The New EU Regime For Horizontal Agreements: Sustainability On The Menu In The Commissions' Horizontal Guidelines - Antitrust, EU Competition

1. New position of sustainability agreements in competition law

Competition law has traditionally turned a cold shoulder to cooperation agreements between (potential) competitors that restrict competition, or agreements with laudable sustainability objectives. For such agreements, competition authorities have historically not (or very rarely) considered the societal or other efficiencies arising from such agreements to be significant enough to warrant an exemption from the prohibition on anti-competitive agreements. To tackle this defect, the recently published Horizontal Guidelines ("Guidelines") now allow more leeway for competitors to enter into an agreement to jointly pursue the goals of sustainable development.

Sustainability agreements, as they are referred to by the European Commission ("Commission"), are any type of horizontal cooperation agreements that genuinely pursue one or more sustainability objectives (including not just environmental or climate goals, but also social objectives, e.g., labour and human rights, the shift to healthy and nutritious food, or ensuring animal welfare), irrespective of the form of cooperation. The sustainability objective pursued is especially relevant for determining whether the agreement should be assessed under the Article 101 TFEU either by object or by effect. If the parties to the agreement can document that an agreement, which appears to pursue a by object restriction (e.g. price fixing, market or customer allocation, limitation of output or innovation), genuinely pursues a sustainability objective, an assessment of the effects on competition will have to be conducted in order to establish whether the agreement infringes Article 101 TFEU. The definition of sustainability agreements is based on UN Sustainable Development Goals.

In the Guidelines, the Commission provides guidance on how to self-assess several categories of sustainability agreements. Moreover, the Guidelines provide concrete examples of how sustainability agreements can be designed to minimise the risk of restricting competition, such as by ensuring the participation of all relevant stakeholders, as well as by setting clear and measurable targets for sustainability performance.

2. From a draft to a final version – Changes in the sustainability chapter

In our previous article Greening Competition Law – The European Commission's Draft Horizontal Guidelines and Sustainability Agreements, we described the guidance proposed in the draft Guidelines for the assessment of sustainability agreements, including a description of when these are likely to fall within the scope of Article 101(1) TFEU and under which circumstances these can be exempted pursuant to Article 101(3). Here, it is relevant to address whether the final version of the Guidelines contains significant changes compared to the draft version. In short, the final Guidelines do not contain a more lenient stance on sustainability agreements (which was one of the most debated topics) and the changes do not appear to radically alter the picture from the draft version. However, it is worth mentioning that modifications and clarifications have been made, which will be dealt with in further detail below.

The final version of the Guidelines provide clearer guidance on the interplay between the sustainability chapter and other chapters in the Guidelines. It emphasises that sustainability objectives should be considered, even if agreements in principle fall under a different chapter in the Guidelines. This approach ensures that sustainability is adequately assessed, regardless of the agreement type. Furthermore, the parties to the agreement may rely on the guidance in the chapter that is more favourable to them. By explicitly requiring the consideration of the sustainability chapter, the Commission, at least to some extent, emphasises the importance of sustainable practices and goals in all horizontal cooperation agreements.

In relation to this, it is worth mentioning sustainability standardisation agreements as the exception to this general principle of interplay between chapters. Sustainability standardisation agreements should only be assessed based on the principles outlined in the sustainability chapter, specifically sub-section 9.3.2. Concerning the qualification of sustainability standardisation agreements, the Guidelines include a critical clarification entailing that agreements between competitors that limit the participants' output of the products concerned do not qualify as sustainability standardisation agreements.

The Guidelines establish a "soft safe harbour" for sustainability standardisation agreements, provided that six (instead of seven as laid down in the draft) cumulative conditions are fulfilled. The cumulative conditions set out in the Guidelines are:

Transparent and open procedures for developing the sustainability standard;
No direct or indirect obligation to comply with the standard on those undertakings that do not wish to participate;
Participating companies can be bound by requirements to ensure compliance with the standard, but they must be able to adopt a higher sustainability standard for themselves;
No exchange of commercially sensitive information beyond what is necessary and proportionate for the standard;
Effective and non-discriminatory access to the outcome of the standard-setting process;
The standard must satisfy at least one of the following conditions:
- No significant increase in price nor a significant reduction in the quality of the products concerned;
- Combined market share of participants must not exceed 20% on any relevant market affected by the standard.

If all six conditions are satisfied, the agreement is unlikely to produce appreciable negative effects on competition and will therefore fall outside of the scope of Article 101(1) TFEU. If one or more of these conditions are not met, this does not create a presumption that the agreement is prohibited under Article 101(1) TFEU, but requires an individual assessment under Article 101(3) TFEU.

Another interesting clarification from a practical point of view concerns the factors that should be considered when assessing the effects of a sustainability agreement, such as the market power of the parties concerned, the market coverage of the agreement, the extent of the exchange of information, the impact on output, variety, innovation, etc.
Finally, the changes made in the final Guidelines relating to the assessment under Article 101(3) TFEU should briefly be mentioned. Even if a sustainability agreement restricts competition, it may still be exempted pursuant to Article 101(3). For this exemption to apply, the parties to the agreement must be able to document that the cumulative conditions of Article 101(3) TFEU are satisfied, in other words, that:

The agreement has demonstrable efficiency gains.
There must be a fair pass-on to consumers, for which the Commission holds on to the requirement that the benefits deriving from the agreement for (direct or indirect) consumers outweigh the harm caused so that the overall effect on consumers in the relevant market is at least neutral.
The restrictions imposed must be indispensable.
There must be no elimination of competition.

