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22 7月 2024
Insight
Introduction
Snapshot
Like any collaboration between businesses, collaborations focussed on sustainability objectives can raise serious competition law risks. However, competition law regulators worldwide are focussed on ensuring that competition law does not unnecessarily stand in the way of collaboration that is likely to achieve genuine and positive environmental outcomes.
In this context, the Australian Competition and Consumer Commission (ACCC) has released draft guidance on the application of Australian competition law to sustainability collaborations. The ACCC is publicly consulting on the draft until 26 July and intends to publish a final version later this year.
The draft guidance:
- sets out the ACCC’s views on when sustainability collaborations are more likely to give rise to competition law risks; and
- provides an overview of how sustainability can be used as a public benefits basis for obtaining ACCC authorisation for collaborations that might otherwise raise competition law risks.
The guidance is specifically targeted at collaboration which is aimed at preventing, reducing or mitigating environmental impacts. The general principles will be relevant to collaboration focused on other types of sustainability objectives, such as modern slavery or broader human rights risk.
What do you need to know?
In this update note we provide an overview of the ACCC’s key messages about the options for managing potential competition law risks and the best way to approach this when contemplating any sustainability focussed collaboration. We also provide a snapshot of the ACCC’s illustrative examples which are likely to be relevant to many sustainability collaborations.
Key takeaways include:
- Information sharing on environmental credentials on its own is unlikely to raise competition law risks, but any agreement not to use certain suppliers – whether named or identified by reference to the environmental standards they meet – will carry significant competition law risks. The dividing line is a fine one and the guidelines should provide greater clarity on when that threshold will be crossed.
- The increasing use of industry pledges to meet certain sustainability targets or goals should not raise competition law concerns so long as they are voluntary, the participants can individually decide how to meet the target or goal and are not bound to use/not use certain suppliers.
- Unlike the position in many overseas jurisdictions, parties engaging in sustainability collaborations can seek authorisation from the ACCC on public benefits grounds. The ACCC has recognised environmental benefits as public benefits of weight in previous authorisation cases.
- Sustainability collaborations that address first-mover sustainability disadvantages or allow parties to achieve sustainability outcomes they would not have the ability or resources to achieve separately, or that enable the sharing of costs to facilitate sustainability related investment, are likely to result in public benefits.
- Public benefits will typically require demonstrating that enhanced or increased benefit will result from the sustainability collaboration compared to the benefits that could be realised by each party acting individually.
- The sustainability collaboration must not be more restrictive or involve cooperation beyond what is reasonably necessary to achieve the public benefits.
As the ACCC’s guidance reinforces, whether the collaboration relates to industry wide commitments related to sustainability, sharing information about sustainability matters, or developing a joint venture focussed on new sustainability technologies, obtaining competition law advice in the early stages of planning will put you in the best position to identify and manage any potential risks.
Potential competition law risks
Collaborations between businesses have the potential to breach the provisions in the Competition and Consumer Act 2010 (Cth) (the Act) relating to:
- cartel conduct (where two or more competitors agree to fix prices, share the market, control outputs, or rig bids); and
- other practices, including arrangements, understandings or information sharing which have the purpose, effect, or likely effect of substantially lessening competition.
In the case of collaborations aimed at positively contributing to sustainability or other social objectives, businesses do not intend to act in a manner that is anti-competitive and may not realise that their joint activities could raise serious competition law risks. A lack of awareness or intention to breach competition law is not a legal defence and the potential penalties for breaching competition law are significant. It is therefore important that the management of competition law risks is considered at an early stage in the planning of any potential collaboration between businesses.
However, not all collaborations between businesses will raise competition law concerns, and the ACCC recognises this in the draft guidance.
The ACCC provides the following examples of when sustainability collaboration is less and more likely to raise competition law concerns.
ACCC views on risks of sustainability collaborations
Click the drop down below for more information.
Options for managing competition law risks
Legal exceptions
There are a number of exceptions in Australian competition law that may apply to sustainability collaborations. These include, among others, conduct authorised by Commonwealth, State or Territory legislation, export exceptions, the joint venture exception and the collective acquisition exception.
These exceptions are commonly relied on for many different types of collaborative arrangements. However, they are technical legal exceptions and the parties relying on them must ‘self-assess’ (1) whether their collaborative arrangement satisfies all of the technical elements of the exception, and (2) whether the relevant exception addresses all relevant competition law risks. For example, the joint venture exception provides an exception for cartel conduct but does not provide an exception for collaboration that is likely to have the effect of substantially lessening competition.
The structuring and scope of a collaborative arrangement may influence whether competition law exceptions are available, which is another reason why it is helpful to consider potential competition law risks at an early stage of planning a sustainability collaboration.
