Solace for companies seeking guidance on sustainability agreements

Now that the revision of the Horizontal Guidelines (HGs) has finally been concluded, the European Commission (Commission) has provided the long awaited clarity on compatibility of sustainability initiatives with the EU competition rules. The HGs will formally enter into force after publication in the Official Journal.

The chapter on sustainability agreements, chapter 9, has been further amended. Below we summarise some of the most important changes compared to the latest draft(s), which we discussed in our October 2022 and March 2022 newsletters.

What's new

First of all, a general clarification relates to the interplay between chapter 9 and other chapters. The final version of the HGs specifies that in case of inconsistencies between the sustainability chapter and other chapters, parties concerned may rely on whichever chapter is most favourable. There is an explicit exception for standardisation agreements which may only be assessed under the sustainability chapter.

Second, an additional safe harbour is introduced for such sustainability standardisation agreements that do not cause an appreciable restriction of competition. In an earlier version, one of the cumulative conditions for standardisation agreements to be considered outside the scope of Article 101 TFEU was that the standard could not lead to significant price increases or quality reductions. To improve legal certainty, the revised HGs now contain an alternative condition: if the combined market share of the participating undertakings does not exceed 20%, parties do not need to demonstrate the absence of significant price increases and/or quality reductions. The requirement for installing a monitoring mechanism has also been removed.

Third, very helpful may be the new category of agreements that are unlikely to raise competition concerns, which has been added in the final text of the HGs. Agreements that aim solely to ensure compliance with sufficiently precise requirements or prohibitions in legally binding international treaties, agreements or conventions fall outside the scope of Article 101 TFEU. In order to successfully rely on this exception, the HGs prescribe that the agreement concerned compels compliances from the companies involved.

The European Commission’s view on benefits to consumers

Some will be disappointed that the Commission seems to stick to the approach it chose in the draft HGs regarding collective benefits. In order for the sustainability agreement to be exempted under Article 101(3) TFEU, the Commission requires that companies prove that the group of consumers that suffer from the restriction of competition substantially overlaps with the group of beneficiaries outside the relevant market. The Commission stresses that collective benefits will most likely require significant market coverage in order to materialise and as a result benefit from the exemption.

Relatedly, in contrast to the draft ACM guidelines on sustainability agreements, the HGs still require full compensation for consumers “in the relevant market”. Out-of-market benefits to society cannot off-set consumer harm (although they may be considered as a factor in the assessment of benefits).

That said, the HGs do create leeway for future benefits to be considered, i.e. this concerns benefits that manifest themselves with a certain time lag and will be passed-on to consumer at a later stage. However, the greater the delay, the greater the benefits have to be in order to compensate the consumers for the welfare loss suffered prior to the pass-on.

The Commission provides two examples to illustrate why it stuck to its guns: Drivers purchasing less polluting fuel also benefit as citizens from the cleaner air as a result. On the other hand, the benefits from more sustainable cotton accrue to beneficiaries in the area where it is grown and are therefore unlikely to reach the consumers who have to pay the increased price.

What to expect

The Commission encourages companies to seek informal guidance on specific sustainability initiatives. For instance, since experience with measuring and quantifying collective benefits is currently scarce, the Commission is committed to preparing further guidance once it has developed a methodology. However, it does not follow ACM’s approach whereby it commits not to impose fines for sustainability agreements in certain circumstances, for instance if properly implemented but their effects turned out anti-competitive.  

All in all, the Commission has made steps towards the ACM approach, for instance when allowing for considering collective benefits. But there are also still differences, for instance on dealing with out-of-market benefits. The ACM announced it will bring its draft guidance in line with the Commission’s approach. It is currently assessing the leeway between the two and expects to provide more clarity after the summer on how to resolve any discrepancies.

Until then, the ACM encourages undertakings to come forward with sustainability agreements to receive a provisional assessment of the competition risks.

^{Note: Veerle Peters contributed to this article. She was a Legal Assistant at the Competition & Regulated Markets practice group during May – June 2023.}

This article was published in the Competition Newsletter of July 2023. Other articles in this newsletter:

• The Foreign Subsidies Regulation – beware and get your data ready!
• Ready, set, go! The Dutch national security screening FDI regime takes off
• The era of FDI screenings kicks off in Belgium