The corporate world is facing increased pressure from investors and other stakeholders to focus more on environmental, social, and governance (ESG) issues. At the same time, governments are trumpeting increased enforcement of antitrust and competition laws. Indeed, as we wrote in a recent edition of Business Law Update, the U.S. government—spurred by the Biden administration’s Executive Order on Promoting Competition in the American Economy—has been pursuing a broader, more aggressive antitrust enforcement agenda. Because the goals of ESG—promoting social responsibility—and antitrust—promoting competition and free markets—are not the same, pressure to comply with both creates tension. Collaborations among competitors, even if the goals of the collaboration may be laudable, could run afoul of the antitrust laws. Thus, despite the recent push for more ESG initiatives, companies should remain vigilant of their antitrust compliance obligations.
Antitrust Enforcers Have Started Focusing on ESG
In September 2019, the head of the Antitrust Division of the U.S. Department of Justice (DOJ) wrote an op-ed in USA Today with the lede, “The loftiest of purported motivations do not excuse anti-competitive collusion among rivals.” That piece came on the heels of news reports that DOJ was investigating the antitrust implications of a deal between the state of California and large automakers that would have required stricter emissions standards than those required by the federal government. The investigation, which focused on whether the emissions agreement would reduce output and limit consumer choice in violation of antitrust laws, was dropped several months later, but it illustrates the potential tension between ESG goals and antitrust.
More recently, in a March 2022 opinion piece in the Wall Street Journal below the headline “ESG May Be an Antitrust Violation,” the Arizona attorney general declared that “[t]he biggest antitrust violation in history may be in plain sight” and argued that banks have engaged in “coordinated efforts to choke off investment” in oil and gas by pushing “climate goals,” thereby manipulating the market. Much like the federal automobile emissions investigation, the Arizona investigation is likely to focus on whether the collaborative pursuit of environmental goals will reduce output and raise prices for consumers, which are the harms antitrust enforcement has traditionally focused on remedying.
Some have said that these investigations targeted at ESG collaborations are motivated more by politics than antitrust concerns. DOJ vehemently denied that with respect to the 2019 auto emissions investigation, and, in any event, it seems unlikely—given the current administration’s focus on promoting ESG in SEC reporting—that the Biden DOJ will specifically target ESG initiatives like the Trump DOJ did. Nonetheless, these recent investigations highlight the need for careful consideration of ESG policies and collaborations to avoid or mitigate antitrust risk both at the state and federal levels.
Merger Investigations Include ESG Inquiries
Antitrust merger investigations historically have focused on issues related to whether the proposed merger is likely to result in increased prices and harm to innovation (i.e., harm to consumers) in a given product and geographic market. Recently, in addition to those traditional inquiries, the Federal Trade Commission (FTC) has started asking some merging parties about how the proposed merger will affect their ESG policies. (Perhaps notably, the current head of the Antitrust Division said in his confirmation hearings that ESG should not be a factor in antitrust merger review unless related to competition. This could be a development to watch, given the possibility of enforcement divergence between the FTC and DOJ.) It is not yet clear how the FTC intends to use ESG information to assess the competitive effects of mergers, but there are several possibilities.
One way is to assess whether companies have used ESG collaborations to facilitate unlawful collusion to increase prices or decrease output. This type of activity could be uncovered during a merger investigation, which ordinarily would involve the production of massive amounts of documents to the investigating agency. Collusion uncovered as a result of the review of these document productions could not only threaten the merger but also result in civil or criminal liability or further governmental investigations. Another way the agencies may focus on ESG is by analyzing ESG efforts through the lens of potential efficiencies associated with a merger. It is possible that the agencies may credit ESG-related efficiencies when considering if the procompetitive benefits of a merger outweigh its anticompetitive effects. Viewing ESG information in this way would mark a sea change in antitrust enforcement by focusing on non-price and non-innovation effects of a proposed merger. In the meantime, the FTC and DOJ are working to prepare new merger guidelines that may clarify the agencies’ thinking on this topic.
Companies Should Approach ESG Collaborations with Caution
FTC and DOJ scrutinize competitor collaborations according to guidelines jointly published in 2000 (Antitrust Guidelines for Collaborations Among Competitors). Those guidelines would apply to ESG collaborations as well. Given the antitrust risk associated with ESG collaborations, companies should seek antitrust guidance if they are considering such collaborations. There likely are ways to mitigate risk associated with any potential ESG collaboration, most of which apply generally to all competitor collaborations. For example, best practices for meetings and communications with competitors (e.g., written agendas, no exchange of competitive sensitive information) should be followed, and collaborations with industry groups that set ESG standards or certifications should not exclude or discriminate against other competitors. Regardless, the bottom line is that ESG collaborations are on the rise and present antitrust risk that should be carefully considered and mitigated when possible.
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