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Firms Need Help Navigating Competition Laws in Pursuit of Collaboration for Sustainability

Over 80% of sustainability professionals acknowledge the need to work with peers to tackle sustainability issues; but most companies are put off collaboration for fear of breaking competition rules and risking litigation.

Corporate competition laws exist for good reason. They help to build fair markets, making sure companies operate in a way that benefits consumers and prevents monopolies forming. Regulations such as the Federal Trade Commission Act in the US, and the UK’s Competition Act 1998, work to maintain a level playing field among businesses and prevent anti-competitive behavior.

But what happens when companies want to work closely together, to share information and knowledge to solve common problems together? After all, collaboration is often seen as our best bet in tackling many of our big, 21st-century environmental and social challenges — not least the climate crisis. Sustainability issues are complex and interconnected — requiring a concerted, cross-sectoral approach to drive meaningful change.

“Collaboration is especially useful in solving business challenges that have no clear competitive advantage — for example, eradicating modern slavery,” Oliver Hurrey, founder of the Scope 3 Peer Group dedicated to accelerating collaboration to reduce supply chain emissions, told Sustainable Brands® (SB). “It’s as simple as making it far, far easier; cheaper and more effective to jointly tackle a very complex problem — especially when this stuff is generally understaffed, even in big companies.”

It's a compelling argument; and yet, collaborative action could be being stifled by competition laws. That’s certainly the feeling of the majority of businesses responding to a new survey carried out by the law firm, Linklaters. Despite the large majority (82 percent) of sustainability professionals acknowledging the importance of working with peers to pursue sustainability goals, most companies are put off collaboration due to the fear of breaking competition rules and the risk of litigation. 60 percent claim competition laws are playing a role in their not pursuing a sustainability project; just 48 percent said the same in 2020.

The ultimate deterrent to collaboration

Despite the pressure to ramp up climate action — particularly along supply chains — concerns over exposure to antitrust liability, whether at the hands of an agency or a litigant, appear to be deterring firms from partnering with competitors on solving environmental, social and governance (ESG) issues. More than half (56 percent) of respondents offered concrete examples of projects that were not pursued because the legal risk was deemed to be too high — a figure that has not much changed since the 2020 survey.

The UK’s Groceries Supply Code of Practice (GSCOP) regulations, which govern the relationship between large grocery retailers and their suppliers, are a good example of how laws might be tweaked to foster greater collaboration. While the GSCOP is primarily focused on ensuring fair dealing and preventing unfair practices in the grocery supply chain, it doesn’t inherently limit sustainability efforts. In fact, GSCOP includes provisions that can support sustainability by promoting transparency and fair treatment of suppliers. But there are certain aspects of GSCOP that indirectly impact ESG efforts in retail: Under the law, retailers are not allowed to make unjustifiable demands on suppliers — especially in terms of pricing. However, in practice, the intense price competition among retailers could lead to pressure on suppliers to cut costs — potentially impacting their ability to invest in sustainable practices. Similarly, while GSCOP aims to ensure fair practices in the relationships between retailers and suppliers, there may be instances where power imbalances persist. Suppliers, particularly smaller ones, may feel compelled to prioritize the immediate demands of retailers over long-term sustainability considerations.

Not all collaboration is being stifled

However, despite competition laws being perceived as a big risk across the board, they are not preventing all collaboration efforts from marching forward: Around a third of firms surveyed pointed to a range of collaborative initiatives as examples of progress — including pooling logistics, collectively agreeing not to use certain suppliers, jointly funding recycling schemes, and developing more sustainable packaging options together.

And the regulatory landscape seems to be evolving in way that is good news for sustainability — with more competition authorities providing guidance to support firms that want to collaborate without falling afoul of the law. The European Commission, the UK Competition Markets Authority (CMA) and the Netherlands Authority for Consumers and Markets (ACM) have all created guides that explain when sustainability collaborations fall outside competition rules. They also make it clear how they assess whether the benefits of any collaboration might outweigh any damage to competition. The CMA says it has an “open door policy,” whereby companies are free to ask questions as to whether their collaboration is compliant with the rules.

More needs to be done to make companies aware of such guidance (only 57 percent of professionals surveyed said they were); because, clearly, this is what companies need. Around 65 percent of respondents say they are more inclined to pursue collaborative projects if a competition law exemption is in place.

“Indications that, following the EU and UK Guidance, over half of those surveyed are prepared to take forward projects previously considered too risky are encouraging,” Nicole Kar, Linklaters’ global head of antitrust and foreign investment, told SB. “Authorities have opened the door — businesses need to be prepared to step through.”

It is a different picture in the US, where guidance has yet to be published on the subject. Alongside the risk of breaking competition laws, US firms face the very real possibility of litigation — something that 57 percent of companies are worried about, in all corners of the world.

Key pieces of advice

Linklaters’ advice is for businesses to start engaging in conversations with regulators on some of these issues to develop a greater understanding of the parameters. The survey results suggest that customers are unwilling to assume the costs associated with sustainability measures unless they are industrywide. If companies can show this to be the case, it may help to convince regulators of the need for collaboration.

The advice for regulators is to get better at communication. Making decisions public will help businesses understand and gain more certainty about how principles explained in the various pieces of guidance will actually be implemented in practice. A good case in point is a letter issued by the Netherlands’ ACM to Total and Shell, in which it explained why it would not further investigate the pair’s plans for a joint carbon-storage project in the North Sea.

Fears over competition rules are clearly a barrier. But it is not the only thing holding companies back when it comes to proper collaboration for sustainability — a lack of facilitation is a common obstacle, according to Hurrey.

“Often, without good facilitation, those that are more advanced in the collaboration can find themselves sharing but not getting much in return,” he pointed out. “You need the right mix of talk, therapy, action on understanding, and action on doing — otherwise you can get stuck in a talking shop.”

So, it’s time for companies to “find your tribe,” as Hurrey put it: “There are more than 180 industry collaborations on sustainability, so there’s no real excuse. In the last two weeks, I’ve helped both the hearing aid solution industry and DIY retailers to launch Scope 3 taskforces. There really is something for everyone. Just find it, or start it.

“The best collaborations draw clear lines as to where they collaborate and where they compete. The individual companies should still also try and compete in those areas, as well as collaborate. You need that healthy, realistic mix.”