Por Ricardo Ayvar,

asociado de Garrigues (Perú), abogado por la Pontificia Universidad Católica del Perú, con posgrado en Derecho de la Competencia por la Universidad Carlos III de Madrid (España)

To achieve the objectives set out by applying ESG criteria, many companies have implemented a series of measures and commitments, such as entering into cooperation agreements with competitors for sustainable development. This is where competition policies come into play.

We all have probably read about the importance of Environmental, Social, and Governance criteria for sustainable development (ESG), or have seen how largest companies have been applying these criteria in different fields. This rise of sustainability has been connected to several areas, including Competition Law. In this article, I will attempt to outline some ideas on how both subjects have been interacting.

ESG Criteria

In 2015, the United Nations General Assembly adopted the “2030 Agenda for Sustainable Development” with a vision for transitioning towards economic, social, and environmental sustainability for its Member States. This plan includes 17 Sustainable Development Goals (SDGs), among which the following stand out: (i) responsible consumption and production, (ii) industry, innovation, and infrastructure, and (iii) affordable and clean energy.

According to Zarta Ávila, the concept of sustainability helps us understand that we live in a world with scarce natural resources and unlimited needs, a growing population, economic development based on obsolete technologies and an excessive energy consumption that generates pollution. In this context, sustainable development refers to the pursuit of mechanisms that ensure a better future addressing present needs without compromising the opportunities of future generations.

Thus, ESG criteria consist of factors, in addition to the commercial ones, that are taken into consideration (by both the public and private sectors) for the development of an investment or the execution of certain economic activities, with the aim of promoting sustainability.

According to Ulrich, we can break down the ESG criteria as follows:

  • Environmental: alludes to the environmental impact generated by companies and the efforts they make to reduce the pollution levels (waste and water management, and the use of other environmental resources).
  • Social: refers to workplace policies (including diversity, management, human rights) and the relationships established with the community (such as corporate citizenship, philanthropic initiatives, analysis of all stakeholders affected by the company’s existence).
  • Corporate Governance: relates to staff remuneration, shareholders’ rights and the relationship between the shareholders and the company management. This includes the impact of stakeholders, as well as the structure of the governing and decision-making bodies.

These aspects have been combined and used by the private sector to promote sustainability, as well as to align their commercial and business policies with essential SDGs for the public.

Competition Policies

To achieve the objectives set forth in accordance with the ESG criteria, many companies have implemented a series of measures and commitments, such as entering into cooperation agreements with competitors for sustainable development. This is where competition policies come into play.

Competition Law has three main aspects: (i) merger control (ex-ante control), (ii) anticompetitive behavior control (ex-post control), and (iii) competition advocacy. The second point is related to agreements between companies, leading competition agencies to pursue those agreements (horizontal or vertical) that may impact competition negatively and, therefore, affect consumers.

Competition Law usually rejects naked cartels (agreements between competitors) aimed at price fixing or market allocation, as they are inherently harmful to competition. Such agreements are prohibited per se, meaning solely by virtue of their existence.

For example, in Peru, Indecopi sanctioned the toilet paper cartel, in which the two most important companies in this sector agreed to fix their prices nationwide between 2005 and 2014. This conduct resulted in fines of S/ 275 million for the involved companies and S/ 1.1 million for their executives.

Regarding this case, Indecopi published a Working Paper on the impact of dismantling this cartel on consumers. According to this study, based on information from the National Household Survey, between 2003 and 2016, the average annual overspending per person due to the existence of the toilet paper cartel was US$ 0,48 (approx. € 0,43), thus it was estimated that the total national savings, thanks to the dismantling of this cartel since 2015, amounted to approximately US$ 304.36 million (approx. € 273,98 million).

Analysis of Agreements with ESG

Considering the importance of sustainability and the impact of the ESG criteria, many experts propose that Competition Law should align with the promotion of these policies, allowing behaviors that contribute to sustainable development, environmental protection, the generation of non-polluting energy, responsible production and consumption, among others.

However, there is also a stricter view regarding the relaxation of competition policies, especially concerning the suppression of agreements between companies in favor of protecting sustainability, as it is believed that such measures could be misused to disguise certain anti-competitive practices.

