Sustainability Practices from the Perspective of Competition Law

Öykü Su Sabancı co-authored this article.

With the increasing prevalence of various global threats such as climate change and the depletion of natural resources, the concept of sustainability has become central in the fields of law and business. Sustainability, which encompasses achieving economic growth without harming the environment, conserving natural resources, and fulfilling social responsibilities, has made policies in this area increasingly critical for companies and governments alike.

Competition law, which occasionally conflicts with sustainability practices, aims to protect the functioning of the free market. The core principles of competition law are (i) maintaining fair conditions in markets, (ii) preventing monopolization, and (iii) enhancing consumer welfare. In line with these principles, actions that restrict competition, such as price-fixing and forming cartels, are prohibited. The interaction between sustainability and competition law creates a crucial balance point, ensuring that market mechanisms are not disrupted while working toward an environmentally conscious economy. As a result, balancing competition law with sustainability objectives has become one of today's significant legal and economic challenges. Therefore, competition authorities assess the extent to which companies' sustainability collaborations restrict competition and may grant exemptions to such agreements under certain conditions.

I. Interaction Between Sustainability and Competition Law

In response to global challenges such as environmental issues and climate change, companies and governments are developing a variety of sustainability-focused policies. To achieve environmental or social responsibility goals under these policies, companies often need to collaborate. However, as such collaborations carry the risk of restricting competition, they require careful examination from a competition law perspective.

One significant case that highlighted the need for joint consideration of sustainability and competition law was the Chicken of Tomorrow decision by the Netherlands Authority for Consumers & Markets (“ACM”) in 2015. In 2013, Dutch chicken producers, supermarkets, and poultry meat processors reached an agreement to remove certain chicken products from shelves and replace them with poultry raised using healthier and more sustainable methods. The ACM analyzed this agreement and found that this led to price increases. The ACM determined that transition to a sustainable production method increased costs and thus violated competition rules.

Under competition law, agreements that restrict competition, such as price-fixing, production limitations, or market sharing, are generally prohibited. However, achieving sustainability objectives often requires such collaborations. For example, a partnership aimed at environmental sustainability could negatively impact market dynamics and restrict competition. Therefore, relevant national competition authorities examine these agreements and provide guidelines on how to achieve sustainability goals without compromising competition.

In the context of the interaction between sustainability and competition law, the European Commission’s Guidelines on Horizontal Cooperation Agreements ("Guidelines") provide a dedicated focus on sustainability agreements and serve as a valuable guide on how such agreements can align with competition law. Itis important to note that the Guidelines state that sustainability objectives do not automatically exempt parties from competition rules. In such cases, the extent to which these agreements restrict competition and whether their potential benefits offset any adverse effects are carefully evaluated.

II. Evaluation and Approval Processes of Sustainability Practices in Terms of Competition Law

Sustainability agreements in the European Union are evaluated within the scope of competition law under Article 101 of the Guidelines. According to the relevant article, itis indicated that sustainability agreements will be included in the competitive analysis. The Guidelines state that sustainability agreements may have the potential to restrict competition, but certain exemptions may be granted if these agreements balance environmental or social benefits. For instance, the European Commission has clarified that agreements aligned with sustainability goals, but without adverse effects on competitive parameters like price, production, or quality, will not fall within the scope of Article 101 as long as they do not restrict competition. Examples of such agreements include campaigns to raise environmental awareness or collaborations aimed at achieving specific sustainability standards.

The European Commission’s Guidelines set forth four (4) key conditions regarding sustainability projects: (i) the project or agreement must provide a clear environmental or social benefit, (ii) restrictions within the project must be necessary to achieve these benefits, (iii) these benefits must be fairly passed on to consumers, and (iv) competition restrictions should not exceed what the project necessitates. If these conditions are met, the project may be granted an exemption.

However, it is explicitly stated that agreements with negative effects on competition will be evaluated under Article 101 and may be prohibited. For example, agreements that limit production quantity or include price fixing, even if they have sustainability goals, may be deemed as anti-competitive agreements. In such cases, relevant competition authorities weigh the potential environmental benefits and consumer advantages of the agreement. While maintaining competition is the primary consideration, exemptions may be granted under specific conditions if environmental benefits outweigh competitive concerns.

Furthermore, sustainability projects should not only provide environmental benefits but also ensure cost-effectiveness, thereby preserving overall market balance. In Türkiye, a group of ceramic producers conducting energy efficiency projects received an exemption due to their aim of reducing costs while increasing environmental sustainability.

III. Competition Law and Sustainability Practices in Türkiye

In Türkiye, a similar approach has been followed, with the interaction between sustainability agreements and competition law being examined under the Competition Law No. 4054 (“Law”) based on whether they have restrictive effects on competition. Agreements between competing firms that contain anti-competitive elements, such as price fixing, production control, or limiting product variety, are prohibited. However, if the positive impacts of such agreements, which provide environmental or social benefits, can counterbalance their negative competitive effects, exemptions may be granted by the Competition Board.

Although the guidelines published by the Competition Authority do not provide direct instructions regarding sustainability agreements, these agreements are evaluated in line with competition law principles. Particularly, agreements between competitors that contain anti-competitive elements, such as price fixing, limiting production quantities, or reducing product variety, can be prohibited by the Competition Board. However, when the positive effects of sustainability goals outweigh the competitive restrictions, exemptions may apply. Additionally, sustainability agreements and projects are evaluated not only for their environmental benefits but also for their economic and social benefits. However, such agreements must not be restrictive of competition. Therefore, it is crucial for companies to analyze competitive risks and ensure compliance with competition law before initiating sustainability projects.

One remarkable example in Türkiye is the agreement among detergent manufacturers under the Soap and Detergent Manufacturers Association. This agreement aims to reduce chemical emissions and promote energy savings. After examining the potential negative impacts on price and product variety, the Competition Board granted an exemption, determining that the environmental benefits outweighed competitive restrictions. This decision is seen as a positive indicator of the approach towards sustainability projects in Türkiye.

Another example is the exemption granted by the Competition Board to an agreement among tire manufacturers aimed at recycling end-of-life tires. This collaboration, carried out under the Tire Manufacturers Association, was positively evaluated by the Competition Board as it aimed to achieve environmental sustainability goals.

IV. The Future of the Relationship Between Sustainability and Competition Law

In the future, businesses and governments will increasingly focus on sustainability as a result of global issues such as climate change, depletion of natural resources, and social injustice. This will lead to an increased interaction between sustainability and competition law. However, there is still uncertainty around how compliance with competition law will be ensured in the implementation of these policies.

The European Union’s Green Deal aims to emphasize encouraging sustainability-focused projects while ensuring that these projects are implemented without excessively restricting competition. For Türkiye, it is anticipated that the Competition Board will continue granting exemptions to projects aligned with environmental and social sustainability goals, while also considering the need to protect competition in this process. Accordingly, in the future, competition authorities are expected to adopt a more flexible and guiding approach in their review of sustainability agreements.

V. Conclusion

Sustainability and competition law have become two significant areas that frequently intersect in the business world. For companies developing sustainability-focused projects to address environmental and social issues, there is also an obligation to analyze these projects' impacts on competition. As detailed above, relevant authorities aim to support sustainability goals while ensuring fair competition in the markets, granting exemptions to sustainability projects under certain conditions. However, these projects must not excessively restrict competition or negatively affect consumer welfare.

While sustainability agreements are an effective tool for achieving environmental and social goals, implementing these agreements incompliance with competition law is considered a fundamental requirement for a sustainable future. Therefore, in these projects, it is necessary to consider sustainability goals while also conducting a thorough analysis of their impacts on competition in the free market.