News Update Competition

3 August 2020

The Netherlands Authority for Consumers and Markets ("ACM") that is responsible for the enforcement of both consumer protection and competition rules recently published its enforcement approach to sustainability initiatives. The ACM announced its commitment to take stricter enforcement actions against misleading sustainability claims and certification labels to protect consumers. The ACM considers such claims and labels crucial for making sustainable choices easier for consumers. The ACM, with the consultation on its draft guidelines, took a bold and commendable initiative to present a more flexible interpretation of the competition rules that is paving the way for cooperation agreements contributing to sustainability goals such as reducing CO2 emissions. The proposed flexibility relates to the assessment of the benefits of sustainability cooperation agreements:

• For cooperation agreements aiming to reduce CO2 emissions, the ACM proposes to take into account the benefits of the cooperation agreement for the actual users (i.e. consumers) of the products in question, but also the benefits to the society as a whole due to the contribution of the sustainability objectives. If these benefits to society, are equal or greater than the disadvantages for users, such as price increases, the agreement can be permitted;
• For sustainability agreements representing a combined market share of no more than 30%, no quantification of the benefits is required if the harm to competition is obviously smaller than the benefits of the agreement.

Sustainability claims and certification labels under scrutiny

In this year’s edition of its annual publication called InSight, which is presented to Dutch lawmakers, the ACM expressed its concern on the increasing number (currently around 250) of certification labels and claims. Since reliable labels and claims are essential for ensuring that consumers are making well-informed sustainability choices, the ACM will provide more information about certification labels in order to increase awareness of their reliability. The ACM is also committed to taking stricter enforcement action in the case of misleading practices. In addition, the ACM is calling on the Dutch legislature to introduce stricter rules for certification labels, for example mandatory accreditation.

Consultation on revised draft guidelines on sustainability agreements

On 9 July 2020, the ACM initiated a public consultation of its revised draft Guidelines on sustainability agreements (the "Guidelines"). The Guidelines' aim is to explain how competition law is applied to sustainability agreements between competitors in order to pave the way for such agreements. The Guidelines also aim to neutralise the hampering effect of the uncertainty on the agreements' compatibility with the competition rules and the associated fear of being fined. Through the consultation, the ACM intends to gain a better understanding of the public's view on its chosen approach.

The ACM's initiative can be seen in relation to the broader climate objectives laid down in the Green Deal, the European Union's ("EU") action plan for making the EU's economy more sustainable for the future. The European Commission ("EC") is also currently reviewing the existing Horizontal Block Exemption Regulations and the Horizontal Co-operation Guidelines in light of the Green Deal.

At national level, these guidelines are part of an ongoing discussion on the competition law assessment of sustainability initiatives. In this regard, the ACM adopted in 2014 its Vision document 'Competition and Sustainability'; in 2016, the Dutch Ministry of Economic Affairs adopted the Rule regarding Competition and Sustainability; and on 4 July 2019, the State Secretary for Economic Affairs and Climate Policy submitted a Dutch legislative proposal regarding sustainability initiatives to the Dutch House of Representatives.

Scope of the Guidelines

The Guidelines apply to sustainability agreements, which the ACM defines as "any agreement between undertakings, as well as any decisions of associations of undertakings, that are aimed at the identification, prevention, restriction or mitigation of the negative impact of economic activities on people (including their working conditions), animals, the environment, or nature". Examples of sustainability agreements are agreements aimed at more efficient use of raw materials, to reduce pollutant emissions and waste streams or to reduce emissions that limit the negative impact of production on people, animals, the environment or nature.

Which agreements are allowed?

The Guidelines mention three opportunities where competition rules are not a barrier to sustainability agreements, i.e. (i) sustainability agreements that do not affect competition, (ii) sustainability agreements that may affect competition, but generate efficiencies covered by article 101 (3) TFEU and (iii) sustainability agreements that do not qualify for an exemption by 101 (3) TFEU, but profit from various other legislative options. These opportunities will be discussed below.

