Investors, businesses, and other groups have politely – and not so politely – told the Australian Competition and Consumer Commission that its draft guidance on sustainability collaborations needs to broaden its coverage and be more flexible and accommodating.
Their submissions on the competition regulator’s draft Sustainability collaborations and Australian competition law provided much common and clear feedback to the ACCC on what its final guidance should look like.
The ACCC should extend its guidance beyond environmental sustainability to cover other sustainability issues such as ethical supply chains, human rights, modern slavery, labour practices and living wages.
The regulator needs to revise the draft guidance to clarify that the ACCC is happy to facilitate collaborations that bring sustainability benefits – rather than sending the subliminal message that it views any/every collaboration as a competition risk that could be a cartel in the making.
To this end, the guidance should not seem to be forcing parties to go through the ACCC’s lengthy and time-consuming authorisation process if they want to advance a sustainability collaboration.
With regulators around the world grappling with how sustainability collaborations or agreements between competitors should be treated, the ACCC could take a closer look at some of the more innovative and holistic approaches being embraced by its peers.
Onerous obligations
The Australian Sustainable Finance Institute said in its submission the ACCC’s draft guidance “may have the unintended effect of discouraging legitimate collaboration that is already underway or is being contemplated”.
ASFI noted the six-month authorisation process can place an “onerous obligation” on parties and be a “significant barrier and disincentive to businesses that may otherwise be willing or eager to work together to help overcome complex environmental challenges”.
ASFI recommends that ACCC provide a class exemption which would allow collaboration and arrangements between competitors that pursue a genuine sustainability objective, without requiring an authorisation.
The Law Council of Australia agreed the draft guidance gives too much prominence to the authorisation process and also recommends the ACCC “introduce safe harbours through use of class exemptions for low-risk sustainability collaborations” and clarify that the guidelines also apply to non-environmental sustainability initiatives.
The Australian Council of Superannuation Investors is on the same page saying the draft guidance “would benefit from more prominently highlighting its relevance to broader sustainability considerations, including, for example collaborations with social objectives and collaborations which promote good corporate governance”.
Employer organisation Ai Group put this more bluntly, saying “the name of the document as a guide relating to sustainability collaborations does not identify the limited scope covered by the document” and noting environmental sustainability is often “inextricably linked to other facets of sustainability” such as human rights and modern slavery.
More guidance
ACSI said “there is scope to further emphasise the principle that many collaborative sustainability initiatives will not raise competition concerns” and “more specifically, the section on cartel conduct could elaborate on the factors that would indicate that a sustainability collaboration is less likely to be a cartel”.
The draft guidance would also benefit from “further discussion on the competition law implications of collaboration regarding the collation of sustainability information about entities in supply chains or investment portfolios.
“Collaboration in this context is likely an efficient approach (for both businesses and investors) to better understanding risks, data collection and meeting disclosure obligations” for the Modern Slavery Act 2018 and upcoming mandatory climate-related financial disclosure requirements, ACSI said.
Other jurisdictions around the world have been providing clearer guidance and sending stronger messages that antitrust rules do not stand in the way of agreements between competitors that pursue a sustainability objective.
Last year, the European Union updated its Horizontal Guidelines to provide a soft safe harbour for sustainability standardisation agreements that meet certain conditions, and the UK’s Competition and Markets Authority also published its Green Agreements Guidance that introduced an exemption process for climate agreements.
When the Netherlands Authority for Consumers and Markets released its new policy rule covering sustainability agreements it made it clear it did not want its competition rules to stymie agreements (see image below).
‘Presumptively unlawful’
The Office of the NSW Anti-slavery Commissioner’s submission says the draft guide “risks unintentionally impeding, rather than facilitating, sustainability collaborations that aim to combat modern slavery”.
It says “by treating many sustainability collaborations as presumptively unlawful, the draft guide has already begun to sow significant confusion” amongst businesses and not-for-profits.
