Jocelyn Chow, Partner and Head of Competition, Trade & Foreign Investment Asia and Julia Woodward-Carlton, Partner, Competition, Trade & Foreign Investment, Eversheds Sutherland
“While some competition regulators in APAC have helpfully issued sustainability-related guidelines, businesses should note that sustainability agreements remain subject to competition law scrutiny across all jurisdictions where they may have an impact”
- Introduction
As environmental sustainability becomes increasingly important as a business management consideration, an increasing number of competition authorities around the world have recognised that the pursuit of sustainability objectives may involve businesses, including competitors, engaging in collaboration. This includes situations where collaboration may be necessary to: (i) overcome a ‘first mover disadvantage’ in switching to a more sustainable but costlier input; or (ii) achieve ‘green’ results more rapidly or on a larger scale, than if businesses were to act independently.
Acknowledging that competition law should not hinder legitimate collaboration between businesses necessary for the promotion of environmental sustainability and related objectives, competition regulators around the world, including those in Europe and in Asia Pacific (APAC), have issued specific guidelines on how businesses may engage in sustainability collaborations in a competition law-compliant manner. In this article we focus on recent developments in APAC.
- What are ‘sustainability agreements’?
Before considering the approaches being taken by authorities in APAC it is important to understand what is meant by ‘sustainability agreements’. Broadly, this refers to agreements, collaborations or understanding between businesses which are aimed at preventing, reducing or mitigating the adverse impact that economic activities have on the environment, or otherwise pursue sustainability objectives including, but are not limited to, tackling climate change (e.g. through the reduction of greenhouse gas emissions), reducing pollution, limiting the use of natural resources and promoting biodiversity preservation.
- How sustainability agreements may be scrutinised under competition law
As a starting point, in the absence of a specific exemption, sustainability agreements are subject to scrutiny based on the usual competition law considerations, irrespective of their underlying objectives or purposes.
Agreements that are anti-competitive by object or illegal per se
Depending on the applicable legal tests in each relevant jurisdiction in APAC, sustainability agreements which have the object (or purpose) of restricting competition in a market, or involve any conduct that is considered illegal per se under the relevant legal framework, will be considered unlawful in any given competition law regime. These most commonly include agreements or coordination involving price fixing, market sharing, output restrictions, bid rigging, and the exchange of competitively sensitive information.
Agreements that are anti-competitive by effect
Where a sustainability agreement is not found to have an anti-competitive object, it may nevertheless be found to be anti-competitive if it has an adverse effect on competition in the market. The effects of a sustainability agreement are assessed on a case-by-case basis and will depend on a range of factors including, but not limited to, the respective market positions of the parties, the proportion of the market affected by the agreement, the extent to which the agreement constrains the freedom of the parties, and whether the agreement is likely to lead to an appreciable increase in price or reduction in output, product variety, quality or innovation.
Agreements that may be exempt or otherwise justified under applicable laws
In certain jurisdictions, restrictions imposed as part of a sustainability agreement may be exempt from scrutiny or otherwise justified under applicable laws. For example, in Hong Kong a restriction of competition may be permitted where it is ‘ancillary’ to the main sustainability agreement, which is not itself anti-competitive. Additionally, an agreement that has the object or effect of harming competition, but generates pro-competitive benefits in terms of the improvement in production or distribution, and/or the promotion of technical and economic progress, may also be justified.
- Sustainability-related competition law developments in APAC
- As at the date of writing, this year (2024) the following guidance in this area has been published:
- the Competition and Consumer Commission of Singapore (CCCS) published the Guidance Note on Business Collaborations pursuing Environmental Sustainability Objectives;
- the Japan Fair Trade Commission (JFTC) published the revised Guidelines Concerning the Activities of Enterprises, etc. Toward the Realization of a Green Society under the Antimonopoly Act;
- the Australian Competition and Consumer Commission (ACCC) published the Consultation Draft on Sustainability Collaborations and Australian Competition Law: A guide for business. The final guidelines are expected to be published in late-2024; and
- the Korea Fair Trade Commission issued its draft sustainability guidelines (as at the date of writing, available only in Korean), which were open for public consultation until 20 November 2024.
The guidelines provide guidance to businesses on how sustainability collaborations will generally be assessed, and how they may be implemented in a way that is compliant with applicable competition laws.
- For example, the CCCS and JFTC’s guidelines have helpfully provided examples of sustainability agreements that:
- are unlikely to give rise to competition concerns e.g. an agreement which relates to joint activities which none of the parties to the agreement could have undertaken independently;
- are less likely to give rise to competition concerns, provided that appropriate safeguards have been implemented, e.g. pooling information about suppliers to create an industry database about green practices; and
- could potentially raise competition concerns e.g where a key parameter of competition, such as price, is restricted by the agreement.
Some APAC authorities, including in Singapore, Japan and Australia offer channels through which businesses may seek clarifications on whether a proposed sustainable collaboration may be permitted e.g through notification, consultation or exemption. This provides a helpful route for businesses to obtain a greater degree of assurance that their proposed collaboration will not raise competition law issues.
- Concluding remarks
While some competition regulators in APAC have helpfully issued sustainability-related guidelines, businesses should note that sustainability agreements remain subject to competition law scrutiny across all jurisdictions where they may have an impact. Different authorities around the world may take divergent views and it therefore remains necessary for businesses to ascertain whether any proposed agreement, collaboration or exchange of information could give rise to potential competition law risks, and if so, whether they may be exempt or otherwise justified, or how the proposed arrangement may be modified to mitigate any infringement and enforcement risks.
