People often think companies avoid sustainable practices because they see them as costly and inefficient, possibly leading to practices like greenwashing — where a company exaggerates its environmental efforts. However, it's important to realize that sometimes it's not the company's choice; legal restrictions can also be a hurdle to realizing sustainable efforts. So how exactly does competition law step in to control how companies go about their sustainable business?
Competition law aims to boost market competition by overseeing companies' behaviours which are deemed anti-competitive. Such behaviours come in various forms; for instance, a monopoly can occur when a firm dominates a market, excluding other competitors. An infamous example of this is the case of the American Telephone and Telegraph Company (AT&T), accused of monopolising the U.S. telecommunications industry and subsequently required to divest 67 percent of its assets to promote fair competition. Another form of anti-competitive practice is cartels, where manufacturers or suppliers collaborate to maintain high prices, thereby restricting competition. The core motivation behind regulating such conduct is to safeguard consumer welfare, which would ensure that companies don't misuse their market power through exorbitant pricing or extreme production limitations.
Here's where sustainability enters the picture. It might surprise you that the legal system doesn't automatically assume sustainability is always in consumers' best interest. For a while, there was a perception that competition law and environmental sustainability were separate realms. However, Margarethe Vestager, in an event hosted at UCL in 2019, promoted a shift towards pairing competition law and environmental sustainability, asserting that ‘businesses have a vital role in helping to create markets that are sustainable in many different ways, and competition policy should support them doing that.’
Jan Peter van de Veer underscores that while companies can independently pursue sustainability initiatives, collaboration among them to meet sustainability targets may evoke concerns resembling cartel formation under competition law. Such practices are typically deemed anticompetitive, unless their overriding benefits can be justified. The challenge lies in the non-economic nature of sustainability benefits; environmental commitments are an investment in the future and don’t usually generate immediate results. In response to this, the Dutch government issued policy directions in 2014 to the Dutch competition authority, urging a broad welfare perspective. This entails considering efficiency benefits beyond direct consumer advantages and incorporating broader environmental benefits. The directions emphasise that the net effect of agreements should at least be neutral for directly affected consumers, allowing flexibility to balance the interests of both current and future consumers. Despite this, case law suggests that courts often prioritise the consumer of today over broader environmental effects for society at large and future generations.
In the Netherlands’ ‘Chicken for Tomorrow’ case, the competition authority found an industry-wide initiative aimed at enhancing animal welfare in the poultry sector to be anti-competitive. The initiative involved supermarkets that collectively held a 95 percent dominance in the Dutch poultry sector. Supermarkets involved in the initiative committed to replacing their poultry with a more sustainable but costlier product. The court questioned the agreement's justification based on its positive environmental impact. A consumer survey was conducted to gauge the amount consumers were willing to pay for the initiative's benefits. The study revealed willingness to pay an extra 0.82 euros per kilo, falling short of the 1.46 euros extra per kilo cost for the more sustainable poultry. Consequently, the court ruled that consumers would derive no net benefits and would, in fact, be worse off. This confirmed the anti-competitive nature of the practice, as it couldn't be justified solely based on its environmental advantages. In light of this, van de Veer argues that competition policy should not be reluctant to allow firm collaboration in certain cases, even if consumer appreciation for its sustainability objectives is not immediate.
In navigating the intersection of sustainability and competition law, complexities emerge as environmental goals intersect with consumer welfare considerations. The ‘Chicken for Tomorrow’ case underscores the delicate balance, revealing that the legal system often allows immediate economic impacts to overshadow long-term environmental benefits. As businesses grapple with these challenges, a forward-looking competition policy is crucial, recognizing the intrinsic value of sustainability. The path forwards requires fostering a future where competition law aligns with sustainability.
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