Sustainability and antitrust weave a regulatory patchwork

Divergence on sustainability guidance - green light or red tape?

2023 saw the publication of various new guidance on sustainability agreements across the world. Following the European Commission (EC)’s publication of its revised horizontal cooperation guidelines in 2022 (which contained a chapter on sustainability), the UK Competition and Markets Authority (CMA) published its much-anticipated “Green Agreements Guidance”, which gives businesses an important steer on when they can legitimately engage in environmental cooperation and puts the UK firmly ahead of the pack of international regulators seeking to promote sustainability initiatives. In many respects the UK guidance is in line with the EC’s approach. However, there are some significant differences, with the CMA keen to position itself among the more “cooperation-friendly” regulators given the importance of these topics to consumers and public policy. In particular, the CMA takes a more permissive approach than the EC to climate change agreements, with differences creating complexity for businesses active in both jurisdictions as they seek to apply the rules.

In APAC, antitrust regulators in New Zealand and Japan introduced guidance for cooperation on sustainability goals, while the watchdog in Singapore published draft guidance and is expected to issue final guidance in the near future. Across the Atlantic, the Mexican competition authority recently decided to include “linking competition policy with sustainability” as one of its objectives for the coming years.

By contrast, and as a notable outlier, the approach in the U.S. remains unchanged as the U.S. Department of Justice Antitrust Division continues to uphold the position that there is no ESG exemption to U.S. antitrust laws. A change in this position seems unlikely, with U.S. Federal Trade Commission Chair Lina Khan noting at the beginning of 2023 that sustainability is not a focus. Authorities in Brazil have adopted a similar conclusion, with the Administrative Council for Economic Defense (CADE) generally moving away from granting antitrust exemptions to sustainability agreements on the basis that CADE’s role is to protect competition, and that sustainability is a policy goal that ought to be maintained through strong governance mechanisms and monitored by other regulatory bodies in the country.

These differences in approach, coupled with the proliferation of parallel initiatives across jurisdictions, brings with it a risk of material divergence and complexity. While faced with growing disclosure requirements and increasing pressure to contribute to climate and environmental goals, businesses should tread carefully – in this area of fast-developing policy, arrangements with industry counterparts that might be permitted by one antitrust authority will not necessarily be treated in the same way by others.

Greenwashing gets cleaned up

In 2023, authorities also intensified their scrutiny of sustainability initiatives from a broader consumer protection perspective, in particular seeking to combat “greenwashing” by corporations, a practice where companies misleadingly exaggerate the environmental benefits of their products or services. This crackdown is evident through various regulatory actions and legislative reforms across jurisdictions:

• In Australia, the Australian Competition and Consumer Commission released eight principles on good business practice when making environmental claims after conducting an internet sweep for misleading environmental and sustainability marketing claims and consulting on draft guidance earlier in the year. 
• Similarly, in South Korea the Korea Fair Trade Commission has proposed amendments to its guidelines to effectively regulate greenwashing, emphasising the need for authenticity, clarity, proportionality, objective evidence and precise and complete language when it comes to environmental or sustainability related claims in labelling and advertising.
• In the EU, the proposed Green Claims Directive aims to set clear criteria for substantiating environmental claims and stricter rules for their approval, indicating a commitment to preventing misleading practices. Concurrently, the UK CMA has targeted high-profile cases, such as investigating allegedly overstated green claims and misleading branding from a major public company, highlighting the growing legal risks associated with environmental marketing.