Corporate Collaborations: How Joint Sustainability Initiatives Can Overcome Antitrust Concerns

by Kate Brewer, Associate Member, University of Cincinnati Law Review Vol. 92

I. Introduction

The ever-growing issue of climate change is often a concern for companies today. Companies face immense pressure from the public, shareholders, and various organizations to implement sustainability practices to help curtail the impact of climate change.¹ In order to adopt effective sustainability initiatives, companies have begun collaborating with one another and sharing ideas.² However, U.S. companies are lagging behind European companies in the sustainability realm. This is largely due to the political polarization on the issue of climate change and European competition agencies’ progressive policies regarding competition laws and sustainability measures.³ Due to this polarization, various politicians and government officials have voiced antitrust concerns over companies collaborating on sustainability campaigns, discouraging companies from pursuing such efforts.⁴ Yet, companies must be encouraged to adopt measures to help combat climate change. A solution may lie in policy change to U.S. competition laws, or in the exemplary sustainability collaborations adopted by other nations.

Part II of this article provides background on antitrust law, modern sustainability initiatives, and the antitrust concerns that they raise. Part III of this article details possible solutions through European examples. Part IV of this article argues that a policy change would be the best method to allow companies to pursue sustainability initiatives.

II. Background

A. United States Antitrust Law

The three key laws governing antitrust in the United States are the Sherman Act, the Federal Trade Commission Act, and the Clayton Act.⁵ Together, these laws detail some prohibited and unlawful business practices and terms with the goal of protecting the process of competition and the benefits it provides to consumers.⁶ The Sherman Act outlaws agreements and conspiracies resulting in unreasonable restraint of trade, as well as monopolization.⁷ The Federal Trade Commission Act bans unfair methods of competition and deceptive acts or practices.⁸ Finally, the Clayton Act makes unlawful certain acts that the Sherman Act does not clearly prohibit, such as mergers and acquisitions where the effect may substantially lessen competition or create a monopoly.⁹ In theory, these three antitrust laws should work together to maintain incentives for business efficiency, keep prices reasonable, and keep quality high.¹⁰

B. Modern Sustainability Initiatives in the United States

Sustainability in business involves the idea of minimizing the negative impacts that doing business has on the environment, community, or society as a whole.¹¹ To accomplish sustainability, businesses will consider a range of environmental, economic, and social factors, and the business practices they implement can vary greatly from one business to another.¹² Strategies that may be implemented include the use of sustainable materials in manufacturing, optimizing supply chains to reduce greenhouse gas emissions, or utilizing renewable energy sources to power production.¹³

The journey to sustainability is often one that makes industry collaboration unavoidable, with sources such as the Boston Consulting group finding that sustainably across the entire value chain requires aggressive and collective action.¹⁴ Examples of such collaboration include sustainability forums, joint ventures, and various networks or associations.¹⁵ To achieve sustainability, companies must often make expensive investments into these initiatives, which could put them at a disadvantage if they are acting alone; collaborating with other companies for collective agreements to sustainability standards can prevent this.¹⁶ Often, these collaborations are a complex collective of initiatives and agreements, but they are usually voluntary industry codes of conduct on environmental practices that allow for “transparent, reasonable, and nondiscriminatory criteria.”¹⁷

The U.S. has failed to meet the progressive changes instituted by the regulatory agencies of their European counterparts by promoting sustainability efforts with more lax competition policies. This is largely due to the drastic political polarization regarding the issue of climate change.¹⁸ While change in the current antitrust regulations would be the most efficient and effective way to allow for companies to adopt more efficient sustainability methods, there are other ways for companies to navigate the current antitrust laws to achieve impactful sustainability results.

C. Antitrust Concerns & Requirements

Antitrust laws generally prohibit corporate agreements that harm industry competition or consumers, and places limitations on the ability for corporations to trade “competitively sensitive” information with one another.¹⁹ While some other nations have developed sustainability exemptions to their antitrust laws, no such development has occurred within the United States.²⁰ Further, there have been investigations recently initiated by a coalition of Attorney Generals into certain industry climate coalitions for antitrust concerns, adding to what some would consider to be the political wielding of antitrust law by those who oppose sustainability initiatives themselves.²¹

One concern raised by these critics of sustainability collaboration is that participating companies are “colluding” by refusing to do business with or provide financial assistance to fossil fuel companies.²² Meanwhile, businesses are concerned that many sustainability initiatives require increased production costs and other expenses, which puts a “first mover” at a disadvantage and inherently raises antitrust concerns over consumer welfare.²³ In the U.S., antitrust laws follow a “consumer welfare standard” that aim to protect consumers’ economic interests by preventing corporate collusion that would result in higher product prices and fewer options to choose from. However, this framework preventing corporate collusion generally fails to consider other benefits that collaboration may bring such as societal, environmental, democratic, or privacy benefits.²⁴

