Competition Law Aspects of ESG Initiatives in the Life Sciences and Healthcare Sector | Global

Globally and in the EU, the initiatives to promote ESG developments are increasing. However, companies are still required to comply with competition law regulations and need more clarity on the assessment of sustainability objectives in agreements.

Internationally, UN Agenda 2030 set 17 Sustainable Development Goals to promote sustainability, peace and prosperity, and to protect the earth. Additionally, in December 2020, the OECD’s Competition Committee found during its special hearing on sustainability and competition law in its 134th meeting that many agreements aimed at sustainability are in line with competition law. In the EU, the EU Green Deal aims at a climate neutral EU by 2050. Its effects can be seen in the new Horizontal Guidelines, which include an entire section on sustainability agreements.

The private sector has expressed the will to achieve ESG aims as observed in the publications on the websites of life sciences companies and the activities within industry organisations. However, ESG aims can contradict antitrust regulations. Historically, antitrust regulations primarily considered economic effects, thus anti-competitive agreements can be justified only if they produce quantitative economic efficiency improvements. ESG aims, on the other hand, often pursue non-financial and primarily qualitative objectives.

Generally, co-operation between companies is compatible with competition rules if its anti-competitive effects are outweighed by the efficiency gains it creates.  When it comes to collaboration on sustainable and green initiatives, the question is whether and how the resulting benefits can be considered efficiency gains. ESG-driven objectives, like environmental goals and animal welfare, are usually not measurable by quantitative standards. Therefore, when weighing the possible negative effects and sustainability efficiency gains, the quantification of sustainability benefits is challenging.

A central question that arises in connection with discussions about the competition law assessment of sustainability co-operation and green initiatives is whether and how to take into consideration “out-of-market” benefits. Since the goal of competition law is the protection of competition “on the market”, it is essential to evaluate the anti-competitive effects and benefits of a specific practice for a particular market. According to the EC, benefits on separate markets can only be considered if the consumers who are affected by a restriction and those who benefit from it are “substantially the same”.

The section on sustainability agreements in the EU Horizontal Guidelines contains the following list of agreements that are considered unproblematic in relation to antitrust issues:

According to the Horizontal Guidelines, sustainability standardisation agreements may, in certain cases, give rise to antitrust issues and may need to be justified individually. An example of an agreement that might need to be justified would be an agreement to phase out non-sustainable products and processes. Further examples are infrastructure-sharing agreements aimed at decreasing the environmental impact of a production process, as well as energy consumption agreements between competitors to jointly develop production technology that leads to a reduction of energy consumption. Additional examples include sustainability standardisation agreements that aim for harmonisation in waste reduction, such as with packaging; agreements for the procurement of products produced in a sustainable manner; and agreements on the improvement of animal welfare.

The Horizontal Guidelines list soft safe harbours for sustainability standardisation agreements, which are applicable if the following conditions are met:

Swiss law includes a provision allowing for a justification of anti-competitive agreements leading to a more rational use of resources. This was meant to qualify the more rational use of resources as a possible efficiency justification. However, the case law of the Swiss Competition Commission is restrictive and rather negative in this regard. Up to the present, the Swiss Competition Commission has not approved the efficiency justification in any of the cases it has decided on.

On the other hand, Switzerland appears to be following a more environmental approach, with the secretariat of the Swiss Competition Commission recently setting up a sustainability core group to monitor sustainability developments in Switzerland and abroad.

The respective laws are, in terms of wording and meaning, suitable to include ESG criteria, especially those regarding sustainability. However, there is still uncertainty on what actually gives rise to antitrust issues and what qualifies for justification. The EC tries to provide guidance in the new sustainability section in the Horizontal Guidelines. In addition, the EC is committed to providing informal guidance on questions of sustainability through its Informal Guidance Notice. It is also conceivable that exemptions will be made, as is already the case for the agricultural sector. Finally, it remains to be seen to what extent, in terms of detail, the EC will adapt its state aid rules as a follow-up to the US green subsidies initiative.

Regarding the general approach of competition authorities, it is fair to say that they increasingly recognise the importance of their role in achieving sustainability goals. And while the authorities are concerned about greenwashing, if their concerns are addressed correctly, sustainability can effectively be used to justify agreements for achieving ESG aims having an impact on competition.