An unsustainable approach? Overcoming competition law obstacles to sustainability collaboration - Antitrust, EU Competition

Not enough is being done to facilitate benign collaboration on sustainability practices¹ between entities that are or may be considered competitive with one another in markets in Australia.

Collaboration between actual or potential competitors may raise concerns under the Competition and Consumer Act 2010 (Cth) (CCA). However, there are many types of collaboration that are unlikely materially to affect competition and several mechanisms by which the Australian Competition and Consumer Commission (ACCC) can immunise conduct from regulatory or third-party action (including on public benefit grounds).

To date, Australian regulators have provided insufficient information about permissible collaboration to further sustainability objectives. Providing detailed and focused formal and informal guidance, streamlining authorisation mechanisms for sustainable development, and implementing a sustainability class exemption would provide much-needed clarity and certainty for Australian businesses at this critical juncture of the journey to a sustainable Australian economy. It would assist in accelerating efforts to produce more sustainable outcomes for all Australians.

What are the chief concerns?

Companies active at the same level of a supply chain that collaborate in pursuit of genuine sustainability objectives may be exposed to significant penalties under the CCA (which substantially increased last year). In particular, the following CCA prohibitions may be engaged:

Cartel provisions – Contracts, arrangements or understandings made between competitors that fix prices, restrict or limit production, capacity, supplies or acquisitions, allocate markets, territories or customers, and/or rig bids are strictly prohibited (regardless of whether the conduct has the purpose or likely effect of substantially lessening competition).
Anti-competitive conduct – Agreements or 'concerted practices' (e.g. exchanges of competitively sensitive information) that have the purpose, effect or likely effect of substantially lessening competition are prohibited.

In a speech given to the National Press Club in April 2023, ACCC Chair Gina Cass-Gottlieb noted that as the 'green' transition unfolds, assessment of mergers in key transitioning industries will be critical and the ACCC will be closely monitoring for illegal collusion.

Various organisations and regulators across the globe have recognised competition law prohibitions of this type as hindrances to the pursuit of sustainability objectives among competitors:

Since 2020, the Organisation for Economic Co-operation and Development (OECD) has considered the conflict between competition law and sustainability pursuits,² noting that many companies want to engage in pro-competitive sustainability cooperation agreements but feel inhibited by competition laws.
An International Chamber of Commerce (ICC) white paper published in November 2022 explored the 'chilling effect' of competition policy on collaboration in pursuit of climate action. The paper provided examples of the inhibition of collaboration in the genuine pursuit of climate change objectives caused by competition law.
Sarah Cardell, the recently-appointed Chief Executive of the UK's Competition and Markets Authority (CMA), noted in a January 2023 speech that competition law can pose an unnecessary barrier to companies seeking to collaborate to pursue environmental sustainability initiatives.
The UN Net-Zero Insurance Alliance (NZIA) (which provides foundational concepts and frameworks to support its members to decarbonise their underwriting portfolios) has suffered the departures of various members following growing concern in the United States³ that NZIA requirements may violate local antitrust laws. The departure of notable NZIA members (including AXA, whose Group Chief Risk Officer had chaired the Alliance, and Australian insurer QBE) exemplifies the 'freezing effect' competition laws can have on genuine sustainability pursuits.⁴

Recommendations for improvement

In certain circumstances, genuine sustainability collaborations can be pursued in Australia without breaching the CCA. However, a small number of practical improvements to the current Australian competition law framework could remove or mitigate some reasonable reluctance on the part of Australian businesses to collaborate for this purpose.

Detailed and focused formal guidance

To date, Australian regulators have provided insufficient information about permissible collaboration in furtherance of sustainability objectives. This is despite the ACCC:

regularly educating and informing the business and wider stakeholder communities on the application of the CCA in other contexts;⁵
establishing an internal sustainability taskforce aimed at examining and seeking to influence environmental and sustainability issues intersecting with competition and consumer law;⁶ and
recognising that industry collaboration on sustainability objectives can assist in removing first mover disadvantages and free-rider problems.⁷

In contrast to other comparable jurisdictions, the ACCC has issued very little specific guidance on types of permissible or prohibited sustainability collaborations. This is despite organisations such as the ICC calling on competition regulators to provide general practical guidance of this nature and individualised guidance on a case-by-case basis.⁸

