Open Access Research Article
STRIKING A BALANCE: COMPETITION LAW IN THE AGE OF ENVIRONMENTAL SUSTAINABILITY
Published Paper
Article Details
AUTHORED BY - YASHASWI KUMAR
INTRODUCTION
Businesses have an oversize role to play in mitigating climate
change, some businesses are joining efforts in setting sustainability standards
and criteria for their supply chain and operations. Some argue that such
collaborations are anti-competitive because they could raise prices and harm
consumers.[1]
Sustainability here refers to the harmony between the environment, fairness,
and the economy.[2] The
concern between sustainability and competition arises when companies form
alliances or collectively try to work toward more sustainable products or
methods which can lead to anti-competitive concerns and be seen as an example
of cartelization by anti-trust agencies. The Consumer-Detergents Cartel of the
European Union serves as an example of this circumstance, in which the implementation
of an environmental effort connected to laundry detergents resulted in
cartelization and price increases. Furthermore, market participants want to
minimize the impression that their objectives are completely dependent on one
item. According to a recent Linklater’s poll, while most firms want to
collaborate, 60% are unwilling to work together on ESG issues owing to concerns
about breaking competition regulations and facing legal action.[3]
Companies are concerned about the risk of antitrust liability, whether from a
regulatory agency or a lawsuit, when forming alliances with rivals on
environmental, social, and governance problems.
a) When Green Turns Red: Where Sustainability and
Competition Collide
There may be contradictions between the purposes of
competition law, which seeks to promote free markets and punish
anti-competitive activity, and sustainability objectives, which sometimes
necessitate collaborative efforts and may include anti-competitive tactics. For
example, corporations may need to collaborate to establish industry-wide
sustainability standards, which might be interpreted as a breach of antitrust
rules that ban coordination among rivals. Furthermore, sustainability programs
such as environmental legislation or carbon pricing may raise expenses for
firms, potentially leading to increased consumer prices that are regarded as
anti-competitive. Striking the correct balance between sustaining market
competitiveness and permitting sustainable business practices is a difficult
task that necessitates thorough evaluation of the trade-offs and potential
unexpected consequences on both sides. In some cases, businesses may need to
work with competitors, needing clear direction from competition authorities.
Balancing sustainability and competition may be difficult, forcing us to make
trade-offs.[4] One example is when a pro-competitive conclusion may
affect sustainability, such as an anti-competitive merger that results in the
shutdown of a polluting facility. Currently, there is no agreement that
competition law should have a role to play in advancing sustainable development
goals, or in bringing about positive change in the process. This lack of
consensus stems from the belief that there may be a clash between the
objectives of competition law and the achievement of sustainable development.
Regulators are needed
to address the tension between sustainability aims and competition legislation
in specific areas. The dilemma is whether corporations may collaborate and pool
resources to achieve long-term economic growth while not breaching competition
regulations. Companies may be hesitant to embrace “green business models”
because they are concerned about being at a competitive disadvantage or that
others would exploit their efforts. On the other hand, if competitors
collaborate to achieve sustainability goals, they risk violating competition
regulations and facing fines. Competition policy cannot be and must not be
entrenched; any objective it establishes will likely need to be adjusted in
order to accommodate practical considerations and specific circumstances.[5]This is especially
true when considering sustainability, as the urgency of the climate crisis
demands significant changes to markets.
BRIDGING THE GREEN DIVIDE: GLOBAL SOLUTIONS FOR SUSTAINABLE COMPETITION
Up until now, the European Union has been the primary driver of
sustainability initiatives.[6] The European Union Commission has initiated a consultation pertaining to
Research and Development (R&D) and Specialization. In a similar vein, in
2021, the Authority for Consumers and Markets (ACM) which is a regulator in the
Netherlands has released its 2nd draft Guidelines on sustainability
agreements.[7]
In 2021, both the Netherlands Authority for Consumers and Markets (ACM)
and the Hellenic Competition Commission (HCC) released a Technical Report on
Sustainability and Competition. Following this, the HCC started a consultation
called "Sustainable Development Sandbox" in July 2021. Recently, the
ACM published a Policy Rule regarding its oversight of sustainability
agreements on 4 October 2023.[8] The Agricultural Competition Monitoring has taken several actions to
promote fair competition in the farming industry. These actions include
guidelines for collaborations between farmers, preventing the use of illegal
pesticides in garden centres. On June 23rd, 2023, the ACM found that this
agreement actually limited competition.[9]
While existing competition laws may deter cooperation in sustainability endeavours
for some, there has been encouraging progress thanks to recent guidelines
issued by competition agencies worldwide. In case of
India, while the Competition Commission of India (CCI) has yet to join in the
debate over the relationship between competition law and sustainable
development, it can gain useful insights by studying the ongoing debate in
other EU competition regimes.
