Acting for Sustainability : A Legal Perspective
Feature #4: Thinking Through the Subject of Sustainability and Competition Law
(Interview with Dr. Ulrich Denzel, Partner at Gleiss Lutz and Dr. Gregor Wecker, Counsel at Gleiss Lutz, conducted by Kiyoko Yagami, Partner at AMT and Stephanie Scandiuzzi, Associate at AMT)
| Issue | Nov 30, 2022 |
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Lately, global-level issues and the UN’s 17 Sustainable Development Goals (SDGs) that indicate the goals for solving these issues have been drawing more attention. At Anderson Mōri & Tomotsune, we as legal professionals continue to look for ways to contribute to achieving these SDGs. Our lawyers have developed a wealth of SDG-related expertise in their respective fields and have put these resources at the disposal of our clients, helping them find best practice-based solutions to the many legal issues that attach to sustainable development.
In this special feature, we introduce some of the activities that have allowed our lawyers not only to commit our Firm to the UN’s SDGs, but also to position our Firm as a leader in the field of sustainability law.
For this 4th dialogue on in this feature series, we conduct an interview with Dr. Ulrich Denzel and Dr. Gregor Wecker of Gleiss Lutz.
*Date of the interview: September 13, 2022, conducted online.
Feature #4: Thinking Through the Subject of Sustainability and Competition Law
(Interview with Dr. Ulrich Denzel, Partner at Gleiss Lutz and Dr. Gregor Wecker, Counsel at Gleiss Lutz, conducted by Kiyoko Yagami, Partner at AMT and Stephanie Scandiuzzi, Associate at AMT)
Table of Contents:
Q1：Why is “SDGs and Competition Law” important?
YagamiThank you for accepting our invitation to discuss the relationship between SDGs and competition law. There are 17 SDGs goals to be achieved by 2030. In your opinion, which ones can be more effectively supported by competition law and policy?
Dr. DenzelThank you. We are excited to discuss this topic with you because we all think that this is the area of “the brave new world” of competition law and that it will shape enforcement around the globe in the coming years.
In Europe, the debate around competition policy is not specific to any of these goals, but rather to ESG as an overall goal. We see that the “E” which stands for “environmental issues”, is the most relevant factor in terms of competition law and enforcement; but we also see that “S”, which stands for “social considerations”, is of growing importance. As a consequence, social welfare considerations are being more and more raised in ongoing cases, and we think that they will be of an even bigger importance in future cases. As relates to competition policy, in our opinion the most relevant SDGs would include No. 13 - Climate Action, 14 - Life Below Water, 15 - Life on Land, 12 - Responsible Consumption and Production, 11 - Sustainable Cities and Communities; against the background of what is happening in Ukraine and the consequent energy crisis on the European continent, No. 7 - Affordable and Clean Energy, as well as 6 - Clean Water and Sanitation; and then 17 - Partnership for the Goals. This last one, No. 17, is of special importance for cartel enforcement.
Dr. WeckerWhat we observe is that companies tend to resort to such SDGs in order to justify cooperation that is taking place amongst them and this sometimes overwrites the limits of competition laws.
YagamiHistorically, Japanese companies tend to form affiliations among competitors in order to conduct research and development projects. The Japanese antitrust agency – JFTC - is not too strict about collaboration projects, unless it touches on price-related issues, but companies fear that their activities, although good for the environment, might be considered anticompetitive especially by the European Commission. In your view, how can companies efficiently mitigate antitrust risks when conducting such activities?
Dr. DenzelWe are observing examples of cartel law enforcement on both ends of the scale. The first and more lenient end of the scale is where antitrust authorities tend to see cooperation in a more favorable light, seeing the SDGs as a justification for information exchange and even for some kinds of coordination that would otherwise probably be considered illegal. However, on the other end of the scale, we see very rigorous cartel enforcement, especially by the European Commission, in what we call the “brave new world” of competition law enforcement - a new generation of cases that go beyond the classic price-fixing being pursued and fined. These cases have to do with collusion that goes against the environment and sustainability, with the European Commission’s “Car Emissions” case probably being the most important and most illustrative example*1. So the overall advice is: to consult with your lawyers early and, if accessible, talk to the authorities whenever you have the sense that you are in a grey area.
