CMS Competition Law and Sustainable Development Series Part 4: Sustainability and Mergers

The concept of sustainability as it relates to mergers

In Part 1, we discussed that the concept of sustainability varies depending on its context. As addressed in the previous articles of this series (Article 1, Article 2, Article 3), the environmental aspects of sustainability tend to be prevalent in the field of competition law. Nevertheless, it is becoming increasingly apparent that when it comes to merger clearance procedures, competition agencies are more and more likely to address and consider sustainability considerations with broader social objectives.

How does sustainability play a role in mergers?

1. Sustainability in the context of market definition

Since consumer perceptions are more widely taken into account when defining the relevant product markets, it is expected that a more prominent role for sustainability considerations will be achieved (e.g., to what extent is a green product a substitute for a non-green product?).

The European Commission has indicated that if “there are more consumers today who take purchasing decisions based on whether products are sustainable or not, the market definition may reflect a potential definition of markets for sustainable products on the one hand and conventional products on the other hand”. These types of evaluations have been considered in merger cases (see, e.g., M.8829 – Total Produce/Dole Food Company; M.7220 – Chiquita Brands International/Fyffes; M.7510 – Olam/ADM Cocoa Business; M.10212 – Andel/Energi Danmark; M.10658 – Norsk Hydro/Alumeta).

2. Sustainability within the course of public interest considerations

Many jurisdictions around the world apply the public interest consideration in merger control procedures. Public interest elements include, inter alia, the general “public interest”, “public security”, “security of supply”, “plurality of media” or “prudential rules”. Such public interest considerations can be found, for instance, in Article 21 of the Merger Regulation, as well as Section 24/A of the Hungarian Competition Act.

There are two primary ways in which sustainability concerns can be addressed through public interest considerations. First, a specific extension of existing rules can be enacted to include sustainability considerations. This scenario is unlikely for the time being as it would involve a long legislative process. Second, such existing rules can be interpreted in a way that accommodates sustainability elements (e.g. sustainability considered as a public interest). Although this scenario would be relatively easy to apply, it is very controversial since the application of public interest considerations is already subject to heated debates in the competition community.

Nevertheless, there is European case-law that is worthy of mention here. In the Miba/Zollern case, the Bundeskartellamt (“BKA”) prohibited the launch of a joint venture between two undertakings on the basis that the combination of their already significant market power would lead to the loss of an important alternative supplier and, therefore, presumably to the foreclosure of the relevant market. After the prohibition by the BKA, however, the Federal Minister of Economic Affairs granted ministerial authorisation for Miba and Zollern, as the Minister found that overriding public interests – specifically, the interest of safeguarding know-how and innovation potential in the areas of clean energy and sustainability – outweighed competitive concerns in this case.

3. Sustainability considerations after the assessment of the merger (as remedies)

If an agency raises competition concerns regarding a merger, the parties may submit their proposed commitments in order to maintain or restore effective competition. Once implemented, such commitments must be able to dispel all the competition concerns identified by the competition agency.

The OECD highlights the remedies that solve competition problems and may also have a positive impact on the environment. This could be evidenced in the Novelis/Aleris merger where the parties submitted commitments to divest Aleris’ aluminium automotive body sheets business. Since aluminium is a light material that allows car manufacturers to produce more fuel-efficient vehicles and reduce CO² emissions, the divestiture also had a positive effect on the environment.

In other competition areas, such as consumer protection, we have already seen examples of competition agencies accepting “green” remedies (see Decathlon Netherlands B.V.’s commitment, which was accepted by the ACM). Although for the time being there are not many examples of the acceptance of remedies directly linked to sustainability in merger cases, it is conceivable that in the future the undertakings may seek to address competition agencies' concerns in order to obtain merger clearances by proposing commitments that address sustainability objectives.

What can we expect in the near future?

As merger control is mostly an ex-ante analysis, there is perhaps less room for sustainability arguments within the course of merger procedures than in the case of restrictive agreements because the possible environmental benefits must be estimated in advance for the future. This contradicts the desire and expectation for high precision from competition agencies. However, applying sustainability elements within public interest considerations may be a way to resolve this dilemma.

With regard to theories of harm, the wielding of sustainability concerns like a “sword” seems to be likely in the near future, since there are more and more markets where solely applying a price-based analysis is not sufficient for the appropriate assessment of the actual market realities. As a result, competition agencies are expanding the scope of their review and getting used to analysing other types of effects (e.g., innovation, quality).

Undertakings may be tempted to submit green efficiency claims or offer green commitments, but it is currently unclear how rigorous agencies will be in their assessment of the fulfilment of the criteria of merger-specificity and verifiability.

For more information on EU and Hungarian competition law, contact your CMS client partner or local CMS experts.