(i) Sustainability agreements that do not affect competition
First, ACM reiterates that many sustainability agreements do not appreciably restrain competition on the basis of key parameters, such as price, quality, diversity, service, and the distribution method. Examples are sustainability agreements setting codes of conduct on a voluntary and non-discriminatory basis (for example the Dutch "Better Life label") or setting objective targets without being binding (for example reduction of CO2 emissions, where individual undertakings determine their own contributions and the way in which they wish to realise them).

(ii) Sustainability agreements that generate efficiencies covered by article 101 (3) TFEU that outweigh the negative effects on competition
Second, the Guidelines explain that anti-competitive sustainability agreements do not fall under the cartel prohibition if they comply with the cumulative criteria of article 101 (3) TFEU:
(a) the agreements offer efficiency gains, including sustainability benefits;
(b) the users of the products in question are allowed a fair share of those benefits;
(c) the restriction of competition is necessary for reaping the benefits, and does not go beyond what is necessary; and
(d) competition is not eliminated in respect of a substantial part of the products in question.

Regarding the efficiency gains (criterion (a)), only objective sustainability benefits will be taken into consideration. Objective sustainability benefits are benefits that are useful not only to the consumers, but, in general, also to society (or parts thereof) in a broader sense. Examples of such benefits are the reduction of the impact of consumption products on the environment and the living conditions of humans, the reduction of operational costs, increased innovation, quality or product diversity (including animal-friendly products or products guaranteeing a fair income). These elements may be used in the marketing of the products provided they are not misleading.

With regard to the fair share for users (i.e. consumers) of the sustainability benefits (criterion (b)), the Guidelines provide an exception to the basic rule that users must be compensated at least for the harm the agreement causes to competition. This exception only applies to so-called 'environmental-damage agreements'. In case of such agreements, users do not have to be fully compensated for the harm caused as long as the agreement also benefits others, such as society as a whole. Environmental damage agreements must contribute to realising the government's policy objective of reducing CO2 emissions following from international or national binding standards. For other sustainability agreements, such as agreements where undertakings set requirements for labour conditions or animal welfare, the ACM follows the basic principle that users should be compensated. An example of such an assessment can be illustrated through ACM's negative opinion regarding the compatibility of the agreement on the 'Chicken of Tomorrow'. After its assessment, the ACM concluded that the sustainability advantages of this agreement where insufficiently quantifiable in order to weigh them against the disadvantages for the users (i.e. a price increase).

For future sustainability agreements, the Guidelines provide the following flexibility on the quantification of the advantages: no such quantification is needed if (i) the combined market share is no more than 30% or (ii) the harm to competition is obviously smaller than the benefits of the agreement. For such agreements, only the qualitative sustainability benefit must be demonstrated and the fair share for users is assumed.

With regard to the necessity and extent the agreement restricts competition (criteria (c) and (d)), the Guidelines reflect the ACM's and European Commission's current approach.

(iii) Sustainability agreements that profit from various other options
As a third opportunity to enable sustainability agreements that do not meet the conditions for an exemption of the cartel prohibition (discussed in section (ii) above), the Guidelines point to the following options for market participants:

• It is possible for undertakings to submit their envisioned project to the legislature. General rules that serve the public interest are not caught by the Dutch Competition Act. Such an initiative could be converted into legislation and therefore be realised without having to formally comply with the Dutch Competition Act.
• In the near future, undertakings will likely be able to make a request to the Minister of Economic Affairs under the Bill on Room for Sustainability Initiatives (Wet ruimte voor duurzaamheidsinitiatieven). Within that framework, the Minister may declare an initiative statutory binding for an entire sector.

Dialogue with the ACM

The Guidelines do not limit the possibility of dialogue with ACM in order to obtain informal guidance on the compatibility of their envisioned agreements with the competition rules, and in particular, with the Guidelines.

Future perspectives

Finally, the Guidelines reiterate that sustainability plays a fundamental role in the public debate and thoughts about future competition policy. The Guidelines reflect the current understanding on this matter, and therefore, new insights may result in changes to it. It will be interesting to see what the future will hold in this respect.