To analyze these types of agreements properly, in July 2023, the European Commission published the Guidelines on Horizontal Cooperation Agreements, which establish the criteria to be considered when evaluating sustainability agreements between competitors:

  • Agreements that do not affect competition parameters (such as price, quality, innovation). This could be reflected in agreements related to the internal conduct of the participating companies.
  • Agreements for sustainability standardization, provided they meet the following conditions: (i) not binding, (ii) possible to implement a higher standard, and (iii) guarantee effective and non-discriminatory access, among others.
  • Restrictive competition agreements that, nonetheless, generate enough efficiencies or advantages to outweigh the harm caused. These agreements must necessarily meet the following conditions:
    • The efficiencies produced by the agreement must be objective.
    • The competition restrictions proposed must be indispensable to the agreement.
    • Users, both direct and indirect, must access the benefits equitably (this can be through direct or indirect benefits in the consumer experience, or collective benefits through the positive externalities of the agreement).
    • The agreement must not allow the elimination of competition.

It should be noted that, according to the Guidelines, a sustainability agreement could contravene competition policies while seeking to increase costs by adopting sustainability standards or when the agreement parties force other agents not to market products outside of such standards.

Comparative Experience on Sustainability Agreements

As previously indicated, sustainability agreements between competitors can be detrimental to competition. However, under certain circumstances, they can contribute to sustainable development without harming competition and the market.

A negative example of a ‘sustainability’ agreement can be found in the automobile industry. In 2021, the European Commission sanctioned several car manufacturers for a collusive agreement on the technical development of nitrogen oxide cleaning. This infringement resulted in fines up to 875 million euros for the companies involved, except for one that reported the arrangement to the competition agency.

In this case, the cartel members had enough technology to reduce nitrogen oxide emissions beyond the legal requirements. However, under the agreement, they chose not to compete in using the full potential of this technology to improve emission cleaning levels. As a result, the agreement limited innovation in pollution control for vehicles and severely harmed the health of thousands of people, as these companies could have significantly reduced emission levels. Thus, this level of technical cooperation was unacceptable, since it caused irreparable harm to the population.

On the other hand, there are positive experiences where the private sector has adopted agreements that benefit sustainable development. Such is the case in Australia, where the Australian Competition and Consumer Commission (ACCC) has procedures for authorizing agreements between companies. Through this procedure, the ACCC evaluates whether said agreements could negatively impact competition.

One of the most relevant cases was the agreement between companies to increase the price of batteries. The companies that make up the Battery Stewardship Council (BSA) got authorization from the ACCC to establish a program for the treatment of expired batteries. Under this scheme, the participating companies are required to increase the price of batteries, with the purpose of directing this increase to recyclers to help offset the costs of collecting, sorting, and processing expired batteries.

In its analysis, the ACCC highlights that this new program will bring significant benefits by increasing battery recycling rates. Also, it will help raise awareness among the public about battery disposal and reuse. The price increase will be € 0.04 per 24 grams of battery (the standard weight of AA batteries). It is important to note that the authorization will remain in effect until September 2025.

Meanwhile, the Netherlands Authority for Consumers and Market (ACM) has also been implementing an ‘informal’ review process for sustainability agreements between companies. Thus, parties can submit inquiries about their agreements for the ACM to provide an opinion on the potential impacts. In 2023, the ACM published its Policy for the Supervision and Analysis of Sustainability Agreements, detailing the key aspects to be considered in its review.

In this context, in April 2024, the ACM raised no objections to the agreement presented by Thuiswinkel, an online platform for entrepreneurs, in order to establish a sustainability standard for agents on its platform. This standard will reduce environmental impact in six areas: strategy, product selection, packaging, delivery, returns, and circularity.

In its evaluation, the ACM clarified that stores participating in the Thuiswinkel platform must have the voluntary option to participate in the sustainability standard and even decide whether to take additional sustainability measures. Furthermore, an independent organization must handle the accreditation process. Finally, it must be ensured that no sensitive information will be exchanged between the stores on the platform.

These cases highlight that competition agencies will play a central role in analyzing agreements and identifying the true objectives pursued by the parties involved in such agreements.

Conclusions

As can be observed, there is a consensus on the implementation of policies and measures aligned with the United Nations General Assembly’s 2030 Agenda for Sustainable Development.

In the field of competition law, this is being realized through the publication of regulations and soft law regarding agreements between competitors, with the aim of establishing criteria that clarify the boundaries of said agreements and the characteristics they must meet to avoid violating competition rules

Moreover, competition agencies around the world are actively participating by analyzing sustainability agreements to determine whether they violate competition rules. If they do not, they could be authorized, provided they offer clear benefits for sustainable development or even when their negative impact can be offset.

In Peru, the implementation of policies under ESG criteria is increasing and it will be interesting to observe the role that the competition agency develops in the future when analyzing potential agreements between competitors from a perspective focused on sustainable development, responsible use and consumption, and overall environmental well-being.

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