ESG and competition law: A foreign perspective

In 2022, the Dutch Authority for Consumers and Markets (ACM) issued guidelines on sustainability agreements. The aim of these guidelines was to give companies an indication as to when sustainability co-operation agreements would contravene competition legislation and when these agreements would, because of the positive impact on the environment, be exempt from competition law scrutiny. The ACM’s position shows a willingness to allow companies, even if competitors, to pursue legitimate sustainability initiatives, even if the conduct may be a technical contravention of competition law. The ACM has approved such sustainability initiatives in the CO2 storage, soft drinks, and floriculture sectors.

Across the Atlantic, and on the opposite end of the spectrum, there have been emerging tensions in the US between sustainability goals and competition law. In June 2024, the US House Judiciary Committee released an interim report alleging that a ‘climate cartel’ of institutional investors and shareholders colluded to pressure investment companies into reducing carbon emissions and, in the process, reducing output and increasing prices. The report triggered related investigations by the Federal Trade Commission (FTC) into whether ESG-driven investment decisions by groups of firms breached antitrust laws.

This scrutiny has prompted some US investors to reconsider participation in collaborative ESG initiatives. While collective action is often necessary to address global sustainability challenges, and is not inherently anti-competitive in and of itself, such co-ordination must be carefully reviewed and structured to avoid contravening competition law.

Competition risks, such as those currently under investigation by the FTC, arise when ESG collaborations have an impact on key parameters of competition, such as price, volume, customer choice, or quality. Examples of such conduct in the ESG context include:

• Green technologies/manufacturing processes are often more expensive than traditional equivalents, resulting in increased prices for consumers.
• Requiring environmentally friendly products may exclude non-compliant stakeholders from accessing the market and reduce consumer choice.
• Co-ordination on standard setting may be perceived by regulators as market division (i.e. agreements not to compete on certain product lines or for certain customers).

Therefore, even well-intentioned ESG initiatives can have an adverse impact on competition and may invite scrutiny from regulators. In many of these jurisdictions it is also not clear whether positive effects on ESG considerations, such as the environment, can justify any anti-competitive effects on a market, as this type of assessment goes far beyond traditional competition law assessment, which focuses on effects on consumer welfare (such as price paid by consumers) and not externalities such as environmental impact.

ESG and competition law: A South African perspective

In South Africa, the balancing act between ESG commitments and competition law compliance is becoming increasingly complex.

In the context of merger control, the competition authorities have a mandate, in terms of the Competition Act 89 of 1998 (Act), to consider the effect of a proposed transaction on five public interest grounds. These grounds go beyond aspects of competition and include considering the impact that a transaction may have on employment, the ability of South African businesses to compete internationally, small businesses (SMEs), a particular sector, and the spread of ownership by historically disadvantaged persons (HDPs). In assessing the effect that a transaction may have on a sector, the Competition Commission, in its Revised Public Interest Guidelines Relating to Merger Control, acknowledges that it would consider “the effect of the merger on the environment (e.g. pollution, increased carbon emissions, etc.)”.

Despite expressly acknowledging the transaction’s impact on the environment as part of the public interest assessment, it is not clear that ESG considerations are part of the competition authorities’ assessment processes. This is evidenced by the limited number of mergers that have been conditionally approved on environmental conditions. Most of the public interest conditions have been geared towards protecting employment, increasing market access to SMEs, and promoting HDP ownership.

However, this approach may change given international trends and South Africa’s prominence in the G20 summit. If the pendulum does swing, the question then turns to whether potentially anti-competitive mergers can be justified on ESG grounds?

Although notionally section 12A(1) of the Act allows for mergers that will substantially lessen or prevent competition to be justified on the basis of substantial benefits to the public interest, in practice, these cases are hard to come by. Although the competition authorities seriously consider the public interest when assessing mergers, they are hesitant to clear an anti-competitive merger unless there are considerable public interest benefits that could outweigh this anti-competitive effect. This weigh-up is difficult given that these impacts may not necessarily be measured in comparable metrics.

In the context of horizontal restrictive practices (i.e. cartels), competitors are prohibited, in terms of section 4(1)(b) of the Act, from entering into an agreement which would result in:

• A fixing of a price or other trading condition – e.g. includes agreeing to charge the same fee for a component of a service offering.
• Market allocation – e.g. agreeing to compete for certain customers or products and not others.
• Collusive tendering – e.g. rigging a bid through co-ordination between the tenderers.

These types of agreements are per se prohibited, meaning that they are prohibited in and of themselves, irrespective of the actual effect of the agreement on a market.

Due to the binary nature of these offences, it is conceivable that legitimate environmental co-operation agreements could fall into one of these categories and face competition law scrutiny. Unlike the merger control provisions, the Act does not allow for public interest benefits to justify the conclusion of such agreements. We are also unaware of any case where parties raised a “characterisation” point to argue that the object of such environmental agreements, despite meeting all the elements of a prohibited agreement, was not to harm competition and should be allowed.

Conclusion

ESG-aligned investments remain a key driver of long-term value, stakeholder trust, and regulatory goodwill. On the other hand, the legal landscape is shifting to combat greenwashing, and the margin for error is narrowing. In the South African context, in both merger control and restrictive horizontal practices, the position on whether positive ESG effects could justify any anti-competitive outcome is relatively untested and unclear.

As ESG considerations continue to shape the investment landscape, navigating its intersection with competition law will be critical. South African companies and investors must tread carefully, ensuring that sustainability ambitions are pursued within the bounds of legal compliance.