ACCC authorisation
A unique feature of Australia competition law compared to many overseas jurisdictions, is the ability to seek ‘authorisation’ from the ACCC for collaborative arrangements on public benefit grounds. Authorisation provides protection from legal action by the ACCC or third parties. It enables businesses to obtain certainty about their exposure to enforcement action, in circumstances where they consider their proposed collaboration either may or will breach Australian competition law.
The ACCC may grant authorisation for conduct that would otherwise breach competition law where it is satisfied that the likely ‘public benefits’ resulting from that conduct outweigh the likely ‘public detriments’ (that is, the conduct results in a ‘net public benefit’).
The ACCC has 6 months to make a final decision in relation to an authorisation application, although it is possible to seek interim authorisation from the ACCC early in the authorisation process which, if granted, will enable parties to start engaging in the relevant conduct (or collaboration) prior the ACCC’s final decision.
Sustainability benefits can provide a basis for ACCC authorisation
The ACCC has taken sustainability benefits into account when granting authorisation
The ACCC has already taken sustainability benefits into account when granting authorisation for collaborations. This includes collaborations involving the imposition of a levy on the sale of products to increase the level of recycling, joint buying of renewable energy to reduce greenhouse emissions, joint tendering by local councils to underwrite investment in new waste recycling processing facilities, and collaboration by major supermarkets in the management of the recycling scheme for soft plastics.
In its decision to authorise the acquisition of Origin Energy by Brookfield and MidOcean the ACCC also accepted that a reduction of greenhouse gas emissions is a public benefit of considerable weight and, in that case, was sufficient to overcome expected lessenings of competition in a number of energy markets. In the draft Guidance, the ACCC also recognises that a broad range of sustainability benefits could constitute public benefits for the purposes of ACCC authorisation, including other environmental benefits such as biodiversity conservation, reduced plastic use or increased circularity.
Key considerations when seeking authorisation on sustainability grounds
To obtain ACCC authorisation on sustainability grounds, businesses will need to substantiate the sustainability benefits and demonstrate how those benefits will result from the collaboration. If the benefits are likely to arise absent the collaboration, they will not be considered to be a basis for authorisation of the collaboration.
The draft Guidance includes the following tips for substantiating sustainability benefit claims in authorisation applications
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The ACCC also provides some illustrative examples of types of sustainability benefits that may be relevant to authorisation applications.
As the additional information shows, the ACCC recognises in some of these examples that they may benefit from legal exceptions or otherwise may not involve an area of competition between the parties involved. This demonstrates why a proper assessment of competition law risk and options for managing that risk at an early stage can be helpful for parties considering collaboration on sustainability related activities.
ACCC’s illustrative examples of sustainability benefits
Click the drop down below for more information.
- Several companies that manufacture soy milk want to agree with each other that they will only buy soy beans from growers that meet a certain environmental standard to reduce the impact of the soya industry on the environment.
- Without cooperation no individual supplier would make this move as it would put them at a cost disadvantage.
- The parties only share information that is necessary to facilitate the collaboration and do not share the price at which they buy soy beans or supply soy milk.
- Soft drink manufacturers want to coordinate an industry-wide change to cease using plastic wrap on their drink multi-packs and undertake a joint consumer campaign about the improved environmental outcomes.
- The ACCC notes that this is a type of agreement that could be authorised but also notes that plastic wrapping may not be a point of significant competition between the soft drink manufacturers.
- Four building manufacturers want to enter into an agreement to conduct joint research and develop an early-stage technology to reduce greenhouse gas emissions during cement production.
- The four businesses lack the technical capabilities and resources to viably conduct the research alone (absent the collaboration).
- ACCC notes in the draft Guidance that exceptions should be considered here but this is the type of agreement that could be authorised.
- Three clothing retailers which source the clothes they sell from common suppliers want to create standardised recycling processes and systems for clothes and give preference to traders that employ those standards.
- The ACCC notes a relevant factor in its consideration of this proposed collaboration would be to understand why interoperability of the recycling systems (and therefore collaboration among the retailers) was necessary.
- Two large retailers would like to share information with each other as well as third parties about where excess food is required and when it will expire to try to increase food being reallocated before it expires.
- The ACCC notes that relevant factors in its consideration of this proposed collaboration would be to understand why the retailers could not act unilaterally to address this issue and whether there are clear food waste reductions that are likely to result from it.
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The ACCC are more likely to consider competitive impacts to be limited where:
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Addressing detriments in an authorisation application
The ACCC will weigh any sustainability (and other) public benefits against all of the public detriments likely to result from the collaboration, including any negative impacts on competition. It is necessary for the parties proposing to collaborate to address these in their application for authorisation.
The greater the potential for impacts on competition, the greater the public benefits will need to be for the ACCC to grant authorisation for the collaboration.
The ACCC provides guidance on where it is more likely to consider the competitive impacts of the proposed collaboration are limited.
Key contacts
Linda Evans
Regional Head of Practice – Competition, Regulation and Trade, Australia, Sydney
Legal Notice
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
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