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01 February 2023

Legitimate sustainability cooperation or cartel greenwashing?

In The Wealth of Nations, Adam Smith famously wrote that "people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." Today, in view of the latest developments regarding sustainability agreements, one might venture to correct him: cooperation, not competition, is the motive force behind sustainable development. And if the European Commission ("EC") and its much-awaited draft revised guidelines on horizontal agreements ("draft Horizontal Guidelines") is to be believed, various ways for companies to jointly pursue sustainability objectives already exist. Among other things, the draft Horizontal Guidelines provide clarification on the following types of sustainability agreements:

  • Agreements that don't affect price, quantity, quality, choice or innovation and are out of the scope of EU competition law.
  • Standardisation agreements in the field of sustainability that are out of scope of EU competition law as long as the process of developing the standard is transparent and non-discriminatory, and the participating companies are free to develop better standards. In addition, commercially sensitive information not needed for the development of the standard must not be exchanged and the standard must not lead to a price increase.
  • Agreements that have negative effects on competition but are exempted from the prohibition on anticompetitive agreements as they benefit consumers in several ways, e.g. by more sustainable production or higher-quality products. However, a restriction of competition can only be justified if it is indispensable and consumers in the relevant market receive a "fair share" of the benefits resulting from the agreement, i.e. the agreement should bring direct or indirect benefits to consumers paying for the goods or services.

While at first glance these rules seem a welcome approach, many questions arise, especially with regards to the latter example. What exactly is a "fair share"? How can we evaluate such agreements from an economic point of view? Above all, what distinguishes legitimate sustainability cooperation from simple greenwashing?

Hefty fines to be expected

In any case it can be expected that if the EC has even the slightest inkling that cartel greenwashing could be hidden behind well-intentioned sustainability ambitions, companies will face hefty antitrust fines. This expectation is not unfounded. The EC set the tone in its hotly debated Car Emissions Cartel decision, in which it not only had to decide for the first time whether collusion on technical (sustainable!) development amounts to a cartel, but also rendered its first decision on an antitrust case that places the issue of the European Green Deal prominently at its centre.

Determining in advance whether a certain business practice has more negative or positive effects on competition and consumers has never been easy. Indeed, Adam Smith's reflections about "people of the same trade" have perhaps ensured that cooperation agreements of any kind cannot avoid the bitter taste of antitrust violation. However, while the draft Horizontal Guidelines provide some clarity on sustainability agreements, the EC's decisional practice clearly shows how cautiously companies must proceed when it comes to cooperation for the benefit of sustainability. Agreements on sustainable development must not only be well-intentioned; at the end of the day, they must also stand up to rigorous (and not always predictable) scrutiny by competition authorities.

It remains to be seen whether further decisions and the final version of the Horizontal Guidelines will sharpen the thin red line between legitimate sustainability cooperation and illegal collusion.

authors: Christoph Haid, Anna Sofia Reumann



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