Thinking about going green, but not willing or able to do it alone? Tackling environmental challenges within your business can be seriously daunting and costly, especially when those challenges form part of a broader industry-wide issue.
For example, your business may supply products which cannot be fully disposed of in an environmentally conscious manner due to the lack of suitable waste processing facilities for all components of the product including its packaging. In these scenarios, it will often be beyond the ability of a single business to make a meaningful impact on its own. Instead, it could make sense to try to collaborate with one or more industry players to workshop and implement a suitable solution to these big environmental issues. But how can these “sustainability collaborations” be carried out in a manner which does not fall foul of prohibitions under Australian competition laws against engaging in cartel conduct and other anti-competitive practices? The ACCC’s latest draft guidelines provide helpful guidance on these complex issues.
On 8 July 2024, the ACCC published its much-anticipated Draft Guidelines on Sustainability Collaborations and Australian Competition Law to help businesses understand how to identify and navigate the competition law risks that may arise through collaborative efforts to achieve environmental or sustainability goals. The draft guidelines outline the factors which will be taken into account by the ACCC when reviewing applications for authorisation of proposed sustainability collaborations, including the types of public benefits which may be helpful for establishing grounds for authorisation.
According to ACCC Acting Chair, Mick Keogh, “Our intention in developing this guide is to make it clear competition law should not be seen as an immovable obstacle for collaboration on sustainability that can have a public benefit.”
The consultation period for the draft guidelines is currently open and closes on 26 July 2024.
What are the key competition law risks of sustainability collaborations?
The key competition law risk to bear in mind when contemplating sustainability collaborations is the risk of engaging in cartel conduct. Cartel conduct occurs when two or more businesses which compete, or have the potential to compete, with one another for the supply or acquisition of goods or services agree to act together instead of acting independently. Examples of this include where Company A agrees with Company B to stop producing certain categories of products which cannot be readily recycled; or where Company A agrees with Company B to stop acquiring products from suppliers who do not meet certain environmental standards. The consequences of breaching the prohibition against cartel conduct include pecuniary penalties of up to the greater of: (i) $50 million; and (ii) 30% of the contravening corporation’s turnover in the prescribed period. In addition, individuals who are found guilty of engaging in cartel conduct can face up to 10 years’ imprisonment.
What is authorisation and how can it apply to sustainability collaborations?
Businesses proposing to enter into sustainability collaborations that have the potential to breach the prohibition against cartel conduct can apply for authorisation of the proposed collaboration from the ACCC. Authorisation provides the successful applicant(s) with immunity against legal action for the collaboration to the extent to which it falls within the scope of the authorisation.
The ACCC will only grant authorisation for proposed collaborations involving actual or potential cartel conduct if it is satisfied that the likely “public benefit” resulting from the collaboration outweighs the likely “public detriment”. That is, the proposed collaboration must result in a net public benefit. The ACCC has confirmed that public benefits include sustainability benefits. In applying the authorisation test therefore, the ACCC may take into account a broad range of sustainability benefits, including biodiversity conservation, reduced plastic use, or increased circularity (i.e. promoting the continual use, recycling and regeneration of materials and products). In particular, the ACCC has stated that reducing greenhouse gas emissions is a public benefit of considerable weight.
However, it is important for businesses to be able to demonstrate how these sustainability benefits will result from the proposed collaboration. The ACCC therefore expects to see evidence of a causal link between the claimed benefit and the proposed collaboration.
In some instances, businesses may also need to demonstrate why it is necessary for them to collaborate in order to address the underlying environmental or sustainability issue, rather than continuing to act independently. For example, the collaboration may be required to mitigate a “market failure”. This could occur where the societal cost of providing the good or service is greater than the cost to the individual consumer. The ACCC has granted authorisations for various industry stewardship arrangements which impose levies on the sale of certain products (including batteries, paint, tyres, and mattresses) in order to fund new initiatives to facilitate higher rates of recycling or safe disposal of those products at the end of their useful life. The ACCC recognises that these types of arrangements can help to reduce market failures by allowing businesses to capture more of the societal costs of certain goods and services within their purchase price and to make meaningful use of those additional funds, in a way which would not be feasible for an individual business to achieve.
What does this mean for you?
If you are thinking about pursuing a potential sustainability collaboration with one or more of your competitors, you should each seek independent legal advice before implementing the collaboration and refrain from sharing any commercially sensitive information with one another unless and until authorisation is in place. Importantly, even after obtaining authorisation, you should only share information with your collaborators to the extent necessary to bring about the aims of that collaboration as set out in the terms of the authorisation. This will reduce the risk of engaging in unlawful conduct which falls outside the scope of the authorisation.
Thinking about getting involved in a sustainability collaboration? Contact the Addisons Competition, Consumer & Antitrust team.
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