Useful and detailed guidance provided by peer regulators in other jurisdictions, particularly continental Europe and the UK, provides a helpful template for what could be achieved in this regard:

In June 2023, the European Commission (EC) adopted revised horizontal block exemption regulations (HBERs) and accompanying guidelines (Guidelines). The Guidelines clarify the various circumstances in which competition rules do not prohibit agreements between competitors that pursue genuine sustainability objectives (with illustrative hypothetical examples) and encourage companies to seek informal guidance in relation to novel questions on individual sustainability agreements.
The CMA is currently analysing feedback from consultation on draft guidance released in February 2023 on the application of UK competition laws to environmental sustainability agreements between competitors or potential competitors. The draft guidance provides clarification on types of environmental sustainability agreements which are unlikely (or likely) to infringe local competition laws, and agreements which are capable of exemption on the basis that the benefits outweigh the competitive harm. The CMA wants to "ensure that businesses are not unnecessarily or erroneously deterred from lawfully collaborating in this space due to fears about competition law compliance".

We recommend that the ACCC issues specific guidance of this nature, which not only identifies the types of agreements that are problematic, but also demonstrates types of collaboration that are unlikely to breach the CCA (the latter being of central importance for most market players). For example, the CMA's draft guidance provides that industry-wide efforts to tackle climate change, agreements to pool information about customers or suppliers and agreements to do something jointly which none of the parties could do individually are unlikely to raise competition concerns.

We acknowledge that the Federal Government recently announced a Competition Policy Review which will (in part) provide advice on competition issues raised by the net zero transformation. However, this review is expected to progress over a period of two years with no current visibility over when individual objectives will be achieved.

Without clear guidance on permissible collaborations of this nature, the Australian regulatory framework will lag behind its international peers and could be expected to prevent or limit legitimate cooperation on genuine sustainability projects.

Informal guidance mechanisms

Similar to the individualised support offered by the EC, we consider that the ACCC should encourage market players seeking to develop genuine sustainability collaborations to communicate with the ACCC at an early stage and obtain advice on structuring those arrangements. In very low risk circumstances (e.g. where collaboration is specifically sponsored or required by a government agency), the ACCC could provide comfort letters in relation to specific collaboration proposals.

Streamlined authorisation mechanisms

The ACCC has in place a well-used mechanism pursuant to which it may grant authorisation for, and confer statutory immunity on, conduct that may breach the CCA if it is satisfied in all the circumstances that the conduct would be likely to result in public benefits that would outweigh any public detriments (including any lessening of competition).

In her April 2023 speech to the National Press Club, Ms Cass-Gottlieb noted that exemptions for proposed sustainability agreements between competitors can be dealt with under Australia's existing authorisation framework. Ms Cass-Gottlieb said that "our authorisation regime enables us to take real, verifiable and significant environmental benefits into account as part of the 'net public benefit' test if businesses wish to put proposals for exemption on the basis of necessary coordination to achieve sustainability goals".

The ACCC has authorised collective bargaining arrangements, industry codes of conduct and the imposition of industry levies in a range of circumstances which are similar to sustainability collaborations. For example, the ACCC authorised an application relating to 'Ethical Clothing Australia's Code of Practice', which included practices to limit sourcing from unethical suppliers (i.e. boycotts). The ACCC also re-authorised a not-for-profit initiative between paint suppliers to divert paint and packaging waste from inappropriate disposal pathways, and to research innovative ways of reusing unwanted paint and packaging.

However, the authorisation process is lengthy and public, and it can be expensive. To improve the efficiency and availability of the authorisation process for sustainability purposes, the ACCC should seek (where possible) to:

issue 'interim authorisations' for conduct relating to genuine sustainability pursuits, to permit cooperation to occur swiftly pending the outcome of a potentially lengthy authorisation process (this would appropriately balance the need for timely cooperation with the need for a robust review process); and

engage in 'fast-track' processes of the type that permitted swift and essential cooperation in many authorisation applications through the COVID-19 pandemic, particularly where government or other agencies are involved in, or provide supportive submissions in relation to, the relevant collaborations.

This is not new, but it should be formalised with respect to critically important sustainability initiatives.