*1In 2021, the European Commission found that, between 2009 and 2014, carmakers Daimler, BMW and Volkswagen group (Volkswagen, Audi and Porsche) colluded by agreeing not to compete in the offer of technology they had already developed that could reduce emissions in diesel-engine passenger cars. BMW and Volkswagen acknowledged the cartel and settled the case with the European Commission against the payment of fines amounting to approximately EUR372.8 million and EUR 502.4 million, respectively. Daimler did not pay fines for having reported the conduct.
Q2：Recent Trends of Investigations of Anti-competitive Conducts in Europe
ScandiuzziHow have the Federal Cartel Office (FCO) in Germany and also the European Commission taken into account sustainability-related factors in conduct investigations?
Dr. WeckerAs said earlier, the “brave new world” goes far beyond the classic price-fixing. We think that this brave new world would include the agency wanting to rigorously enforce behavior that goes against environment and sustainability in general, and this is very much connected with innovation. An example is the Car Emissions case of the European Commission, where the authority heavily fined the manufacturers involved, because the authority took the view that the companies avoided to compete on using a certain technology's full potential to clean emission better than what was required under EU emission standards. And therefore, if you hinder or limit innovation, this will actually hurt the SDGs. On the other hand, we see a lot of examples where cooperation among companies may actually foster the SDGs. These two aspects in our view exemplify the range of cases that we are looking at already, and obviously sustainability-related aspects is something that will be under continuous development in the next years. The examples also show that it may sometimes only be a narrow ridge between cartel conduct and an agreement to foster SDGs.
YagamiAt the EU level there is the Car Emissions case and in Netherlands (ACM) the “Chicken for Tomorrow” case. What is the level of attention to these issues among the Member State’s agencies?
Dr. DenzelThe Dutch authority has become somewhat of a creative leader in that field. They are taking aspects of sustainability very seriously and have proven their readiness to be flexible and to change the classic assessment of what would normally be considered illegal conduct. Another country - Austria - has changed the law already in order to facilitate the assessment of sustainability-related factors. The German FCO is very active in the field as well and does show some flexibility, however, they are less ready to change the foundations of what has been traditional antitrust enforcement practice. So, it is really the Member States pushing the debate with their cases and the European Commission trying to follow suit.
ScandiuzziHow is the JFTC handling the matter in terms of conduct cases and environment?
YagamiOriginally, JFTC is lenient about companies’ collaboration in terms of technologies or development, so they would clear the case where no price-fixing existed in the collaboration, or there was no impact on competition. JFTC is still silent about greenwashing or other issues that go in the direction of ESGs or pro-environmental policies*2.
*2Shortly after this interview, the JFTC announced the launch of the ‘Study Group on Guidelines for Business Initiatives toward Green Society’ on October 12, 2022.
Q3：Recent Trends of Merger Review in Europe
YagamiThe result of Miba/Zollern case by the FCO was rather reasonable to Japanese companies at the time, but what happened subsequently was very surprising - the Ministry of Economy and Industry overruled the FCO’s decision on the basis that the establishment of the JV would be beneficial to the economy, labor and the environment in Germany*3. Wasn’t it an unusual case in Germany?
Dr. DenzelThis is a very special case, and we should not draw general conclusions for future cases. We have an instrument in German law that provides for the possibility that in certain cases you can address a case to the Ministry of Economy and Industry and appeal a decision on grounds that are not competition-related; and indeed labor and related considerations have mostly been at the center of such cases. You can say that this instrument is something that might indeed support that “brave the new world”, but our personal belief is that it will not be this instrument which will be at the full front of the debate because that is almost unique to German merger control laws.
YagamiHow is the European Commission proactively considering ESG issues in their merger review? Does it have any mechanism or guidance that allows the parties to claim ESG arguments to justify competition problems?
Dr. WeckerThis is maybe not directly related to ESG or SDG considerations, but more about innovation that may be affected by the proposed merger. This can be seen in a number of cases, in which instead of only looking at the market shares and whether the merger actually restricts or impedes competition, the European Commission has very much looked also at what the pipeline products of the companies concerned are, at what effects the merger would have with regard to these pipeline projects, and at the further research and development activities after the merger is implemented. This may be a new trend that will be even more important in the years to come.
