International debate is continuing over what reforms are required to appropriately exempt ESG initiatives from competition law restrictions. In Australia the spotlight has been placed on the suitability of the Australian Competition and Consumer Commission’s (ACCC) existing tool, its authorisation regime.
Environmental, Social and Governance (ESG) industry collaboration may include information sharing and new product development around new sustainable technologies or processes, commitments to certain sustainability or workplace standards, or engaging in joint purchasing to make better use of resources.
Not all ESG industry collaboration raises competition law issues. For example, companies may work together to support regulatory changes, to fund research or to promote a voluntary code of conduct. However, in some circumstances industry collaboration on ESG measures may impact supply chains or affect how companies interact with customers or suppliers.
Where an ESG measure may risk infringing Australian competition law, the parties involved can apply to the ACCC for authorisation of their conduct, exempting it from relevant provisions of Australian competition law for a specified period and in some cases subject to conditions such as reporting.
The ACCC can grant authorisation if it is satisfied that the proposed conduct is either:
- not likely to substantially lessen competition in Australia; or
- has public benefits (including environmental or social benefits) which outweigh any likely public detriment.
ESG competition law reforms: Next stop Australia?
Developments overseas raise the question, is the ACCC’s current regime capable of supporting the collaboration that effective ESG requires?
There are plenty of examples of the ACCC granting authorisations for ESG measures:
Authorisation can take up to 6 months, although urgent matters may receive interim approval within a month. Whether the ACCC has sufficient capacity to handle a potential increase in ESG related applications remains to be seen, although the ACCC did successfully handle an influx of COVID-19 authorisations (granting 28 authorisations between March and May 2020).
Neither the ACCC nor the new Government have foreshadowed any reform in this area. For now, it appears the best businesses can do is consider carefully whether their conduct requires authorisation and ensure that any application meets the ACCC’s requirements, including that ESG benefits are clearly quantified and directly linked to any proposed conduct.
Lessons for future ESG collaboration with competitors
Lesson One: Know when to consider applying for authorisation
Some examples of collaboration where authorisation may need to be sought include:
- industry codes of conduct imposing standards of behaviour;
- arrangements where competitors collectively negotiate with a supplier or customer;
- agreements to impose industry levies;
- agreements between competitors including to discontinue or adapt the supply of a particular product; and
- measures to coordinate or improve the efficiency of a logistics chain.
If an arrangement falls short of these and does not appear to influence competition, authorisation may not be required. If there is any doubt, legal advice should be sought.
Information about prices, terms with customers and suppliers, business strategy including product launches and discontinuation, production/supply capacity, technology development, and running costs should never be shared with competitors including in the context of ESG initiatives.
Case study: In 2016, Colgate made admissions in relation to an understanding reached with competitors that they would coordinate a shift to higher concentration detergents and cease supplying standard concentrate laundry detergents. The strategy was originally proposed as a “sustainability initiative” as the use of less laundry liquid would result in less packaging and more efficient transportation and warehouse storage. The Federal Court imposed a $12 million penalty on Colgate for that conduct.
Lesson Two: There must be a direct link between the environmental benefits and the proposed conduct
In 2008, Air New Zealand and Air Canada sought authorisation of a co-operation agreement to jointly promote and sell certain direct flights between Australia/New Zealand and Vancouver. The parties claimed that the direct services would reduce overall flight time in turn reducing carbon dioxide emissions.
The ACCC was not convinced that in the absence of the agreement that the direct services would necessarily be withdrawn. The link between the agreement and the ESG benefits was therefore too tenuous.
Lesson Three: The ACCC’s approval may not be given if the competition risks outweigh the ESG benefits
In 2016, a group of local councils in South Australia sought authorisation to jointly contract for waste collection, disposal and recycling services. The parties claimed that the combined volume and long-term nature of the shared contract would provide an operator with the guaranteed volume required to invest in alternative waste technologies enabling them to provide more innovative and environmentally positive services.
The ACCC initially proposed to grant the authorisation but following receipt of 20 third party submissions raising concerns about damage to competition, the ACCC knocked back the application.