Authors
Elizabeth Coleman, partner, Eversheds Sutherland (Competition, Trade & Foreign Investment)
Louise Howarth, partner, Eversheds Sutherland (Commercial and Regulatory Dispute Resolution)
Julia Woodward-Carlton, partner, Eversheds Sutherland (Competition, Trade & Foreign Investment)
For many organisations, ESG and sustainability is high on their agenda, not only because they want to be responsible businesses, but also because consumers are increasingly seeking goods and services with sustainable attributes. As such, sustainability is becoming an important parameter of competition alongside price and quality. However, there are important commercial and legal questions to be considered about how organisations can best meet their sustainability objectives whilst remaining competitive against other players who may or may not be pursuing similar objectives, and, when their new products or services are ready to launch, what they can say about their “green” credentials. Accordingly, developing and launching new sustainable products or services can present an organisation with a wide range of risks, including the risks of breaching competition and consumer “greenwashing” laws.
Collaborating with competitors
To overcome challenges such as whether one organisation has the skills, resources or development time to do this alone, or whether incurring the costs of development (and potentially passing those costs on to customers) could put them at a “first-mover disadvantage”, organisations increasingly are looking to collaborate, directly with competitors, or through an industry association (e.g. developing industry-wide sustainability standards). However, this can give rise to competition law risks, as the key premise of competition law is that businesses should act independently of, and compete against, each other. Compliance with competition law is critical, given the potential fines for a breach of up to 10% worldwide turnover.
A number of competition authorities worldwide have now issued guidance to address the seemingly wide-held perception that competition law is a barrier to collective climate action. Guidance issued, for example, by the European Commission and the UK Competition and Markets Authority (“CMA”), provide information on the types of agreement that are unlikely to raise competition concerns. These include agreements to: set up a database containing general information about suppliers or distributors that have unsustainable value chains or production processes or that market products in an unsustainable manner; organise industry-wide awareness campaigns; or design measures which could be implemented for the benefit of the environment, such as the use of single-use plastic in business premises, provided the decision as to whether to implement any of these measures is taken by each business independently. Under both the EU and UK guidance, businesses can also agree to phase out non-sustainable products or processes, provided this will not result in increased prices, reduce product quality or choice for consumers, and will not have the object of eliminating or harming a particular competitor operating at the same level of the market.
Therefore it could be said that competition law is not such a barrier after all. However, organisations must still ensure their collaboration to achieve sustainability goals does not operate as a cartel – such legitimate aims will not provide a cover for anti-competitive behaviour. Organisations must not therefore engage in conduct such as the exchange of commercially sensitive information (including information about how they will price or market the products under development, which customers or jurisdictions they will sell to or their future commercial strategy) or use sustainability standards to disguise price fixing, market sharing or customer allocation. Equally companies need to be mindful that not all competition laws are alike, and certain jurisdictions, including the US for example, are taking a more conservative approach to competitor collaboration in this area, meaning that global organisations need to be careful not to adopt a “one size fits all” approach.
Claims about ‘green’ products and services
Aside from the competition risk, stakeholders, including regulators, consumers, investors, employees and NGOs expect companies to be transparent about the impact of their products and business operations on the environment, including in relation to plastics and packaging, and any green claims made are under greater scrutiny.
In the UK for example, the CMA as the consumer regulator, has been carrying out targeted investigations into specific sectors, including fast fashion and FMCG. It is expected to be given enhanced enforcement powers next year to be able to impose penalties of up to 10% of turnover for consumer regulatory breaches, in line with its existing competition powers.[1] The consumer regulatory regime in the EU is also tightening, with the proposed Empower Consumer Directive and the Green Claims Directive in the pipeline imposing further restrictions, which are designed to allow consumers to make more informed purchasing choices.
In this context, two-thirds of corporate professionals say they are worried about being accused of making exaggerated environmental claims, up from just over half in 2022.[2]
It is therefore essential that organisations develop a holistic regulatory sustainability and compliance strategy. When evaluating a potential consumer product ‘green’ claim, key actions should include avoiding general claims that the product is ‘eco-friendly’ or ‘sustainable’ where possible. Consider the whole lifecycle, including the packaging, and take care that your claim is accurate, specific, clear and substantiated. Don’t over-emphasis an attribute of a product if it only has a small environmental benefit or no net benefit. A claim can potentially still be misleading if insufficient context is provided. Strategy should be developed in conjunction with marketing teams, as this is often where we see the biggest disconnect in how claims are risk assessed and communicated. Finally, ensure your organisation stays up to date in this fast moving area, and embed training and ongoing review, to ensure you take best advantage of the opportunities available.
[1] Proposed UK Digital Markets, Competition and Consumer Bill
[2] GlobeScan Oxford Corporate Affairs report (survey of 109 Corporate Affairs professionals in 32 countries from February – March 2023
