The tension between ESG goals and antitrust scrutiny is not theoretical – it is already being played out across various industries. Let’s take a closer look at some of these:
Asset management: Legal risks amid net-zero commitments
The asset management sector has been one of the first sectors to face antitrust scrutiny around ESG collaborations, especially in the US, where Republican-led states have filed lawsuits against companies that have signed up to ESG alliances, arguing they distort markets in favour of green agendas.
Recent high-profile exits from industry groups like the Net Zero Asset Managers and Net Zero Banking Alliance illustrate the effects of these growing legal and reputational risks.
At the same time, these exits have drawn criticism from institutional investors pressuring asset managers to strengthen climate action or risk losing their business – highlighting the competing forces shaping the industry’s direction.
As regulatory landscapes evolve, firms will need to carefully assess their participation in ESG collaborations to mitigate potential antitrust violations.
Automotive: Fuel efficiency and regulatory scrutiny
Automakers have also garnered attention for collaborating on the development of technology to improve fuel efficiency and emissions reduction initiatives.
In 2019, US regulators investigated car manufacturers over stricter fuel efficiency standards, though no collusion was found. In 2021, the European Union fined Volkswagen and BMW for delaying the rollout of cleaner emissions technology, arguing that these actions disadvantaged consumers.
These cases highlight the fine line automakers walk between combined sustainability efforts to comply with ESG regulation versus adherence to competition laws.
Retail: Greenwashing and antitrust investigations
Retailers are under mounting pressure to decarbonise supply chains whilst simultaneously facing increased antitrust scrutiny.
In 2022, companies in the fashion industry, well known for its complex and often-opaque supply chains, were investigated by European regulators in connection with their efforts to engage in climate-focused agreements. While these initiatives aimed to improve sustainability, regulators were concerned about potential anti-competitive behaviour.
Meanwhile, in the UK, the Competition and Markets Authority (CMA) has generally adopted a more flexible approach, offering informal guidance rather than formal enforcement action on initiatives such as the Fairtrade Shared Impact Initiative and the WWF Basket Initiative, both in the grocery sector.
However, businesses will need to remain vigilant to ensure compliance.
Looking ahead
The backlash against so-called greenwashing is only expected to heighten regulatory scrutiny.
In the US, the approach of the enforcement agencies under the new Trump administration remains to be seen. However, the appointment of Andrew Ferguson as the new Federal Trade Commission Chair indicates that antitrust laws might be used as a tool to investigate ESG collaborations, for example among asset managers.
Meanwhile, in Europe, the newly appointed European Commission is expected to emphasise a balance between competition enforcement and efforts to enhance the competitiveness of EU companies.
Similarly, the UK’s new government has highlighted that CMA enforcement should better account for the broader competitiveness of the UK economy.
While some of these shifts can seem on their face to be business-friendly, regulatory volatility driven by political cycles can undermine stability and create uncertainty. Staying informed about legal and policy changes is essential to understanding their potential impact on a business.
Navigating the legal risks
Avoid restrictive collaborations and limit information sharing – The more prescriptive and rigid the collaboration, and the more such collaboration limits commercial discretion, the greater the risk that it will trigger antitrust concerns. As well as taking steps to avoid anti-competitive collaboration, companies should avoid sharing sensitive commercial data – such as pricing or customer lists – unless absolutely necessary.
Consider keeping regulators in the loop – Antitrust regulators have encouraged open engagement with industry in this space. If they do decide to engage with regulators, businesses should document discussions and seek to obtain clear and practical guidance on their ESG initiatives.
Demonstrate and define ESG benefits – The key to reconciling ESG collaborations with antitrust laws is often to focus on their societal impact. Companies should clearly define and quantify the expected benefits, such as reduced emissions or social equity improvements, to justify their initiatives.
Consider jurisdictional differences – Antitrust enforcement practices vary by region, and so will the approach of different regulators and courts to ESG collaborations. The UK CMA has been among the more lenient public regulators up to now, whereas the US has seen the rise of court proceedings instigated against ESG collaborations. By contrast, new EU Commissioner for Competition Teresa Ribera has been charged with delivering a competition policy which is explicitly linked with the European Green Deal.
This means companies must stay abreast of the patchwork of jurisdictional risks and take an adaptable and agile approach to them.
Finding the balance
Navigating the intersection of ESG commitments and antitrust regulations will be a growing challenge for businesses. While collaboration can drive progress on social goals such as sustainability, firms must equally ensure they do not risk breaching competition laws.
Given the ever-evolving regulatory landscape, there is no ‘one-size-fits-all’ solution. Companies must stay informed, consider engaging with regulators, and seek expert legal counsel to pursue meaningful ESG progress without violating antitrust rules.
With the right knowledge and guidance, businesses can drive sustainability efforts while maintaining compliance – ensuring that innovation and ethical responsibility go hand in hand.