a) Are These Guidelines Enough for a Sustainable
Future?
The International Chamber of Commerce (ICC) in its
2020 report has urged competition agencies to address the chilling impact of
present competition laws on objectives related to sustainability, as there are differing opinions on the effectiveness of
recent guidelines.[10] Some argue that these guidelines are inadequate in terms of
timing, scope, and cohesiveness. Furthermore, there are already discrepancies
among agencies. The “chilling effect” happens when
individuals or groups stop from expressing themselves for fear of violating a
law or rule.[11] This can occur when a legislation is overly ambiguous or broad. In legal
contexts, the chilling effect occurs when the prospect of legal action inhibits
individuals from exercising their inherent and legal rights.
What is presently followed by these anti-competitive agencies
is a narrow approach, the concern associated with this is that agencies may
only focus on a smaller subset of agreements, overlooking significant
out-of-market sustainability and environmental benefits. Unlike agencies in
Europe and Asia, the United States has refrained from providing any form of guidance.
This could be attributed to factors such as political opposition, divisions
within the federal and administrative sectors, doubts regarding collaborative
motivations, and concerns about potential litigation and accusations of group
boycotts. As a result, there is now increased uncertainty, discouraging
companies from considering global sustainability initiatives and hence warming
the globe.[12]
b)
Current position in India
The relationship between Indian competition law and ESG
cooperation has not been thoroughly explored due to a lack of guidance and
legal development.[13] The CCI has yet to release any guidelines or regulations to aid
companies in collaborating to achieve ESG objectives. Nevertheless, the
Competition Act of 2002 contains various provisions that could be interpreted
as promoting ESG cooperation among rivals. The Act's preamble situates its
provisions within the broader context of “economic development of the country”
and acknowledges “consumer interests” as one of its objectives. Moreover, there
is Sec. 19(3) of the Act enabling the Competition Commission to assess ESG norms
of agreements.[14] Similarly, Section 20(4) empowers the CCI to evaluate the
potential anti-competitive consequences of ESG-facilitating mergers.[15] Parties who wish to use efficiency as a defence must present
compelling evidence of particular advantages and demonstrate how this will
benefit current consumers in the foreseeable future. Nonetheless, ESG-related
collaborations present three significant challenges.
The current framework restricts competitors from collaborating on
environmental and social initiatives, without considering the long-term
advantages of such partnerships. Moreover, businesses are left to evaluate the
potential negative impacts of these collaborations on their own, without any
guidance from the CCI. This lack of clarity often results in companies taking a
conservative approach, which could hinder ESG interests. However, competition
regulators in Greece, the Netherlands, and the UK have addressed these concerns
by releasing comprehensive guidelines that permit competitors to work together
on sustainability agreements, as long as the benefits to society outweigh any
negative impact on competition. These guidelines dictate that sustainability
benefits must be proven, benefits must be fairly distributed, competition must
be restricted only when necessary to achieve benefits, and competition in the
market should not be significantly reduced. Consequently, the guidelines have
led to an increase in collaborative ESG initiatives across industries. The
North Sea region is seeing a collaborative effort to store CO2 in depleted
natural-gas fields, with the aim of reducing emissions while keeping
competition in the market largely unaffected. These guidelines offer stakeholders
some clarity on the stance of competition authorities, enabling them to work
together more effectively to achieve sustainability goals.[16]
Vipul Shah’s case is an example where CCI
opted not to penalize AIFEC’s alleged cartelization as it involve daily-wage
earners and craftsmen. Similarly, in FCI’s case, CCI followed similar ruling.[17] Similarly, in the FCI v. SAPPL & Ors. case, the CCI
avoided punishing small to medium enterprises for their violations by
acknowledging the economic challenges faced by MSME.[18] Lastly, the National Company Law Appellate Tribunal
(NCLAT) directed the CCI to reassess the imposed penalty and to think about implementing
a reformative penalty that would not harm the industry in the Ceat Ltd v. CCI
& Ors case.[19]
The competition commission is yet to evaluate the effects
of conduct that supports Principles related with ESG, it has demonstrated
attentiveness to wider socio-eco objectives in its decisions. India's competition legislation, which
acknowledges the right associated with a healthy environment, can help to
relieve the climate crisis by including sustainability. Green ideas can be
promoted by the Competition Commission of India within the present statutory
framework. Despite the lack of specific sustainability criteria under the
Competition Act of 2002, the current Indian legislation, the CCI can play an
important role in defining and balancing such activities. The CCI can help
enterprises implement sustainable practices by promoting environmental goals
and competition rules, as well as interpreting sustainability in the evaluation
of negative implications on competition.