Responding to “active, explicit encouragement from Australian governments to collaborate to tackle modern slavery” many groups have initiated a range of collaborations amongst buyers, suppliers, investors and civil society.
“These suddenly now risk being perceived as unlawful. Many organisations have indicated they will suspend participation in those collaborations until the ACCC and/or federal government clarify the legality of such cooperation,” the Office said.
The draft guidance includes a strange ‘tip’ for businesses looking to collaborate (see below).
The tip seems to beg the question as to how could two or more parties jointly apply for ACCC authorisation if they had never discussed pursuing a collaboration. It also shows the ACCC pushing people down the authorisation route (out of fear that ACCC will find there being some sort of ‘risk’ in their collaboration).
A longer ‘tip’ on substantiating sustainability claims (see part extract below) is framed in tortured prose and might have some parties scratching their heads as to exactly how to construct their applications.
Ai Group wants “further information about the factors considered in the calculation for net public benefit, with good practice case studies, would assist businesses in understanding the metrics the ACCC uses, what evidence they will need to present in an application”.
Climate cartel
Around the world the issue of sustainability collaborations is typically being dealt with by governments in a thoughtful way and with a genuine interest in ensuring competition laws/regulations do not unnecessarily block collaborations that would bring sustainability benefits.
The glaring exception is in the United States where sensible discussion has been hijacked by the ideological war over ESG. US regulators, the Federal Trade Commission and the Department of Justice, have been keeping their heads down as the Republicans and Democrats trade political blows.
The Republican-controlled US House of Representatives Judiciary Committee recently published an interim Staff Report claiming it had “obtained evidence that a ‘climate cartel’ of left-wing environmental activists and major financial institutions has colluded to force American companies to decarbonize”.
The report Climate Control: Exposing The Decarbonization Collusion In Environmental, Social, And Governance (ESG) Investing said this cartel “has declared war on the American way of life” by targeting “disfavoured American companies, including those in the fossil fuel, aviation, and farming industries that allow Americans to drive, fly, and eat”.
The ‘cartel’ members are a broad church including Climate Action 100+; the Net Zero Asset Managers initiative; the Glasgow Financial Alliance for Net Zero; major pension funds like CalPERS; the big asset managers BlackRock, State Street and Vanguard; proxy firms Institutional Shareholder Services and Glass Lewis; and environmental NGOs such as CERES.
Among those also being targeted is a range of faith and values-based organisations.
As members of Climate Action 100+, the Seventh Generation Interfaith Coalition for Responsible Investment (which represents mainly Catholic nuns and priests); Quaker organization Friends Fiduciary Corporation and Jewish values-based investor JLens all recently received letters from Committee chair Jim Jordan.
In his letter Jordan suggested they were “potentially in violation of US antitrust law” and told them they needed to preserve “all documents and communication referring or relating to” their “efforts to advance ESG-related goals”.
Culture war
The minority Democrats on the Judiciary Committee fired back with their own dissenting report Unsustainable And Unoriginal: How The Republicans Borrowed A Bogus Antitrust Theory To Protect Big Oil.
The Democratic Staff report argued that “the Majority’s investigation is an abuse of Congress’s oversight power. Ultimately, the Majority’s ESG obsession is not a serious or genuine antitrust investigation but a new theatre in the right’s never-ending culture war, one which seeks to turn ‘ESG’ into an epithet and rebrand responsible investing as ‘woke capitalism’.
“The Majority’s transparent objective in this effort is to impose monetary and reputational costs on companies that accept the scientific consensus on climate change and bully them into reversing investment decisions”.
In a speech last December, ACCC chair Gina Cass-Gottlieb chair said there was “a fine line” between ensuring compliance with competition laws and removing unnecessary barriers to sustainability initiatives.
Cass-Gottlieb said the ACCC was “very alive to the risk of sustainability agreements between competitors being used as a green veneer covering anti-competitive conduct” whilst also recognising that collaboration can drive sustainability benefits.
The feedback on its draft guidance suggests the ACCC may not quite have got the balance right yet.