The final version of the Guidelines contribute minor points to the understanding of these conditions, with the most notable being the addition that one of the sources of benefits can be that consumers are able to make a more informed decision. Also, the Commission clarifies in a footnote that consumers' willingness to pay, i.e., that there is demand for sustainable products resulting from the cooperation, does not necessarily mean that the agreement is not indispensable (for instance, to overcome a first-mover disadvantage or achieve cost-reducing economies of scale). Also, the Commission confirms that the assessment of consumers' willingness to pay may be based on the overall effect on consumers in the relevant market.

3. Recent case law concerning sustainability from national competition authorities

Sustainability has been an important element of competition policy across the EU in the last few years and there is a clear consensus that competition law enforcement should be careful not to hinder cooperation between companies, or even competitors, which facilitates the realisation of or ensures progress towards reaching climate policy sustainability goals (or beyond). Competition authorities in some Member States have acted towards placing a greater emphasis on sustainability in competition law.

For example, in Germany the Federal Cartel Office (FCO) has publicly stated that they are in favour of cooperation between companies when they aim to achieve sustainability objectives, even before the legislative base was explicitly established in German law or in concrete guidelines.

The FCO's latest case practice also seems to support sustainability initiatives. In the so-called 'Bananas case' (B2-90/21), the FCO found that although committing to an obligatory percentage of "living-wage bananas", as well as the entry into coordinated supply agreements, constituted both horizontal and vertical agreements, the voluntary setting of qualitative production standards was aimed to ensure that the production of bananas in Ecuador complied with local legal requirements, and that the actions did not lead to the harmonisation of wages in the producing countries or affect the commercial parameters of the companies involved.

In the Netherlands, the Dutch Authority for Consumers and Markets (ACM) has been actively advocating for a more flexible approach to the application of Article 101(3) TFEU, as well as encouraging sustainability cooperation in the context of competition law (see our blog here). After publishing the final Horizontal Block Exemption Regulations (HBERs) and the Guidelines, the ACM has stated that it will bring its own draft guidelines in line with the Commission's Guidelines due to the cross-border effects of most sustainability initiatives. The ACM aims at solving discrepancies to the extent possible by using its own prioritisation powers.

The ACM has also taken a stance on sustainability aspects in its case practice by giving green light to cooperation agreement relating to the storage of CO₂ that it perceived as beneficial for customers of both companies in question and for society as a whole. The ACM has also found cooperation between companies as non-restrictive with the goal of removing plastic handles of multipacks of soft drinks and water bottles, as well as to combat illicit competition based on illegal pesticides. In June 2023 the ACM found that a collective price-fixing agreement intending to promote the new sustainability objectives concerning a fee to be charged for disposable plastic packaging, does not seem necessary for promoting sustainability. Again, the ACM stated that sustainability agreements must fit within the competition rules and if the agreement does restrict competition, its sustainability-related benefits must outweigh the harms to competition. In this case, the ACM advised the Dutch Food Retail Association to adopt a wait-and-see approach to see how businesses react to the freedom of setting their own prices for plastic cups and containers in wait of possible statutory minimum prices that the national legislators might implement later.

Additionally, the competition authorities in Austria, Greece and Hungary have advocated placing a greater emphasis on sustainability in competition law.

4. Practical implications of the sustainability chapter

Sustainability agreements now have their own position in the Guidelines and rightly so. There has been a lot of debate on how to assess sustainability agreements under Article 101(3) TFEU, especially in terms of the benefits (in/outer market, to society as a whole or only to those affected by the agreement, long/short term, etc). The Guidelines provide guidance, but undoubtedly will not end the debate.

As described above, practical examples on how sustainability agreements interrelate with competition enforcement are slowly emerging and we are expecting much more to come. These practical examples are very case-by-case, but they provide insight as to how competition authorities assess real life examples (which are useful in interpreting how this chapter works in practice).

To conclude, we provide you with a few practical guidelines when (wishing to) entering into horizontal sustainability agreements:

The Commission – as well as for example the Dutch ACM – explicitly opened the door to provide informal guidance (Horizontal Guidelines, par. 515). We suggest that parties seize this opportunity when in doubt if a proposed sustainability agreement can pass the competition test.
Competition law can be perceived (or be used) as a dealbreaker for horizontal sustainable cooperation, but the Guidelines as well as the practical examples above show that there is quite a bit of leeway for genuine sustainability agreements. We recommend market players make use of this momentum.
What to generally look out for when exploring or entering into a horizontal cooperation with a sustainability goal?
- Check whether the agreement affects a competitive parameter (such as price, quantity, quality, choice, or innovation). If not, the risks are limited.
- Check the market shares involved, market positions and characteristics of the market to assess the competitive implications of the cooperation (and thus its potential competition law risk).
- Ensure that the exchange of information does not go further than what is strictly necessary for the cooperation.
- Assess whether the cooperation is necessary to reach the desired sustainability goals (in other words, can you also do it on your own?).
- The soft safe harbour introduced for sustainability standardisation agreements in noteworthy and ensures that the sustainability standard does not lead to an appreciable restriction of competition.
- Be mindful of competition law but do not let it prima facie block great sustainability initiatives!
- Consult a competition law expert early in the process to ensure that safeguards are in place where necessary, both in relation to information exchange and assessment of the cooperation agreement.

We are happy to advise you in case of questions or any concerns!

Originally published 19 July 2023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.