Now that sustainability is a board-level issue, companies are under tremendous pressure to ensure their supply chains are environmentally and ethically responsible. Motivation can come from internal business, customers, government, shareholders – or everyone. There are objectives, commitments, deadlines and board pressure to match words with deeds.
In some markets, companies pursue sustainability goals on their own to profitably bring consumers the products they want, but a company may not be able to move the needle on its own. A joint or sector initiative can sometimes achieve change on a scale that would be commercially impossible for one company to achieve alone. But the prospect of competitors working together could raise issues under US and other antitrust laws around the world.
Regulators cast a wide legal net because the law usually focuses on where an agreement can have an effect, rather than simply where the parties are located. It is not always clear how national antitrust laws will treat sustainability cooperation that can increase costs and reduce choice.
The result is a complicated and potentially dangerous legal landscape for companies that want to take decisive action to meet targets and lead in their sector. So how should companies navigate this?
Unacceptable cards
US lawmakers and antitrust enforcers have sent strong signals that they will not tolerate cartels under the guise of sustainability agreements. Companies can be fined and sued and publicly accused of greenwashing – which would take time and resources to defend in court and in the public eye.
Federal Trade Commission Chairwoman Lina Khan responded to a question at a Senate hearing by asserting that there is no environmental, social and governance exemption from antitrust laws.
Earlier this year, a coalition of 19 state attorneys general sent a letter to a major investment company expressing concern that “coordinated conduct with other financial institutions to establish net zero raises antitrust concerns.”
In practice, collaborations may not be intended to restrict competition. Sustainability managers or technical experts may lead projects (under pressure) but have little awareness of antitrust rules because they are not perceived to be in a dangerous price-setting function.
Those involved may feel that laudable broader environmental or social goals justify projects in collaboration with competitors. It is also possible for discussions of legitimate topics to cross into illegitimate territory, such as prices and the benefits of market stability. Employees may become desensitized to antitrust risks in long-term projects that are subject to scope creep.
Cooperation allowed
Industry standards and benchmarking are common ways for companies to achieve more sustainable and ethical results. Voluntary standards can have a positive impact on how workers are paid and what production methods can be used, and can even play a role in making recycling more efficient.
There are clear benefits to standards, and many of them will not raise antitrust issues. However, companies must ensure that standards are not developed in a way that disadvantages or excludes—that is, boycotts—others.
Companies may also need to share information as they develop voluntary standards, verify compliance, or engage in benchmarking. By using nondisclosure agreements, clean teams, or a third party to aggregate the volume figures provided, they can be made compliant.
Provided that enough firms are involved so that no single contributor is able to reconstruct information about its competitors, there is no antitrust concern.
Hang up calls
The challenge for companies and consultants lies in deciding how to approach projects on the right side of the continuum, where a cost/benefit analysis may be needed.
This is difficult because qualitative benefits are more difficult to quantify or may be more uncertain, for example. because they will arise only in the longer term. Unfortunately, companies may conclude that short-term antitrust scrutiny is more certain than environmental and commercial benefits.
There are no easy answers for this category of projects, and the legal assessment will always be fact and jurisdiction specific. We recommend the following tips to mitigate the risk:
- Ensure that those responsible for corporate sustainability initiatives seek antitrust advice.
- Consider auditing the group’s ESG activities to make sure in-house counsel knows what’s going on and why each project should be done together: Yes, the initiative, in terms of risk and cost, means it doesn’t can only be achieved?
- Ensure that projects retain as much room for competition as possible, such as by encouraging individual discretion in how to meet and exceed any jointly set objectives. Identify and quantify the benefits of the initiative, who will benefit and when.
Train all employees who have contact with competitors on how to approach meetings, using a sheet of dos and don’ts tailored to the project. Ensure that each initiative has a compliance program that covers information sharing safeguards and the use of a third party to avoid sharing sensitive information. Ask corporate counsel to periodically check for scope creep, and consider inviting outside counsel to key meetings to ensure conversations stay on track.
Also, consider the pros and cons of approaching a government body and/or antitrust agency for an anticipated project, which may be a good option when large investments are anticipated.
Don’t shy away from ESG
Antitrust law or its perception can hinder legitimate projects focused on achieving more sustainable supply chains, which can be frustrating not only for businesses but also for antitrust agencies. However, with careful planning, businesses can take steps to ensure that antitrust laws do not unduly impede legitimate ESG goals.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.
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Jeffrey Martino is a partner in Baker McKenzie’s global antitrust and competition practice and co-lead of the firm’s global cartel task force. He represents multinational corporations and their boards and executives in high-level criminal and civil investigations by the DOJ and other agencies.
Grant Murray is the lead knowledge lawyer for Baker McKenzie’s global antitrust and competition group based in London. He leads a team of antitrust knowledge lawyers and is responsible for the training needs of a practice group that includes over 300 competition lawyers in more than 40 countries.
