U.S. Legislators and State Attorneys General Raise Antitrust Concerns Regarding ESG Collaborations

Wilson Sonsini Goodrich & Rosati

Over the past year, U.S. legislators and state attorneys general (AGs) have raised concerns that collaborations among firms to achieve environmental, social, and governance (ESG) goals are violations of the antitrust laws. As a result, ESG collaborations may face oversight hearings in the U.S. House of Representatives and additional investigations from state AGs. Accordingly, companies should ensure any ESG collaborations they undertake anticipate possible antitrust issues in the United States. By contrast, the European Union is shifting towards a more flexible approach for ESG collaborations.

Antitrust Warnings Regarding ESG Collaborations

2022 has seen several efforts by legislators and state enforcers to highlight ESG collaboration as a potential antitrust violation:

  • Arizona Attorney General Mark Brnovich wrote an op-ed in The Wall Street Journal in March 2022 announcing an investigation into Climate Action 100+, an investor-led initiative to ensure large corporate greenhouse gas emitters reduce their emissions, on the grounds the initiative constituted “potentially unlawful market manipulation” and calling it potentially “the biggest antitrust violation in history.”1 Consistent with that article, Attorney General Brnovich and 18 other Attorneys General sent a letter to BlackRock expressing concern that its energy investments constituted intentional mismanagement of investor funds.2
  • Senator Tom Cotton sent a letter in July 2022 to BlackRock regarding its involvement in the Climate Action 100+, alleging the initiative “appears to violate antitrust laws.”3
  • Most recently, Senators Charles Grassley, Tom Cotton, Marsha Blackburn, Mike Lee, and Marco Rubio sent identical letters to 51 law firms with top Environmental, Social, and Governance (ESG) practices, stating that they regard ESG collaborations to reduce fossil fuel usage as potential antitrust violations. The letter cited recent Congressional testimony from Federal Trade Commission (FTC) Chair Lina Khan and Assistant Attorney General (AG) Jonathan Kanter noting there is no ESG exemption to the antitrust laws.4 The Senators further noted that the U.S. Congress will use its oversight powers to scrutinize such collaborations and refer them to the federal antitrust authorities. Since the Democrats will maintain control of the U.S. Senate in the next Congress, it is unlikely the Senate will conduct ESG oversight hearings, but it is possible the House could do so.

The Biden Administration’s antitrust enforcers have not made their position clear regarding ESG collaborations. Although Chair Khan and Assistant AG Kanter indeed acknowledged that there is no antitrust exception for ESG collaborations, there has been no indication that pursuing ESG collaborations for potential antitrust violations is an enforcement priority.

Guidance for U.S. Companies

If firms are considering pursuing collaborative ESG initiatives, it would be prudent to retain antitrust counsel in the process. The recent scrutiny from some in Congress underscores an increased potential for House oversight hearings of ESG collaborations going forward. Further, some state AGs appear committed to pursuing investigations and potential cases against firms engaged in collaborative ESG agreements raising possible antitrust issues.

Additionally, while it is true that Chair Khan and Assistant AG Kanter did not identify these collaborative agreements as an enforcement priority for either the FTC or the DOJ, that does not mean these agreements benefit from any implied safe harbor. The Biden Administration antitrust enforcers have not signaled any encouragement of such collaborations despite the priority being placed on emissions-reduction by other parts of the Biden executive branch. This lack of clarity on a federal enforcement level creates an uncertain environment for ESG collaborations. Nevertheless, companies can still pursue certain types of ESG collaborations, despite these headwinds, with careful consideration and help from antitrust counsel.

The antitrust risk of any ESG collaboration will ultimately depend on the specific details of the collaboration. That said, collaborations that do not involve the exchange of competitively sensitive information, allow participants to act independently, and do not materially increase price or decrease output are unlikely to raise significant risk from an antitrust perspective. For example, a collaboration that provides participants with information and best practices to reduce carbon emissions, while allowing them to act unilaterally in implementing those reductions, is likely not to be an antitrust concern. However, a collaboration that requires participants to agree to cut off suppliers that do not achieve emissions reductions would likely present risk under a “group boycott” theory of antitrust harm.

The European Approach to ESG Collaboration

In contrast to the U.S. approach, the EU is starting to shift towards a more flexible approach to ESG collaborations and to provide helpful guidance. Earlier this year, the European Commission (EC) published a draft of its revised Horizontal Guidelines (Guidelines) which now include a new chapter on sustainability.5 The draft Guidelines make clear that sustainability agreements will not raise antitrust concerns where they do not affect the parameters of competition (such as price, quality, quantity, choice, or innovation). For instance, agreements that are related to internal corporate conduct (e.g., eliminating the use of single-use plastics), the creation of a database with information on sustainable suppliers or distributors, or which relate to the organization of environmental awareness campaigns, generally do not raise competition concerns. The Guidelines also provide a “soft” safe harbor for standard-setting agreements, provided certain criteria are met. The guidelines are due in early 2023.6

Some EU Member States are going further in their ESG initiatives at a national level. In Austria, for instance, a 2021 amendment to the antitrust rules provides that anticompetitive effects of ESG focused collaborations may be outweighed “if the agreement significantly contributes to an ecologically sustainable and climate neutral economy.7 The Dutch regulator is actively applying its new sustainability guidelines which provide additional flexibility, while across in the UK, the antitrust enforcer launched a Sustainability Taskforce to develop formal guidance and review the case for legislative change.

In the EU, while several regulators have shown a willingness to be flexible, there is still a very fine line to be walked when it comes to ESG collaboration. Companies should ensure that EU counsel are retained from the outset to advise on antitrust risk and ensure compliance with the raft of current and upcoming legislation as part of the EU’s Green Deal, some of which include strict ESG reporting requirements.

[1]Mark Brnovich, “ESG May Be An Antitrust ViolationThe Wall Street Journal (Mar. 6, 2022), available at https://www.wsj.com/articles/esg-may-be-an-antitrust-violation-climate-activism-energy-prices-401k-retirement-investment-political-agenda-coordinated-influence-11646594807.

[2]Letter from Attorneys General Brnovich, et al, to BlackRock Inc., (Aug. 14, 2022), available at https://www.azag.gov/sites/default/files/2022-08/BlackRock%20Letter.pdf.

[3]Letter from Sen. Tom Cotton to Larry Fink (BlackRock) (July 13, 2022), available at https://www.cotton.senate.gov/imo/media/doc/blackrock.pdf.

[4]Jonathan Kanter, Remarks before the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, (Sept. 20, 2022), available at https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-antitrust-division-testifies-senate-judiciary; Lina Khan, Prepared Statement of the Federal Trade Commission Before the United States Senate Committee on the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights “Oversight of the Enforcement of the Antitrust Laws, (Sept. 20, 2022), available at https://www.ftc.gov/system/files/ftc_gov/pdf/P210100SenateAntitrustTestimony09202022.pdf.

[5]EC draft regulation on the application of Article 101(3) of the Treaty on the Functioning of the EU (TFEU) to certain categories of research and development agreements, EC draft regulation on the application of Article 101(3) of the TFEU to certain categories of specialization agreements, and EC draft Guidelines on the applicability of Article 101 TFEU to horizontal cooperation agreements, all available here.

[6]EC Press Release, Antitrust: Commission invites comments on draft revised rules on horizontal cooperation agreements between companies, March 1, 2022, available here.

[7]Austrian Cartel Act, Sec. 2(1).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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