Sustainability in the Commission’s Revised Horizontal Guidelines

On 1 June 2023 the European Commission (the “Commission”) adopted and published its long-awaited guidelines on horizontal cooperation (the “Guidelines”), together with its updated Horizontal Block Exemption Regulations on Research and Development and Specialisation Agreements. The Guidelines remain largely unchanged from the draft revised guidelines published on 1 March 2022, summarised in our earlier update.

The most notable and highly anticipated part of the Guidelines is Chapter 9 on Sustainability Agreements. This chapter aims to assist businesses to better assess the compatibility of their cooperation agreements with EU competition rules, where such agreements genuinely pursue a sustainability objective. Whilst providing a high-level steer on the circumstances in which a sustainability agreement would likely not be caught by the prohibition on anti-competitive agreements, the Commission also commits to offering informal guidance on a case-by-case basis regarding novel or unresolved questions.¹

Sustainability agreements

The Guidelines define horizontal “sustainability agreements” broadly as any type of cooperation that pursues a sustainable objective² and set out four broad categories of such agreements, as follows:

• Agreements imposing restrictions solely aimed at ensuring compliance with legally binding international treaties or conventions (e.g., use of certain pollutants);
• Agreements concerning solely the internal conduct of competitors (e.g., agreeing on measures that are environmentally friendly, such as banning single-use plastics from their business premises);
• Agreements on the creation of collective databases providing information about which suppliers have (un)sustainable value chains or production processes, without imposing requirements on the parties (i.e., to purchase from specified suppliers); and
• Agreements relating to the organisation of industry-wide awareness campaigns on sustainability (providing such agreements do not amount to joint advertising of specified products).

The Guidelines emphasize that sustainable agreements are not a distinct category of horizontal cooperation but rather an objective supported by the Commission, which must be considered when assessing potential competition restrictions under Article 101(1) TFEU. Where a sustainability agreement does not impact competition parameters such as price, quantity, quality, choice, or innovation, it is unlikely to raise competition concerns.

Importantly, however, a mere reference to a sustainable objective does not exempt an agreement from Article 101(1) if it leads to appreciable actual or likely negative effects on competition. In such cases, particular attention should be given to factors including: (i) the market power of the parties participating in the agreement; (ii) the degree to which the agreement limits the decision-making independence of the parties; (iii) the market coverage of the agreement; (iv) the extent to which commercially sensitive information is exchanged; and (v) whether the agreement results in an appreciable increase in price or an appreciable reduction in output, variety, quality or innovation.

A sustainable exemption under Article 101(3) TFEU?

Even if an agreement restricts competition under Article 101(1), it may still qualify for an individual exemption under Article 101(3), provided the following four cumulative conditions are met: (i) the agreement generates verifiable efficiency gains;³ (ii) the restriction of competition is indispensable to the attainment of benefits; (iii) consumers receive a fair share of the purported benefits; and (iv) the parties continue to compete on at least one parameter of competition (i.e. the agreement does not eliminate competition from the relevant market). The Guidelines elaborate to a certain extent on how this may work for sustainability agreements.

The Guidelines contain detailed guidance on whether sustainability benefits can be considered efficiency gains for “consumers” (as opposed to society as a whole), which are defined as comprising “all direct and indirect users of the product covered by the agreement”. The Guidelines allow for a broad range of sustainability benefits that can be taken into account in this regard, such as the use of eco-friendly ingredients, less polluting technologies, resilient infrastructure and lower supply chain disruption.⁴ These benefits should ultimately accrue to the consumers affected by the agreement and the Guidelines explain that an assessment of this includes: (i) the benefits resulting from direct use of the products covered by the sustainability agreement (“individual use” of the products); and (ii) those indirect benefits arising from use of the products under the sustainability agreement (“individual non-use benefits”).

In this way, the Guidelines have opened a narrow window for collective benefits to be taken into account. Whilst providing a mechanism for “out of market” benefits to be considered as “collective benefits”, this is only permitted in those circumstances where consumers in the relevant market substantially overlap with (or are part of) the beneficiaries outside the relevant market. This differs from the approaches taken by the UK Competition Markets Authority (“CMA”) in its draft guidance on the application of UK competition law to sustainability agreements and the Dutch Authority for Consumers and Markets (ACM), which have both been more generous in their assessment of the fair share criterion.

Sustainable standardisation agreements

Where an agreement clearly has as its object the restriction of competition (e.g., price fixing or market sharing), it is not necessary for the enforcing authority to prove that the agreement will produce anti-competitive effects as the “object” itself demonstrates sufficient harm to competition. The Guidelines provide examples of sustainability standardisation agreements - i.e., agreements between competitors relating to the adoption of an industry standard on sustainability – which will be deemed anti-competitive by object.⁵ Other sustainability standardisation agreements will have to be assessed on a case-by-case basis according to whether they actually or likely give rise to anti-competitive effects. This is the same for all agreements and gives rise to some legal uncertainty.

However, the Guidelines also introduce a regime providing a “soft safe harbour” for sustainable standardisation agreements. Competitors may agree to phase out, withdraw or replace non-sustainable products or adopt other specified sustainability standards. This could involve the creation of (sustainability) labels empowering customers to make informed purchasing decisions. When the following six cumulative conditions are met, the agreement will not be considered to have adverse effects on competition within the scope of Art. 101(1):

1. Standard development must be transparent and participative.

2. The standard should be adopted on a voluntary basis and access should be open to all market participants.

3. Undertakings should be able to adopt stricter standards.

4. The parties should not exchange sensitive commercial information.

5. Access to the outcome should be effective and non-discriminatory.

6. Sustainability standards must satisfy at least one of the following two conditions:

   a. Should not lead to a significant increase in price or a significant reduction in the quality of the products on the market; and/or

   b. The combined market share of the undertakings must not exceed 20% on any relevant market affected by the standard.

A greener outlook?

The introduction of a dedicated section on sustainability agreements in the Guidelines marks a crucial milestone in the implementation of a "greener" competition policy, aligning with policy incentives under the European Green Deal which aim to help the EU reach climate neutrality by 2050. It also serves as another example of a competition authority seeking to facilitate collaborative efforts to meet sustainable goals within (clearly defined) boundaries of competition law.

At Simmons & Simmons, we understand the importance of staying well-informed with this evolving legal framework. Our team of experts is well-versed in competition law matters and is available to provide guidance and assistance tailored to your specific needs. Contact us to navigate the sustainable future with confidence.

¹ See paragraph 515 of the Guidelines, referring to the Commission’s Notice on informal guidance relating to novel or unresolved questions concerning Articles 101 and 102 of the Treaty on the Functioning of the European Union that arise in individual cases (guidance letters), OJ C 381, 4.10.2022, p. 9.
² See paragraph 516 of the Guidelines.
³ See paragraphs 556 to 596 of the Guidelines.
⁴ See paragraph 558 of the Guidelines.
⁵ These are agreements between competitors to pass increased costs resulting from the adoption of a sustainability standard onto customers; and an agreement between competitors to limit technological development to the minimum sustainability standards required by law, instead of cooperating to achieve more ambitious environmental goals.