Competition and sustainability: more room for sustainability agreements and ACM tackles misleading sustainability claims

The relationship between competition law and sustainability has been subject of debate for many years: see, for instance, here, here, here and here. Market-wide agreements are usually desirable or necessary to stimulate more sustainable production methods or the introduction of certain products or services. In practice, sustainability initiatives are often difficult to fit into the competition law framework (cartel prohibition). This does not mean that no attention is paid to this issue: it is given plenty consideration. Another development is the increasing enforcement by competition authorities such as the Netherlands Authority for Consumers and Markets (“ACM”) in the field of greenwashing. Greenwashing occurs not only with respect to “green cartels”, but also in the form of misleading or false sustainability claims made by companies. The developments in this field are outlined in this blog.

Sustainability initiatives and the cartel prohibition

Whether sustainability initiatives are consistent with the cartel prohibition under Article 6 of the Mededingingswet (Competition Act) or Article 101 TFEU is usually assessed on the basis of the exception ground in Article 6(3) of the Competition Act or Article 101(3) TFEU (efficiency defence). In recent years it has become apparent that ACM strictly assesses the efficiency defence in sustainability initiatives. That was clearly demonstrated by the Kip van Morgen initiative and the closure of coal-fired power stations, but also, for instance, by shrimp fishery. One reason for ACM’s critical approach is probably its desire to prevent greenwashing of cartel agreements. That situation occurs if companies make anticompetitive agreements under the guise of promoting sustainability, while in actual fact attempting to circumvent the cartel prohibition. The legislature is increasingly clarifying the boundaries of and legroom for sustainability initiatives.

CMO Regulation

An important development is taking place at a European level. Under the new Article 210a of Regulation 1308/2014 (the “CMO Regulation”), sustainability initiatives in the agri-food sector are exempt from the cartel prohibition, subject to certain conditions. Initiatives aimed at (i) environmental objectives, (ii) improvement of the production of agricultural products or (iii) animal health and animal welfare are eligible for the exemption. If Article 210a of the CMO Regulation is complied with, it will no longer be necessary to rely on an efficiency defence for certain sustainability initiatives in the agri-food sector. More information can be found in this blog.

Draft Horizontal Guidelines

Also in March 2022, the European Commission (the “Commission”) published its draft revised Horizontal Guidelines (the “Draft Guidelines”). Unlike the current version of the Horizontal Guidelines, and in light of the Green Deal, the Draft Guidelines now contain a separate chapter on sustainability initiatives. The following points stand out:

  • The term “sustainability” is very broadly defined in the Draft Guidelines, reference is also made, for instance, to social aspects such as labour and human rights;
  • The term “sustainability initiative” is very broadly defined in the Draft Guidelines. It may also include R&D agreements or agreements on joint purchasing, for instance.

The Draft Guidelines also contain a “soft” safe harbor provision: if the following cumulative criteria are met, a sustainability initiative is unlikely to have an appreciable adverse effect on competition and therefore does not fall under the cartel prohibition.

  • The sustainability standard must be transparent and all interested competitors must be able to participate in the process;
  • The sustainability standard may not impose any direct or indirect obligations on non-participating companies;
  • Companies must be free to set stricter sustainability standards themselves;
  • Parties may not exchange commercially sensitive information that is not necessary for the development of the sustainability standard;
  • Access to the results of the sustainability standard must be guaranteed;
  • The sustainability standard may not lead to a significant price increase or reduce the choice of available products.

Once they enter into force, the Draft Guidelines will be an important tool for companies in assessing possible new sustainability initiatives. Market parties have until 26 April 2022 to respond to the Draft Guidelines. The Draft Guidelines will enter into force on 1 January 2023.

ACM has now published its ten-page opinion on the Draft Guidelines. ACM is predominantly positive about the Draft Guidelines but also suggests various changes. A few examples are given below:

  • Agreements whose sole purpose is to respect national or international legal standards (such as restricting the logging of certain types of wood) should fall outside the cartel prohibition.
  • The list of examples (in Section 9.2) should be further expanded. ACM refers in this respect to its own draft guidelines on sustainability initiatives (Chapter 4).
  • The soft safe harbor should also pertain to the application of existing sustainability standards and not only new sustainability standards.

Assessment of sustainability initiatives by ACM

Sustainability initiatives that ACM (or the NMa) has assessed against the cartel prohibition in the past are a mixed bag. According to ACM, the agreement in the SER Energy Agreement to close five coal-fired power stations was detrimental to consumers and therefore unlawful. ACM also put a stop to a vast majority of the agreements on limiting catches and making shrimp fishing more sustainable, on the grounds of the cartel prohibition. The well-known Kip van Morgen initiative also did not pass muster at ACM on that point. The foregoing did not apply to an agreement to reduce the use of antibiotics in livestock farming (the Den Bosch Agreement) and sector-wide agreements to replace castration of piglets without anaesthesia with anaesthetised castration. To provide more clarity, ACM published its Draft Guidelines on Sustainability Agreements in January 2021. ACM recently assessed a number of sustainability initiatives against those draft guidelines.

  • The first initiative relates to the joint procurement of electricity from a wind farm. The agreement fixes the electricity price for several years and stimulates the production of sustainable energy. According to ACM, this agreement does not violate the cartel prohibition, because sufficient opportunities remain to buy and sell renewable energy elsewhere.
  • The second initiative is a CO2 price agreement to stimulate sustainable investments. According to ACM, the sustainability benefits of this agreement outweigh the higher price for CO2: all energy users benefit from lower CO2 emissions. ACM therefore believes that this agreement comes under the exemption from the cartel prohibition (Article 6.3 of the Competition Act).