In December 2021, the ACCC granted urgent interim authorisation to enable diesel exhaust fluid manufacturers and other stakeholders to collaborate to obtain supply of an essential additive to control noxious emissions (which was subject to a global shortage at the time). This interim authorisation was granted within a day of an application being lodged, and final conditional authorisation was subsequently granted within five months.⁹
In November 2022, following an announcement by REDcycle that it was suspending its soft plastics collection program, the ACCC granted urgent interim authorisation (with reporting conditions) to major supermarket retailers to form part of an industry-led Soft Plastics Taskforce. The Taskforce was formed to consider, develop and implement a short-term solution to address the immediate effects of REDcycle's suspension and is chaired by the Department of Climate Change, Energy, the Environment and Water (which the ACCC considered was a relevant factor in deciding to grant interim authorisation). This interim authorisation was granted nine days after an application was lodged. In June 2023, the ACCC granted final conditional authorisation for 12 months.

Sustainability class exemption

The ACCC has the power to implement 'class exemptions', which allow eligible businesses to engage in specified conduct without risk of breaching the CCA and without having to lodge an authorisation application. Once a class exemption is in force, individual businesses can self-assess whether their planned activity is covered, and proceed without recourse to the ACCC if so.

We recommend that the ACCC follow the EC's approach of providing a safe harbour for arrangements between competitors that pursue a genuine sustainability objective. The HBERs exempt specialisation and research and development agreements from the prohibition against anti-competitive horizontal agreements, in circumstances where the parties to the agreement have a combined market share of 20% or 25% (depending on the type of agreement) or less.

We recommend that the ACCC swiftly develop a proposal for a similar class exemption, consistent with the approach it took to the development of the small business collective bargaining class exemption, and hold public consultations as quickly as possible. An exemption may cover, for example, coordination amongst industry stakeholders to ensure the removal of modern slavery issues from their supply chains.

Key takeaways

The implementation of these recommendations by the ACCC should provide much-needed clarity and certainty for Australian businesses at this critical juncture of the journey to a sustainable economy, and assist in accelerating efforts to produce more sustainable outcomes for all Australians.

In the meantime, organisations currently collaborating, or seeking to collaborate, in pursuit of genuine sustainability objectives should take particular care to ensure they do not engage in cartel or other anti-competitive behaviour. Prior to engaging in any collaborative conduct, such organisations should develop competition law protocols to ensure that information exchanges and other conduct complies with the CCA and should consider whether ACCC authorisation would be warranted to minimise legal risk and 'future proof' their collaborative behaviour.

Footnotes

¹ In this article, 'sustainability' refers broadly to the environmental, social and governance (ESG) framework.

² See e.g. OECD, 'Sustainability and Competition', OECD Competition Committee Discussion Paper (2020); OECD, 'Environmental Considerations in Competition Enforcement', OECD Competition Committee Discussion Paper (2021).

³ See e.g. joint letter dated 15 May 2023 as published by the Utah Office of the Attorney General.

⁴ The UN Environment Programme released a statement reinforcing that each NZIA member unilaterally and independently decides its actions, and that membership does not involve any coordinated competitive conduct or exchanges of competitively sensitive information.

⁵ For example, the ACCC recently released draft guidance aimed at improving the integrity of environmental and sustainability claims and protecting consumers from false or misleading 'greenwashing' claims.

⁶ In a speech given to the Committee for Economic Development of Australia in March 2023, ACCC Chair Gina Cass-Gottlieb noted that "the transformation to a greener economy is changing industries and creating demand for new infrastructure. This creates potential for restrictive behaviour from incumbents, or disruption that may impact the provision of products and services. Coordination in support of new technology may require competition exemptions. The taskforce will be proactively examining ways in which the ACCC as competition regulator can contribute".

⁷ See speech given by Gina Cass-Gottlieb to the National Press Club on 12 April 2023.

⁸ International Chamber of Commerce, 'When Chilling Contributes to Warming' (November 2022), p 5.

⁹ The same arrangement is currently being considered by the ACCC as part of a re-authorisation application, for which urgent interim authorisation has been granted. The ACCC recently issued a draft determination proposing to grant conditional authorisation for 4 years, with a final determination expected by November 2023.

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