By making it more achievable for competitors to meet sustainability targets, the European Commission wants to promote sustainable development projects.

Reducing greenhouse emissions, promoting human rights and many other sustainability goals in various sectors could be best achieved when companies decide to collaborate. Joining forces can accelerate and broaden the scope of sustainable initiatives.

“However, the joining of forces has been curbed by a well-founded fear that an agreement between competitors would lead to a breach of competition laws. This is why the European Commission adopted horizontal guidelines in the summer to facilitate the assessment of sustainable development agreements,” says Lotta Uusitalo, a lawyer specialized in competition matters.

The Commission’s new guidelines were particularly necessary in light of the forthcoming Due Diligence Directive, which will mandate companies to foster responsible behavior within their global value chains and to assess the impact of activities carried out by established business partners. This, in turn, requires sharing of resources and information. Horizontal guidelines reduce the risk that compliance with the Due Diligence Directive could lead to a breach of competition law.

Build sustainability, don’t limit competition

“Of course, the Commission’s policy does not override the Competition Act or the fundamental principle that competitors are obliged to refrain from entering into agreements that restrict competition and harm consumers’ interests,” says Uusitalo.

As a rule, there are no problems with agreements concerning

• internal conduct of undertakings
• a database of suppliers or distributors who operate in a sustainable way
• industry-wide information campaigns.

Under the Commission’s guidelines, competing companies may agree to comply with sufficiently precise requirements or prohibitions in legally binding international agreements. This can be done even if the international agreements in question have not been implemented in domestic law.

International agreements of this nature may encompass issues such as child labor, tropical deforestation, or the use of hazardous substances. Competing companies might choose to collaborate by agreeing to prohibit the production or importation of products into the EU that do not meet these specified requirements or restrictions.

Sustainability standards can be agreed

The Commission’s guidelines also allow competing companies to agree to adopt and comply with provisions that promote sustainability objectives, provided that certain criteria are met. Such provisions could, for example, relate to the harmonization of packaging sizes in order to facilitate the recycling of packaging. Norms often include sustainability metrics, guidelines or rules.

However, it is crucial to remember that these provisions must not diminish competition. For example, an agreement to limit production is not an agreement on sustainability standards.

Competition issues do not prevent everything

Even if a sustainability agreement has significant actual or likely negative effects on competition, the agreement may be permitted if the following four conditions are met: the agreement increases efficiency, it is necessary to achieve the sustainability objectives, there are clear benefits for consumers and competition remains.

Competition problems arise, for example, when an agreement

• locks prices, allocates markets or customers, or restricts output, quality or innovation,
• passes on the additional costs of introducing the sustainability standard to customers in the form of higher selling prices
• putting pressure on directly competing third parties not to market non-compliant products,
• restricts technological development to the minimum legal requirements, rather than allowing competitors to work together to achieve more ambitious environmental objectives.

“The Commission’s guidelines therefore open up many opportunities for cooperation on sustainability projects, but companies should be aware of the content of their agreements to ensure that a well-intentioned agreement does not generate problems for its authors,” emphasises Uusitalo.