Absent policy change, companies must follow the current recommended practices when collaborating on sustainability initiatives. Restrictions on competition must be narrowly tailored and reasonably necessary to accomplish the sustainability goals.²⁵ Participation must be voluntary, and participants must be free to decide how to implement the agreed-upon actions and how much effort to put into them.²⁶ The collaboration must not limit participants’ ability to independently set prices, production levels, or other competitively significant terms.²⁷ It also should not involve the trading of competitively sensitive information unless absolutely necessary, and there should be safeguards to aggregate any such data before it is shared among participants.²⁸

III. Discussion

In deciding how to tackle antitrust concerns while allowing businesses to collaborate on sustainability initiatives, two major options should be considered. The first option would be for a change in policy, allowing for sustainability exceptions to antitrust laws, or at least for the social benefit of sustainability to be a considered factor in the framework used when determining whether corporate collaboration disadvantages consumers. However, absent such policy change, there are still ways in which companies within the U.S. can navigate antitrust law while also succeeding in sustainability goals, as evidenced by some successful European collaborations.

In Europe, competition agencies are considering how to ensure that antitrust law does not impede the development of climate-friendly policies and procedures.²⁹ Some have already permitted such competitor collaborations, while others are developing new guidelines and taskforces dedicated to the endeavor.³⁰ This practice incorporates sustainability concerns directly into agency mandates, creating an antitrust exemption for sustainability that does not currently exist in the U.S.³¹ As the European Commission recently relaxed their strict competition rules in the interest of sustainability, it will be interesting to see whether the U.S. follows suit, or if domestic issues, such as the politicization of climate change, will stand in the way. This is one option that the U.S. could take to overcome this antitrust-sustainability roadblock at a governmental level and would be the most efficient and effective way to warrant sustainability progress on a corporate level. For the time being, however, corporations need to feel secure in their ability to address sustainability while navigating antitrust law.

Absent policy change, companies are not without hope when it comes to adopting environmental initiatives. Companies can successfully navigate current antitrust law as long as they closely follow the requirements. In Germany, an initiative to provide a living wage to banana supply chain workers resulted in a voluntary commitment by a number of grocery retailers.³² This initiative, analyzed by a competition agency, was found to not raise competition concerns because the collaboration was voluntary, it did not set a binding level for wages, and did not involve any agreement on the actual prices of bananas.³³ Because there was no exchange of competitively sensitive information regarding purchase prices, production costs, volumes, or margins, and the collaboration only had a “minor influence” on supply chain participants’ ability to individually set banana prices, the collaboration passed the antitrust inspection of the agency.³⁴ Perhaps most key in the eyes of U.S. competition agencies, would be that the collaboration set no agreement or recommendation on if or how increased costs are passed onto consumers.³⁵ According to the American Bar Association (“ABA”), such an agreement would likely pass under U.S. antitrust law, making it an example that U.S. companies could follow in navigating both sustainability and antitrust concerns.³⁶

Several other European initiatives were analyzed by the ABA to determine whether they would have passed the scrutiny of the U.S.’s antitrust law, such as a collaboration between Shell and TotalEnergies regarding storage of carbon dioxide in empty natural-gas fields in the North Sea.³⁷ The goal is to limit carbon emissions into the atmosphere, and would require joint offers and pricing of carbon dioxide storage to get the project started.³⁸ This initiative was approved by a European competition agency due to the benefits to customers and society over the costs of restricting competition, and because the restriction would only be temporary and was necessary for the project’s success.³⁹ The ABA found that it likely would pass under U.S. antitrust law as well, as it would likely be decided that the collaboration’s restriction on competition is reasonably necessary to get the project off the ground and achieve the intended goals.⁴⁰ This would be a good example for U.S. collaborations involving new technology or innovation and would allow for the initial necessary collaboration. By following the example of such European initiatives that passed the scrutiny of their commission agencies, businesses in the U.S. might feel more confident in their own sustainability initiatives.

IV. Conclusion

Companies looking to implement sustainability initiatives are increasingly facing concerns with antitrust violations, which may drive them away from committing to their climate goals. One possible solution to this problem would come in the form of policy change at a governmental level, following the lead of European nations who are developing new regulations with exemptions and leeway for competition when it comes to sustainability. While it is this article’s assertion that such change would be wise, it recognizes that it may be unlikely. Another solution is for companies to rigidly follow the current regulations by taking example from other successful sustainability initiatives both domestically and abroad.

Cover Photo by Appolinary Kalashnikova on Unsplash

Kate Brewer

Kate Brewer is local to the Cincinnati area but received her BA in Political Science from the University of Tennessee. She is now a 2L at the University of Cincinnati College of Law. In addition to Law Review, Kate is an Article Editor for the Human Rights Quarterly and the External Affairs Coordinator for the International Law Society. Kate also enjoys spending time with her cats and studying Russian

References

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