YagamiHow about the remedies that the European Commission or other agencies impose on the parties? Are there any cases where agencies requested the parties to take certain sustainable approaches in their proposal of remedies?
Dr. DenzelYou will not find remedies that clearly say that the merger can only go through if the companies promote sustainability by doing this or that. But what we start seeing more and more is that remedies have to address innovation concerns: how can merging companies make sure that their innovative power is not stifling competition, or what do the companies have to divest in order to make the competitors able to be a better innovative competitor. There are some cases which might even be abandoned because it seems difficult for the companies to find a way to construct an appropriate remedy for competition concerns, or for them to show that the real driver for their merger project was to culminate in innovative power.
YagamiWhat are the recent developments in merger review from the Brazilian perspective?
ScandiuzziThere are a couple of transactions related to environment-friendly practices reviewed by CADE, but the analyses were based on completely traditional competition tools. Currently, there is a case - a JV between certain German carmakers and auto part manufacturers - that has been approved in Germany, but that the Brazilian Tribunal has requested a complementary review. They have concerns about how the exchange of information will be done or if anticompetitive coordination would arise between the parties, despite considerations that this JV would result in more innovative products and services. But it might be that in the future we will have a clearer message from CADE about how innovation or how other environmental issues may be important for the merger analysis.
YagamiThe JFTC may consider efficiency and innovation as part of its review process, but there is no case in Japan where ESG-related debates have actually appeared in the review. From the perspective of innovative mergers, JFTC is now much more focused on pipelines, so we will pay attention to what is going to happen on the next level.
*3In 2019, Miba AG (Austria) and Zollern GmbH & Co. KG (Germany) planned to merge their respective hydrodynamic plain bearing production activities in a joint venture, in which Miba would hold 74.9% and Zollern 25.1% of the shares. The German FCO prohibited the joint venture. Miba and Zollern then applied for ministerial approval by Federal Minister of Economics under a provision of the German Competition law which allows a transaction prohibited by the FCO to be may exceptionally approved by the Federal Minister of Economics for reasons of public welfare. Subject to certain obligations, including a requirement for investment on the part of Miba and Zollern, the Federal Minister of Economics granted the ministerial approval based on public interest considerations in protecting know-how and the innovation potential for the energy transition and sustainability.
Q4：Role of Competition Law and Policies in Achieving Sustainability Goals
ScandiuzziWhat are European companies’ current actions towards implementing sustainable objectives?
Dr. DenzelCompanies are taking this very seriously and it is also important for investors. For example, companies are investing a lot of efforts and money in their sustainability reporting and in dedicated employees for sustainability-related activities. They are also screening supply chains - sometimes they are even legally obliged to do so, in order to make sure that they are in compliance with ESG goals. So it is fair to say that SDGs have become one of the driving considerations for companies. Of course, companies tend to look at what are their peers doing in that regard and that is when we have potential antitrust related problems, and that is to be avoided.
ScandiuzziAre there initiatives on amending any regulations that particularly reflect the need to consider or implement the SDGs or sustainability objectives?
Dr. DenzelI think the most relevant development in this regard are the new horizontal guidelines by the European Commission. In some Member States, like Austria, we see some initiatives to even change the laws, to go one level up from pure administrative guidelines to a real act of the legislator in order to make things work. We can clearly say that this proves how important the topic is for the European Commission, but also for the legislators of the Member States.
ScandiuzziIn your view, how can competition policy be applied to help the achievement of SDGs?
Dr. DenzelI think there are two approaches. What I am referring to here are the two ends of the scale that I mentioned earlier on. The first end of the scale is to be more lenient in cases where you clearly see the merits in terms of sustainability achievements. So I think that antitrust authorities can and will be more lenient in assessing these cases outside the classic price-fixing examples. And the second approach is actually the exact opposite, that is, rigorous enforcement against everything that is going to slow down incentives of companies to “do more” - whenever you try to establish a common standard that holds you back from doing even more. There, I think, the antitrust authorities will have to be very vigilant and will have to enforce antitrust laws very strictly.
Yagami/ScandiuzziThank you so much for introducing the recent developments in the field of “sustainability and competition law” in Europe and your insights. They are very interesting and we are eager to see further developments in this field.
Dr. Ulrich Denzel
Dr. Gregor Wecker
