ESG Collaborations Face Challenges Without Safe Harbor Guidance

For years, companies have focused time, energy, and investments on environmental, social, and governance initiatives. These unilateral efforts have been adopted in response to pressure from key stakeholders, including boards, consumers, investors, and insurers.

More recently, there’s been a push for broader collaboration among competitors through industry working groups or trade associations—with the goal to establish common standards or best practices for ESG initiatives.

It’s possible for such efforts to be pro-competitive and beneficial, but there are also inherent antitrust concerns when competitors work together to develop industry standards and best practices.

As Federal Trade Commission Chair Lina Khan noted in US Senate testimony a year ago, there’s no antitrust exemption for ESG agreements among competitors, and a good motive doesn’t excuse otherwise anti-competitive agreements between competitors.

In recent months, members of Congress and Republican state attorneys general have raised antitrust concerns about certain climate-focused ESG collaborations, comparing investor agreements on common climate standards or goals to group boycotts, concerted refusals to deal, and even cartels.

Guidance Needed

In this highly charged enforcement environment, companies considering or involved in ESG collaboration direly need antitrust guidance. Unfortunately, in February 2023, the Department of Justice withdrew several longstanding health-care policy statements, one of which provided “safe harbor” guidance on how competitors could safely engage in information sharing and benchmarking efforts.

The FTC followed suit in July, withdrawing the same safe harbor guidance. The agencies have failed to provide companies with any practical guidance in place of the withdrawn policies.

This has created a major void in guidance for companies interested in ESG collaboration, particularly as concepts within the FTC’s 2000 guidelines reference and depend on now-withdrawn policy statements.

And while those guidelines created a safety zone for competitor collaborations with market shares at or below 20%, newly proposed merger guidelines suggest this safety zone may also be eliminated. Under the proposed new guidelines, a firm with 30% market share is considered dominant.

Proactive Steps

Despite all these changes and challenges, collaborative ESG efforts can still succeed.

We recommend starting with the withdrawn guidelines, which contain valuable guideposts for evaluating and minimizing antitrust risk. Companies should work with antitrust counsel to ensure that:

• The focus of the ESG initiative doesn’t implicate pricing, bids, market or customer allocation, or boycotts of suppliers or competitors.
• The procompetitive benefits of the collaboration are documented and quantified.
• All industry group or trade group meetings follow antitrust best practices, with a written agenda, meeting minutes, and antitrust compliance statement—and are conducted in the presence of antitrust counsel.
• No competitively sensitive data is shared between participants. Any data for benchmarking should be given only to an independent third party, and any results should be anonymized.
• Avoid mandatory terms. Each participant should make their own independent decision on whether to adopt any resulting ESG policies, benchmarks, standards, best practices, codes of conduct, or goals.

For ESG initiatives that may require a more detailed and careful competitive analysis, industry groups and trade associations should consider obtaining direct guidance through a DOJ business review letter or an FTC advisory opinion.

This procedure provides an opportunity for the agency to evaluate a proposed collaboration before it occurs. Not all requests for such guidance are accepted by the agencies, but when they do issue a letter or opinion, it establishes that all the relevant antitrust issues have been considered.

Of course, companies must also be prepared for the agencies to issue an opinion that their proposed collaboration would violate the antitrust laws. Even with these limitations, business review letters and advisory opinions may provide the best guidance on how to proceed with more complex ESG collaborations.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jeetander Dulani is partner at Stinson with focus on mergers, antitrust and false claims, multi-district class actions, and civil and criminal government investigations.

Victoria Smith is partner at Stinson with focus on antitrust issues, complex class action cases, and intellectual property cases.

Write for Us: Author Guidelines