Antitrust in Asia
ESG competition issues in Asia
Environmental, Social and Governance (ESG), and sustainability themes more generally, have in recent years quickly gained traction with business and regulators alike.
Businesses have been quick to consider collaborative initiatives and opportunities, not only to take advantage of the surge in ESG-related investments, but also to address longer term sustainability objectives ranging from reducing green-house gas emissions and fair trade, to occupational, health and safety standards.
To tackle the rising interest in ESG initiatives, European antitrust regulators have been vocal in establishing standards for conduct, and publishing and enacting various guidelines for businesses. Regulators in Asia have also been actively reacting to this trend. For example, the Singapore Competition and Consumer Commission (CSSS) in December 2021 emphasised the importance of framing "competition policy and tools in contributing to the green transition and in supporting industry’s efforts towards decarbonization, circularity and biodiversity" whereas the Japan Fair Trade Commission (JFTC) in February 2022 observed that "[w]ith implementation of policies towards carbon neutrality and green growth at a global level, we are seeing that competition on innovation has emerged […]. In order to ensure an environment that promotes innovation competition, it will become necessary to implement competition policy from a brand-new perspective in the future."
Specific ESG-related decisions and initiatives by antitrust regulators in the Asia Pacific region include the following:
- While no specific ESG guidance has been published by the Australian Competition and Consumer Commission (ACCC) to date, the law permits the regulator to factor in environmental, social and sustainability benefits as part of its antitrust assessment of potentially anti-competitive conduct. Recent ESG-related decisions include:
- In 2020, the ACCC granted a five-year authorisation for an association to (i) impose a standard levy on batteries sold to consumers which will then be provided in the form of rebates to member-battery recyclers; and (ii) restrict association members from dealing with non-members in the supply chain. The ACCC accepted that the arrangement had the benefit of reducing landfill waste and supporting research and innovation in battery recycling by ensuring that environmental and health and safety standards are met at different levels of the supply chain.
- In 2021, the ACCC granted a 24-year authorisation for Equinix, HSBC, Nike Australia, Goldman Sachs and H&M to pool their aggregate electricity demand by way of a joint procurement process and collectively purchase electricity from a renewable energy supplier. It was highlighted that all parties have committed to the long-term goal of increasing reliance on renewable energy to 100%. The ACCC recognised that this will result in transaction cost savings, greater investment and competition in electricity supply, and reduction in greenhouse gas emissions.
- Sustainable development was highlighted as an overarching strategy of the Chinese government. This policy is driving a rapid increase in renewable energy infrastructure and the use of electric vehicles.
- The State Administration for Market Regulation (SAMR) has not provided any clear indication on the direction it will take in respect of ESG. However, it is notable that in the context of anti-competitive agreements, the Anti-Monopoly Law provides that reducing energy consumption, environmental protection, disaster relief and other public interest aspects are grounds to exempt certain anti-competitive agreements from enforcement, provided there is no significant restriction on competition and the benefits will be enjoyed by consumers.
- ESG considerations have previously featured in a number of Chinese cases, including a 2013 case where a Chinese Court considered price-fixing of services by members of a pest control industry association to be justified on the basis of the agreement preventing pricing below government mandated ‘guide’ prices, which may in turn lead to a decrease in standard of services which are critical to public health, environmental protection, and epidemic prevention. In 2017, the then antitrust regulator (the Ministry of Commerce) likely took environmental protection into consideration when analysing the potential adverse impact of the Dow/DuPont merger on technological development.
- In 2016, the Business Competition Supervisory Commission (KPPU) investigated and considered a private initiative among major foreign and domestic palm oil producers to source palm oil only from farmers who practice sustainable cultivation to be a cartel. In this context, the standards adopted by the palm oil producers were more stringent than existing standards endorsed by the Indonesian government. The stance taken by the KPPU suggests that the regulator views environmental standards as an aspect that should be determined by the government and not by private parties.
- The JFTC commenced a public consultation in January 2023 on its recently published Draft Guidelines Concerning the Activities of Enterprises, etc. toward the realisation of a Green Society under the Anti-Monopoly Act.
- The draft Guidelines identify examples of when business combinations that are motivated by ESG considerations may nonetheless raise antitrust concerns. For example, the JFTC notes that horizontal business combinations motivated by reduced research and development costs in green technology are likely to raise antitrust concerns where post-combination, no other player is capable of exerting competitive pressure on the merged entity.
- ESG is a focus of the Malaysia Competition Commission under its strategic plan for 2021 – 2025. One of its stated goals is to study how antitrust law and policy can be implemented in a way that promotes an ESG-friendly agenda.
- At an event in September 2022, the Head of Investigations of the New Zealand Commerce Commission warned that cooperation on standards for ESG can have an effect on competition and that businesses must comply with antitrust laws when implementing such standards. To avoid infringing antitrust laws, businesses should limit restrictions to competition only to the extent necessary to achieve a particular objective and also consider methods to mitigate any such negative effects on competition. General categories of ESG initiatives cited as less likely to attract antitrust enforcement risk included industry commitments to sustainability standards that exceed government standards; agreements on products or packaging such as size, weight or recycled content; and supply chain restrictions which may include not dealing with businesses that have unsustainable business practices.
- The Chief Executive of the CCCS in 2016 stated in an OECD note that the Singaporean antitrust regime “can operate in an environment where other policy goals such as job creation, reskilling and minimum wages take place. These policies can complement competition law enforcement to achieve a balanced economic outcome and overall increased in societal welfare”.
- More recently, there has been a move to cover environmental aspects of ESG. The CCCS updated its Guidelines on the Substantive Assessment of Mergers, which took effect on 1 February 2022. The Guidelines now specify environmental regulations and regulatory structures would be factors considered when assessing mergers. The CCCS has also confirmed that net environmental benefits could be considered under the net economic benefits assessment when considering whether to ‘exempt’ an arrangement under the antitrust regime. For example, in 2017, the CCCS considered submissions on alleged environmental benefits arising from new machinery in the context of the formation of a poultry slaughtering service joint venture.
It is clear from these examples that the treatment of ESG-related initiatives can take different directions depending on the regulator concerned. Conduct that might be permissible in a particular jurisdiction might not necessarily escape scrutiny in another. It is therefore important for businesses to undertake country-specific risk assessments when contemplating a ESG or sustainability-related initiative, in particular taking into account local rules, decisional practice and policy objectives.