CHALLENGES ON THE ROAD TO ECO-FRIENDLY COMPETITION
Competition authorities may encounter
several obstacles in various circumstances. One issue is of determining whether
the consumer welfare standard is suitable for analyzing the integration of
sustainability considerations.[20] Additionally, there is a question
of whether certain types of agreements can be exempted on a case-by-case basis
if the benefits of sustainability outweigh any negative impact on competition.
It is also important to consider how these benefits should be measured, in
terms of which market and timeframe they should materialize in. Another
challenge is how competition authorities should adjust their analysis when
consumer demand does not align with their preferences. Furthermore, the
relationship between competition law and public policy poses a question as to
whether competition agencies have a role in addressing market failures or if
this responsibility falls under the purview of other regulatory activities.
Lastly, international convergence may be necessary if sustainability
initiatives have an impact across multiple jurisdictions. While new guidelines
for companies, even in a limited number of jurisdictions, are a positive
initial step, it is important to note that these guidelines are still a work in
progress and have limitations.
Companies must evaluate the
advantages of sustainability initiatives in comparison to the potential harm
caused by anticompetitive practices, with a focus on ensuring fair compensation
for consumers.[21] This evaluation process can be
challenging and risky for companies as they try to find the right balance. It
is important for companies to demonstrate that consumers are receiving a
reasonable share of the benefits from sustainability agreements and that these
benefits outweigh any negative effects on competition. Additionally, companies
should determine the type of consumer benefit that arises from these
agreements, whether it is direct, indirect, or collective.
a) Leading the Charge: How Companies Can Champion
Sustainable Practices While Staying Competitive
When discussing or developing new sustainability initiatives,
companies should take into account the risk of antitrust issues. However, they
should be open to consulting the new guidelines during this process. It would
be beneficial for companies to actively engage with competition agencies. For instance, the Competition and Markets Authority (CMA) of
UK has implemented an “open-door” policy that permits companies to seek
informal guidance from the CMA regarding proposed environmental sustainability
agreements (not existing ones).[22] The advantage of this is that if the CMA determines that the
agreement does not pose any competition concerns, as long as the parties have
not withheld crucial information from the CMA's evaluation, they will be
protected from enforcement action.
Antitrust regulators must distinguish between
genuine sustainability initiatives and those exploited as a cover for
cooperation. A focus on the impact on customers and the environment can assist
in form enforcement choices. Sustainability certifications are one example of a
market-based solution that may be implemented. Independent third-party
certifications for sustainable practices can help businesses differentiate
themselves without needing collaboration. Furthermore, rising customer demand
for environmentally friendly products and services can encourage businesses to
develop and implement sustainable practices without having to collaborate with
rivals.
Private enforcement can also help by establishing a set
piece of standards in practice, so the interest of affected parties can be
dealt with. This is especially important in a sustainability setting,
considering how quickly climate challenges and corporate policies which are
evolving.[23]Companies may consider modifying their internal regulation
regarding trade association and the exchange of competitively sensitive
information to allow for increased collaboration with competitors solely on
sustainability initiatives. Nevertheless, there is still much more to be done
in order to encourage businesses to cooperate in a procompetitive manner on
sustainability initiatives.[24]
CONCLUSION
Competition law and environmental protection go hand in hand
because both anti-competitive behaviour and environmental harm happen
simultaneously. One example can be of the greenwashing cartel, where companies
collectively overcharge consumers under the guise of environmental protection.
