More than a year after its public consultation, the European Commission has published revised block exemption regulations (BER) on R&D cooperation and specialisation agreements, along with updated guidelines for horizontal cooperation agreements (Horizontal Guidelines). The BERs became effective on 1 July 2023. 

The Horizontal Guidelines include new guidance on sustainability agreements, offering welcome clarity on collaboration towards sustainability objectives, including welcome safe harbours for unproblematic conduct. The EC’s open-door policy creates scope to seek further informal comfort. But, concerned about floodgates opening, the EC has not bowed to pressure to flex the existing rules further (as advocated by the more liberal approach of Dutch and UK competition regulators). We look forward to seeing how the EC’s approach evolves in practice, and whether competition concerns may continue to hamper green collaborations. 

Key aspects of the sustainability guidance

The 2022 sustainability guidance (see our previous blog post), largely carried through into this final version, clarifies that competition law can only bite agreements which affect competition parameters (e.g., price or quality). Many sustainability agreements will fall outside Article 101(1), such as agreements following binding international rules on emissions. The guidance also provides specific guidance on standardisation agreements (e.g., where competitors adopt and comply with sustainability standards like manufacturing methods), creating a safe harbour for agreements meeting certain conditions, such as not leading to a significant increase in price or quality.

The guidance also recognises that sustainability agreements can create a range of benefits for consumers and explains how sustainability agreements may benefit from exemption under the four criteria in Article 101(3) (relevant benefits to consumers; indispensability; fair share for consumers; no elimination of competition).

These features remain in the finalised guidelines, with the updates largely providing welcome clarity on several issues. 

The revised guidance offers welcome clarity 

• A major concern for businesses has been the absence of written guidance (or precedent) on the EC’s approach to assessing sustainability agreements, leading to uncertainty and stifling legitimate collaborations. While not perfect, the clarity provided in the revised sustainability guidance is welcome. The EC confirms that cooperation can be indispensable and justified to realise greater benefits or to achieve a sustainability goal more quickly. This reflects the urgency of many sustainability issues and the need to overcome first mover disadvantages and regulatory failures.
• The EC’s position on assessing consumer benefits for the purposes of exemption under Article 101(3) provides businesses with a framework. Whilst the guidance could have gone further, the clear position on the hotly debated topics of “in vs out of market efficiencies” and “full compensation” provides businesses with a basis for evaluation (as explained below). 
• The EC’s more structured approach to providing informal guidance on sustainability collaborations between businesses is helpful, but still falls short of equivalent Dutch and UK provisions which protect parties from fines where comfort letters are given. 

Yet we still observe areas of concern

• When interpreting Article 101(3), the EC continues to require that consumers in the relevant market receive a "fair share" of benefits and be "fully compensated" for any harm (direct or indirect, or as part of collective benefits for society of which the consumer is part). The EC believes this stance goes as far as the legal framework permits and reaffirms its earlier position that it has no authority to consider benefits for consumers outside the relevant market.
• The EC has suggested its relatively conservative approach to identifying pro-environmental benefits will have a minimal practical impact but may still have a discouraging effect. The approach diverges from other regulators – notably the Dutch Competition Authority – which have favoured an approach aimed at considering benefits for society, rather than only focussing on benefits for the users of the products involved. 
• The updated 20% market share safe harbour for sustainability standardisation agreements that lead to an increase in prices or quality reductions is practical. However, larger market coverage increases sustainability benefits, and broader industry engagement will likely exceed 20%. Such cases will require assessment under normal Article 101(1) and 101(3) principles. The EC helpfully states that, even outside the safe harbour, it is possible that standardisation agreements will not result in a restriction of competition or could benefit from exemption under Article 101(3). 

Key developments to watch

• The Dutch Authority has responded to the Horizontal Guidelines by indicating that it will bring its draft guidelines on sustainability agreements in line with the EC’s guidelines. What this means in practice will be an area to watch given significant divergence in approach. The President of the Dutch Competition Authority, Martijn Snoep, has already declared that it would not shy away from bringing a test case on sustainability to the EU courts to settle the debate. 
• The EC has helpfully clarified that, for agreements whose “main objective” is the pursuit of sustainability aims, an effects analysis is required. This is an important development which should help to overcome businesses’ major concerns around engaging in anything which could be viewed as a per se infringement. Businesses will need to carefully consider the evidence required to establish first that the main purpose of their agreement is the pursuit of a sustainability objective and second what those effects are on the relevant markets.  

For now, though, we welcome the Horizontal Guidelines as bringing much greater certainty for businesses. All eyes are on businesses to see whether projects that may previously have stalled due to unacceptable levels of antitrust risk could now be dusted off. For some, looking to run before they’re allowed to walk, the changes may not be enough.

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The below table presents a high-level outline of the changes to the sustainability guidance between the 2022 draft and the 2023 final version. 

In case you missed it, read more on the latest developments across antitrust enforcement and M&A regulatory hurdles, in our Summer’s Antitrust and Foreign Investment Top Stories 2023 publications.