Dutch Competition Regulator leads the way on sustainability

Welcome clarity for business

The Dutch competition regulator (ACM) has published draft guidelines for the assessment of “sustainability agreements” between competitors. The aim is to increase the opportunities for competing businesses to collaborate in pursuit of sustainability objectives, especially those relating to climate change and the environment. Ahead of finalising the guidelines, the ACM is gathering views from public and private stakeholders. The deadline for submission is 1 October 2020.

With its draft guidelines, the ACM leads the way in the broader debate about the role of competition law in facilitating (or hampering) sustainability projects. We recently conducted a survey which shows that over 90% of companies want to work together to address sustainability goals but almost 60% had not pursued a sustainability project because of potential legal risk. We’ve discussed in our Competition and Sustainability Series how companies can make the most of the opportunities for collaboration, differentiation and growth, while remaining compliant with the competition rules. One of the key challenges is that legislation and block exemptions don’t provide the necessary legal certainty for companies to embark on joint projects.

In this context, the ACM’s draft guidelines are a welcome development and a step forward in the ongoing debate on competition law and sustainability. It’s true they won’t provide comfort for agreements whose effects are felt outside the Netherlands. But as other authorities grapple with these issues – including the European Commission as part of its Horizontal Guidance consultation – we hope they will give similar express support for companies working together to achieve sustainability goals.

Summary of the ACM’s proposed new rules

The guidelines identify three categories of sustainability agreements in a traffic light style approach:

• permitted agreements (green);
• agreements that require a simplified assessment (amber); and
• agreements that require a detailed quantitative assessment (amber/red).

(a) Permitted sustainability agreements

The ACM identifies categories of agreements in the guidelines that, in its view, do not restrict competition and are therefore permissible. These include:

• Non-binding agreements that incentivise participants to contribute to a sustainability objective (e.g. setting agreed targets to reduce CO2 emissions).
• Codes of conduct promoting environmentally-conscious practices, including joint standards and certification labels. Standardisation agreements will need to follow established competition rules including that the participation criteria must be transparent and applied in a reasonable and non-discriminatory manner, and it should remain possible to have alternative standards/labels and to sell products that do not satisfy the criteria for certification.
• Agreements aimed at improving product quality and replacing products that are produced in a less sustainable manner (e.g. reducing or phasing out packaging material).
• Agreements that participants, their suppliers and/or their distributors will respect sustainability laws including labour laws (e.g. on child labour and minimum wages), environmental rules (e.g. banning illegal logging) and fair-trade rules.

(b) Categories of sustainability agreements that require an assessment

Sustainability agreements that do restrict competition are permitted if the four conditions under Article 101(3) TFEU (and the Dutch equivalent) are fulfilled. The conditions are:

• the agreement must result in objective and substantiated benefits;
• users must be allowed a fair share of the benefits;
• the agreement must be necessary to achieve the identified benefits; and
• sufficient competition must remain on the market.

The ACM’s guiding principle in relation to the first two criteria is that sustainability agreements between competitors are permitted where the benefits for society, as a whole, outweigh the disadvantages of any restriction of competition. A distinction is then made between the following 2 categories of agreements:

• Agreements that require a simplified assessment: Agreements where either (a) the parties have a combined market share of less than 30% or (b) it is obvious the benefits offset the harm, are less likely to harm competition. For these agreements the parties need to explain the benefits and disadvantages, but they aren’t required to quantify the benefits.
• Agreements that require a quantitative assessment: For agreements that do not meet one of the above two criteria, a more sophisticated (quantitative) analysis of the pros and cons is required and the ACM provides guidance on how parties might do this (e.g. using environmental prices). Whilst weighing benefits against disadvantages is standard under competition rules, the ACM brings welcome clarity that the benefits to be considered are those accruing to the whole of society and not only to consumers of the specific product. This is a crucial clarification as there have previously been conflicting approaches by authorities on how to assess the benefits of cooperation agreements.

The proof of the pudding is in the eating

For the ACM, the litmus test will be whether its decisional practice will reflect the more liberal approach advocated in the guidelines. In the past, the ACM blocked an agreement between coal producers to switch to green energy and close down five coal plants (2013) and an initiative between chicken suppliers and retailers to replace regularly-produced broiler chicken with more sustainable alternatives (2015) to raise animal welfare standards. In both cases, the ACM focused on benefits accruing to the affected consumers (rather than society at large), which it found insufficient to outweigh the competitive harm. The guidelines explicitly replaces the ACM’s narrower approach set out in its 2014 and 2016 policy initiatives. The question will therefore be whether similar initiatives will be approved under the new rules proposed by the ACM – watch this space.