Antitrust

Environmental, social, and governance (“ESG”) initiatives, including collaborations between organizations, have increased in number and scope over recent years.  This has provoked a strong response in the US, with anti-ESG sentiment now echoed through Congress, the Executive, and across the States, with many viewing ESG collaborations as potentially anticompetitive.  Across the Atlantic, the EU and UK have adopted an expectedly divergent approach, accepting and even facilitating legitimate sustainability collaborations through formal guidelines and encouraging informal outreach to regulators.  Following Donald Trump’s second inauguration, divergence is expected to continue and organizations should monitor policy changes to ensure adherence to their antitrust obligations. 

“Climate Cartels”: US Shuns ESG Collaborations

2024 was a historic year for ESG in the US.  Courts heard an array of private actions alleging “greenwashing” against companies such as Evian (for describing its bottled water as “carbon neutral”) and Walmart (for branding its frozen seafood “sustainably sourced”), and the move against so-called ESG collaborations, where organizations, investor groups, or market participants join together to aspire to ESG goals, continued.  For example, the House Judiciary Committee released a report alleging decarbonization collusion in ESG investing and a report alleging that certain financial institutions formed a “climate cartel” to, among other things, pressure ExxonMobil board members to commit to net zero climate initiatives.  The House Judiciary Committee also demanded information from 61 asset managers regarding their involvement in the Net Zero Asset Managers (“NZAM”) initiative, which the Committee refers to as a “woke ESG cartel”.  Several State Attorneys General (“State AGs”) are also leading the charge and have sued several large institutional investors for alleged antitrust violations related to their participation in NZAM and another group, Climate Action 100+.

Regulators in the Biden Administration were relatively quiet, with former Federal Trade Commission (“FTC”) Chair Lina Khan noting that the agency has no power to create “safe harbors” for sustainability agreements but otherwise not bringing enforcement actions.  In contrast, the new FTC chair, Andrew Ferguson, recently remarked that collusion among asset managers and companies is “exactly the sort of thing that should attract agency attention”.

Companies have responded by exiting groups such as Climate Action 100+, and these impacts have translated across to Europe, with peers exiting similar alliances.  NZAM itself has responded by pledging to stop tracking implementation of its goals and reporting on membership criteria.  Nevertheless, State AGs  have continued to pursue enforcement actions.  Indeed,  a group of State AGs recently sent a letter to a large institutional investor and five major U.S. banks requesting information about their DEI and climate risk management practices “to avoid a lengthy enforcement action” despite none being current members of NZAM, Climate Action 100+, or the Net Zero Banking Alliance.

With President Trump’s return to the White House, we expect continued antitrust enforcement arising out of ESG activities in the coming years.  Indeed, the conservative policy initiative, “Project 2025”, which many expect to be highly influential on the Trump administration, includes mandates for Congress to “investigate ESG practices as cover for anticompetitive activity and possible unfair trade practices” and for the FTC to establish an “ESG/DEI collusion task force”. 

Divergence Across The Pond: Guidelines Clear The Path

In Europe, a divergent approach has emerged, with regulators seeking to facilitate rather than veto ESG collaborations when approached in a legitimate manner.  The EU’s Horizontal Co-operation Guidelines offer examples of agreements unlikely to raise competition concerns (e.g., those concerning internal corporate conduct without coordinating with others) and even provide a “soft safe harbour” for sustainability standardization agreement within a set of cumulative conditions.  The focus, however, remains on consumer welfare, and a “fair share of the resulting benefits” must accrue to the directly affected consumers.  Teresa Ribera, the recently installed Commissioner responsible for modernizing the EU’s competition policy, has highlighted an intention to bring forward further specific guidance on green initiatives.  Austria, Germany, Greece, the Netherlands, and Portugal are among the EU Member States that have already produced specific guidance on sustainability agreements.

Similarly, though not in all respects, the UK has issued Green Agreements Guidance, giving examples of collaborations unlikely to raise competitive concerns.  In some respects, the UK’s Guidance is wider than that of the EU as it considers the “totality of the climate change benefits to all UK consumers arising from the agreement”, rather than apportioning benefits only to those in the affected market, but it is also more limited in that it focusses solely upon collaborations seeking to achieve environmental goals, rather than wider sustainability goals.  Regulators across Europe are also encouraging upfront engagement with businesses, offering to provide informal guidance to those considering entering ESG collaborations. 

Three Takeaways For Organizations – How To Avoid ESG Missteps

As the EU continues to pursue a “clean, just, and competitive transition”, the CMA drives “to [support] a net zero economy”, and the US welcomes President Trump for his second term, divergence is expected to continue.  Weil’s unique global presence and expertise make it well-placed to advise clients in navigating these uncertainties.  To stay on the right side of the law, organizations should: 

• Be wary of these divergent attitudes, especially in multinational businesses where the appropriate stance for each jurisdiction may be unclear.  Alongside appropriate legal advice, ensuring organizations follow up-to-date guidance and changing regulatory priorities will be essential.  As a guiding principle, organizations are well-advised to cautiously keep their competitive activities autonomous and make market decisions independently in the ESG context as they would when considering any other activities involving competitors. 
• Remember the antitrust concerns associated with the sharing of competitively sensitive information (“CSI”).  Even where regulators offer facilitative stances, they continue to take a redline approach toward the sharing of CSI, even if shared to benefit an ESG initiative.  In that regard, organizations should refresh compliance policies and training programs for sales, M&A and other teams on avoiding breaches, including refreshers on what constitutes CSI.  
• Ensure trade association meetings and communications remain lawful while continuing to provide meaningful benefits to their members.  Organizations should avoid the same topics during such meetings as they would typically avoid in any communications among competitors.  Any decisions reached should also remain strictly voluntary and non-enforced unless vetted with legal counsel.