Another example is when companies intentionally reduce competition by not
differentiating their sustainable products. Anti-competitive practices can also
occur when companies collude to delay the introduction of green technologies or
agree not to advertise the environmental benefits of their products. However,
achieving sustainability goals often necessitates industry-wide agreements,
technological collaborations, and substantial investments.
The cautious approach towards collaborative efforts in
competition law arises from concerns about market distortion and the formation
of cartels. These cartels have negative implications for the market, including
reduced output and limited innovation. If opportunities are granted to companies
to work together, they could collectively adopt green packaging, creating a
higher demand. As a result, consumers would have fewer choices and may be
willing to pay higher prices since the costs of green packaging would be
incorporated by all companies. This can prove to be not fair on account of consumers,
as their welfare in terms of price takes a backseat. However, it is important
to recognize that engaging in environmentally harmful practices comes with a
much greater cost. Climate change impacts encompass social, economic, and
environmental damages, leading to increased living expenses and scarcity of
resources like food, energy, and healthcare infrastructure. Therefore, either
we have to face increase in prices or rely on ineffective and unsafe alternatives
which can be cheaper on scale.
Regarding competition, there may be many agreement on
including climate change aspects, like carbon emissions, in the efficiency
gains category. However, there are still uncertainties about whether
competition laws should be waived in sustainable matters, such as biodiversity,
which are considered efficiency improvements under Austrian competition law and
its draft Guidelines. To encourage businesses to adopt sustainability
initiatives while maintaining market efficiencies, international organizations
like UNCTAD should actively engage in facilitating discussions and promoting
information sharing.
[1] Sustainability and competition law: friends or foes? Sustainability and Competition Law: Friends or Foes? | Faculty of Law. Available
at:
https://www.law.ox.ac.uk/content/event/sustainability-and-competition-law-friends-or-foes
(Accessed: 20 March 2024).
[2] What is sustainability? UCLA
Sustainability. Available at:
https://www.sustain.ucla.edu/what-is-sustainability/ (Accessed: 20 March 2024).
[3] Competition law remains a barrier to sustainability
collaborations: News: About Us Linklater’s. Available at:
https://www.linklaters.com/en/about-us/news-and-deals/news/2023/october/competition-law-remains-a-barrier-to-sustainability-collaborations#:~:text=30%20October%202023-,Competition%20Law%20remains%20a%20barrier%20to%20sustainability%20collaborations,and%20the%20risk%20of%20litigation.
(Accessed: 20 March 2024).
[4] Competition law tackling sustainability goals?: An
analysis of international practices and the challenges ahead (2023) Cyril
Amarchand Mangaldas. Available at: https://www.cyrilshroff.com/articles/competition-law-tackling-sustainability-goals-an-analysis-of-international-practices-and-the-challenges-ahead/
(Accessed: 20 March 2024).
[5] ‘The economics of competition policy’, EU Competition
Law and the Information and Communication Technology Network Industries?:
Economic versus Legal Concepts in Pursuit of (Consumer) Welfare [Preprint].
doi:10.5040/9781472561138.ch-003.
[6] Ad hoc expert meeting on competition, Consumer
Protection and Sustainability (2022) UNCTAD. Available at:
https://unctad.org/meeting/ad-hoc-expert-meeting-competition-consumer-protection-and-sustainability
(Accessed: 20 March 2024).
[7] Markt, A.C.& (2022) Guidelines on sustainability
agreements are ready for further European Coordination, ACM.nl. Available at:
https://www.acm.nl/en/publications/guidelines-sustainability-agreements-are-ready-further-european-coordination
(Accessed: 20 March 2024).
[8] Beetstra, T. et al. (2022) Dutch
regulator actively facilitating sustainability developments, Kluwer Competition
Law Blog. Available at:
https://competitionlawblog.kluwercompetitionlaw.com/2022/03/10/dutch-regulator-actively-facilitating-sustainability-developments/
(Accessed: 20 May 2024).
