Competition law aspects of ESG initiatives in the life sciences & healthcare sector

I. Introduction

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.

II. ESG developments and competition law issues

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 aiming 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 includes an entire section on sustainability agreements.

The private sector has expressed the will of achieving 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 anticompetitive agreements can be justified only if they produce quantitative economic efficiency improvements. ESG aims, on the other hand, often pursue nonfinancial 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 EU Commission, benefits on separate markets can only be taken into account if the consumers who are affected by a restriction and those who benefit from it are "substantially the same".

III. EU Horizontal Guidelines

a. Unproblematic sustainability agreements

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:

• Agreements pertaining to the internal rules of conduct of companies: For instance, this may include internal regulations to use only eco-friendly paper for internal prints and similar rules.
• Agreements concerning the establishment of an information database on sustainable suppliers or distributors who do not raise competition concerns as long as the parties involved are not obligated to buy from these suppliers or sell to these distributors exclusively.
• Agreements related to industry-wide awareness campaigns: For instance, an agreement aimed at raising customer awareness of the environmental impact of their consumption, without involving joint promotion of particular products, is considered unproblematic.

b. Sustainability standardisation agreements

According to the Horizontal Guidelines, sustainability standardisation agreements may, in certain cases, give rise to antitrust issues and may need to be justified individually. As an example of an agreement that may need to be justified, an agreement to phase out non-sustainable products and processes is explicitly mentioned. 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 a 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.

c. Soft safe harbours for sustainability standardisation agreements

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

• First, the procedure must be transparent and all interested competitors must have the possibility to participate in the process leading to the selection of the standard.
• Second, the sustainability standard should not require companies that do not want to participate to comply with the standard.
• Third, participating companies must be free to set a higher sustainability standard for themselves.
• Fourth, no commercially sensitive information should be disclosed that is not needed for the development, adoption or modification of the standard.
• Fifth, effective and non-discriminatory access to the results of the standardisation process must be ensured.
• Sixth, the sustainability standard must satisfy at least one of the following two conditions:
  • The standard must not lead to a significant increase in the price or a significant reduction in the quality of the products concerned;
  • The combined market share of the participating undertakings must not exceed 20% on any relevant market affected by the standard.
• Furthermore, a sustainability standardisation agreement is more likely to promote a sustainability objective if it provides a mechanism or monitoring system to ensure that undertakings adopting the sustainability standard truly comply with the standard.

IV. Swiss Competition Law

Swiss law includes a provision allowing for a justification of anticompetitive 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 as well. So, the Secretariat of the Swiss Competition Commission has recently set up a sustainability core group to monitor sustainability developments in Switzerland and abroad.

V. Outlook

The respective laws are in terms of wording and in their sense of understanding 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 EU Commission tries to provide guidance with the new sustainability section in the Horizontal Guidelines. In addition, the EU Commission is committed to providing informal guidance on questions on sustainability agreements 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 how in detail the EU Commission 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. However, authorities are concerned with greenwashing. Nevertheless, if the concerns of the authorities are addressed correctly, sustainability reasons can be effectively used to justify agreements for achieving ESG aims having an impact on competition.

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