarity but leaves the bigger questions unanswered and thus brings no significant momentum to the debate.