Review of sustainability initiatives abroad

Sustainability is also high on the agenda of foreign competition authorities. To name a few examples:

  • The German competition authority (“Bka”) assessed three sustainability initiatives in the agri-food sector against the cartel prohibition in early 2022. Two initiatives passed the Bka’s test, another initiative failed. More information on these initiatives can be found in this blog.
  • On 14 March 2022, the British Competition Authority (“CMA”) published extensive advice to the British government, in which it identified several ways in which the government could make more room for sustainability initiatives. The CMA had earlier published guidelines on sustainability initiatives and competition law.

Even more room for sustainability initiatives

It is clear that ACM wishes to play (or continue to play) an active role in the European debate on the position of sustainability initiatives within competition law. In his speech of 28 April 2021, ACM chairman Martijn Snoep called on the Commission to adjust its policy regarding sustainability initiatives. According to Snoep, sustainability objectives should be included in the assessment of the exemption under Article 101(3) TFEU. Although the Commission rejected the proposal, it also recognised in its policy letter of September 2021 that its policy should not stand in the way of legitimate sustainability initiatives. The new exemption ground, in Article 210a of the CMO Regulation, and the new chapter on sustainability initiatives in the Draft Guidelines appear to be the first specific steps in that direction. The Commission will publish guidelines clarifying the conditions of Article 210a of the CMO Regulation by 8 December 2023 at the latest. The Commission has invited market parties in the agri-food sector to share their experiences. Stakeholders have until 23 May 2022 to do so.

We previously wrote about the Wetsvoorstel ruimte voor duurzaamheidsinitiatieven (Scope for Sustainability Initiatives Bill – the “Bill”): see here and here. The Bill provides that certain sustainability initiatives in the Netherlands must fall outside the scope of the cartel prohibition. Unlike Article 210a of the CMO Regulation, which relates to the agri-food sector only, the Bill applies to all initiatives related to “sustainable development”. The Bill is therefore primarily of value to sectors in which Article 210a of the CMO Regulation does not apply or the conditions of Article 210bis of the CMO Regulation are not met. The Bill was declared controversial as a result of the resignation of the Rutte III administration, but will now be debated again in the Lower House of Parliament in the week of 12 April 2022.

The Bill forms an important part of the 2017 coalition agreement, in which the Rutte III administration announced that it wished to clarify the legal possibilities of working together in the agri-food sector and to strengthen the position of farmers in the chain. According to the legislature, the Unfair Trade Practices in the Agricultural and Food Chain Act (the “Act”) is also inextricably linked to this objective in the coalition agreement and the Bill. The Act, which entered into force on 1 November 2021, gives ACM a new enforcement instrument to challenge the undue purchasing power of retailers in the agri-food sector. More information can be found here, here and here.

ACM enforcement action against misleading sustainability claims

ACM has also been focusing on identifying and combating greenwashing. Now that sustainable consumption is playing an increasingly important role in consumer choices, it is important that companies are honest in their sustainability claims: partly because they should not mislead consumers, but also because there can be no level playing field between companies if one company makes clear, correct and relevant sustainability claims and another does not.

ACM has been focusing for quite some time on combating misleading sustainability claims. It published its Guidelines on Sustainability Claims in early 2021 to that end. ACM furthermore announced in May 2021 that it would be launching an investigation into sustainability claims in three sectors: (i) the energy sector, (ii) the clothing sector and (iii) the dairy sector. ACM remains silent on the progress of its investigation into the clothing and dairy sectors. In the energy sector, ACM announced in January 2022 that it would continue its investigation. A few examples of misleading claims that ACM has come across in its investigation:

  • An energy supplier that claimed to supply green gas, but failed to mention that the gas consisted for only a certain percentage of green gas.
  • An energy supplier that claimed to supply green gas, while the gas in question was CO2-compensated.
  • An energy supplier that presented itself as a “front-runner in the field of sustainability” without providing a more detailed explanation.
  • An energy supplier that used its rating in a sustainability survey to present itself as sustainable, without explaining the value and significance of that rating.

ACM’s focus on sustainability claims in the energy sector should come as no surprise. It published its spearheads for 2022 in January. One of those 2022 spearheads is “Energy Transition & Sustainability”. In an earlier blog we described five rules of thumb for sustainability claims: more information on the enforcement action taken by ACM against misleading sustainability claims in the agri-food sector can be found in this blog and this blog. ACM’s approach to sustainability claims is not unique. As is often the case, a similar development is taking place at the CMA, which is currently investigating the sustainability claims made by various fashion companies. In its aforesaid advice to the government, the CMA advocated that suppliers be required to provide evidence of their sustainability claims directly to customers and that a black list be drawn up of unfair trade practices relating to sustainability claims. In September 2021, the CMA published a Green Claims Code, explaining the conditions that sustainability claims must meet. The code also contains a checklist for companies that they may use to independently assess their sustainability claims.

ACM is likely to further intensify its supervision of misleading or false sustainability claims and to launch new investigations. So companies beware!

Information on dawn raids by ACM and the European Commission can be found at invalacm.nl.

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Diederik Schrijvershof

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Martijn van de Hel

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Paul Breithaupt

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