The increasing recognition of the importance of ESG, the world over, is growing continuously, with factors impacting ESG having a bearing on the decision-making process. It is at a nascent stage in India. However, it has already started impacting decision-making and valuation of companies, as many prospective investors focus on ESG standards of the company, before deciding to make an investment. It has also become a part of the Board agenda, with companies increasingly becoming aware that failure to address any concerns relating to ESG could be detrimental to their business, both financially and reputationally.

To further reinforce their ESG goals, and in turn their performance on these parameters, some companies have started to explore opportunities to collaborate with competitors, customers and suppliers, for setting standards in relation to elements of ESG, as also to cooperate in order to mitigate risks that may arise. Competitive forces are driving companies to collaborate in order to achieve goals, such as expanding into foreign markets, funding expensive R&D, and lowering of costs in general.

Some ESG activities, when they bring together competitor companies, have the potential to give rise to antitrust risk. Antitrust laws are laws that are designed to ensure that businesses compete fairly. An antitrust risk arises when competitors combine to such a degree that they no longer act independently, or when their collaboration gives them the ability to jointly have disproportionate market power. In the past, it was hard to believe that efforts on the ESG front could give rise to antitrust risk.

At the global level, OECD, in December 2020, held a roundtable on sustainability and competition, with contributions from six countries, four of them being from Europe. A number of countries, especially from Europe, have published guidelines/ working papers on the compatibility of sustainability initiatives with competition law. They are also considering regulations and guidelines to assess agreements among competitors (horizontal agreements) or among suppliers and distributors (vertical agreements).

One of the best ways being thought of to prevent an antitrust risk is to sign Sustainability agreements with competitors. These agreements aim at identification, prevention, restriction or mitigation of the negative impact of economic activities on people, animals, the environment, or nature. Sustainability agreements among competitors may have no/negligible impact on competition, and should not normally create an antitrust risk. However, many companies are still reluctant to engage in any cooperation with competitors because they fear that any collaboration with competitors may carry antitrust risks. In addition to such agreements, companies could consider implementing policies to prevent sharing of confidential information and to prevent conflict of interest.

The law in India that focuses on antitrust is the Competition Act, 2002 (Act), which regulates businesses in India in order to ensure a level playing field for all companies, and effective competition in the market. The intent of the Act is to promote competition, protect the interest of consumers, ensure freedom of trade and prevent practices having an appreciable adverse effect on competition. Although the antitrust risk is not yet widespread in India, in comparison with other countries, the Regulator must be prepared for it. The goal should be to ensure that companies compete vigorously and fairly in the market, without there being any unreasonable restraint on trade.

Prerna Mohan