Reconciling sustainability and competition agreements

On May 29, 2024, the AdC published a Guide to Best Practices on Sustainability Agreements, which is under public consultation until June 20.

Sustainability concept

The concept of sustainability covers activities that support economic, environmental and social development, such as combating climate change, reducing pollution, protecting human rights, reducing food waste, ensuring animal welfare, and limiting the use of natural resources.

Reconciling sustainability and competition

Although this type of cooperation can promote sustainability, the AdC reminds us that restrictive agreements are prohibited, meaning companies must ensure that the pursuit of sustainability does not involve any type of competition law infringement.

AdC guide objectives

The Guide to Best Practices on Sustainability Agreements summarizes the exemptions, safeguards, and compatibilities established for these sustainability agreements.

How to analyze sustainability agreements from a competition standpoint?

• Parameter restrictions

Companies should start by understanding whether the agreement in question restricts any competition parameters—namely, price, quantity, quality, diversity, and innovation.

• Safeguards

If so, it is important to ascertain whether any of the safeguards established in the guide can be applied.

The sustainability agreement may be exempt if it qualifies as a de minimis agreement—that is, if the combined market share of the parties does not exceed 10% in any important market, and the agreement does not prevent, restrict or distort competition.

The agreement may also benefit from a non-binding safeguard if:

(i)   the sustainability standards are transparent;

(ii)   it does not obligate third parties to comply with it (although they may implement it);

(iii)  it ensures that the parties can adopt more stringent standards; and

(iv)  there is no exchange of strategic and sensitive information between the parties.

The sustainability agreement may also benefit from a non-binding safeguard if:

- the standard does not entail a considerable rise in price or a significant reduction in the quality of the products; or

- the combined market share does not exceed 20% in any important market that may be affected by that share.

• R&D or specialization agreements

R&D or specialization agreements may benefit from a category exemption depending on the combined market shares of the parties, which must not exceed 25% or 20% (as applicable). However, the agreement cannot have a hardcore competition restriction as its object, and such a restriction cannot be eliminated post-performance.

• Agreements among agricultural producers

Finally, the guide expressly establishes that agreements among agricultural producers may be justified when they are essential for sustainability purposes—namely, by promoting environmental protection, reduction of pesticide use, and animal health and welfare.

Conclusion

To conclude, a sustainability agreement that restricts competition can still be justified and considered legitimate from a competition law standpoint, provided (a) it produces efficiency gains, (b) these gains are passed on to the affected consumers, (c) the agreement is indispensable, and (d) it does not eliminate competition.

If a sustainability agreement infringes competition law and is not justified based on the above principles, it is void. Infringing companies are liable to a fine of up to 10% of their global turnover, and their directors and officers may also be held personally liable.

Consequently, every agreement must be carefully analyzed to ascertain its compliance with competition law, even if it initially seems justified on sustainability grounds.