[9] Gassler, M. et al. (2022) New Draft Sustainability
Guidelines for the new Austrian Sustainability Exemption, Kluwer Competition
Law Blog. Available at:
https://competitionlawblog.kluwercompetitionlaw.com/2022/06/02/new-draft-sustainability-guidelines-for-the-new-austrian-sustainability-exemption/
(Accessed: 20 March 2024).
[10] International Chamber of Commerce
(2022) When chilling contributes to warming. Available at:
https://iccwbo.org/wp-content/uploads/sites/3/2022/11/when-chilling-contributes-to-warming-2.pdf
(Accessed: 20 May 2024).
[11] Chilling effect overview, The
Foundation for Individual Rights and Expression. Available at:
https://www.thefire.org/research-learn/chilling-effect-overview (Accessed: 20
May 2024).
[12] Boris Bershteyn et al. (2023)
Antitrust and Sustainability: EU, UK and US take divergent enforcement
approaches: Insights: Skadden, arps, slate, meagher & flom LLP, Insights |
Skadden, Arps, Slate, Meagher & Flom LLP. Available at:
https://www.skadden.com/insights/publications/2023/11/antitrust-and-sustainability
(Accessed: 20 May 2024).
[13] Verma, V. (2024) Competition and
sustainability:way forward for India, Tcclr. Available at:
https://www.tcclr.com/post/competition-and-sustainability-way-forward-for-india#:~:text=Competition%20law%20in%20India%2C%20recognizing,within%20the%20existing%20legal%20framework.
(Accessed: 20 May 2024).
[14] Competition Act of India, § 19(3).
[15] Competition Act of India, § 20(4)
[16] Markt, A.C.& (2022) ACM: Shell
and totalenergies can collaborate in the storage of CO2 in empty north sea gas
fields, ACM.nl. Available at: https://www.acm.nl/en/publications/acm-shell-and-totalenergies-can-collaborate-storage-co2-empty-north-sea-gas-fields
(Accessed: 20 May 2024).
[17] Vipul A. Shah v. All india film Employee
Confederation ,2017 SCC ONLINE CCI 53.
[18] In re: Food Coproration of India
v. Shivalik Agro Poly Products Limited and Others, Reference Case No. 07 of
2018, Order dated October 29, 2021.
[19] Ceat Ltd. v. CCI, 2022 SCC OnLine
NCLAT 1594.
[20] Markus W. Gehring, Competition for Sustainability:
Sustainable Development Concerns in National and EC Competition Law, 15 REV.
EUR. COMP. & INT'l ENVTL. L. 172 (2006).
[21] Sustainability
and competition - OECD. Available at:
https://www.oecd.org/daf/competition/sustainability-and-competition.htm
(Accessed: 20 March 2024).
[22] Chapman, A. et al. (2023) Antitrust and
sustainability - UK CMA consults on new guidance for businesses entering into
environmental sustainability agreements, Lexology. Available at:
https://www.lexology.com/library/detail.aspx?g=b241412e-5a82-4bd8-9218-c42331e5ee59
(Accessed: 20 March 2024).
[23] BICCIOLO, G.B. (2024b) Competition
law and sustainability: The case for coherence, Hausfeld. Available at:
https://www.hausfeld.com/en-de/what-we-think/competition-bulletin/competition-law-and-sustainability-the-case-for-coherence/
(Accessed: 20 May 2024).
[24] Sundardas, A.A. (2021) Sustainability and
competition: Recognizing potential in competition law to promote Green Future,
IRCCL. Available at: https://www.irccl.in/post/sustainability-and-competition-recognizing-potential-in-competition-law-to-promote-green-future
(Accessed: 20 March 2024).
Article Information
STRIKING A BALANCE: COMPETITION LAW IN THE AGE OF ENVIRONMENTAL SUSTAINABILITY
Authors: YASHASWI KUMAR
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/06/17
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
All research articles published in International Journal for Legal Research and Analysis are open access and available to read, download and share, subject to proper citation of the original work.
Disclaimer: The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of International Journal for Legal Research and Analysis.