Fears That ESG Collaborations Will Draw Out Antitrust Cops May Be 'Overblown'
Fears That ESG Collaborations Will Draw Out Antitrust Cops May Be 'Overblown'
"It is correct that the agencies are somewhat concerned that ESG collaborations can be misused. But in the grand scheme of all the other things that they are worried about it is not a top priority," said Hill Wellford, co-head of Vinson & Elkins' antitrust group.
August 23, 2024 at 12:13 PM
5 minute read
Environmental Social and Governance
Chris O'Malley
With federal regulators taking a harder line on what constitutes an antitrust violation than they have in 40 years, even collaborations involving ESG goals could beckon a billy club beatdown from the antitrust cops.
But such risks to companies in environmental, social and governance collaborations may be navigable and, according to one consulting firm, even exaggerated.
“We see the antitrust threat to ESG collaborations—and thus far, it has only been a threat—as overblown,” FTI Consulting managing directors Miriam Wrobel and Selvin Akkus-Clemens assert in a recent report on ESG collaborations amid heightened antitrust scrutiny.
FTI said its take is based on extensive experience dealing with clients, including trade associations, where the exchange of information and industry collaborations can originate and thus attract regulatory scrutiny.
When asked about the types of scenarios in which it has advised clients to mitigate potential antitrust risk in ESG collaborations, FTI declined to comment or to make the authors available.
The consulting firm’s view of antitrust risks to ESG collaborations is in contrast to warnings in recent years by antitrust lawyers and Federal Trade Commission Chair Lina Khan.
Two years ago, referring to ESG, Kahn warned: “The antitrust laws don’t permit us to turn a blind eye to an illegal deal just because the parties commit to some unrelated social benefit.”
Regulators’ reinvigorated antitrust enforcement coincides with the explosion of ESG efforts in industry, whether to address climate change, improve workplace equity or other goals for broader societal benefit.
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Companies in the same industry may collaborate to come up with voluntary standards for carbon emissions, for example, or develop a system that uses drones to monitor methane emissions from flaring petroleum vapors.
But as FTI’s Wrobel and Akkus-Clemens point out, if such standards serve as a barrier to entry to low-cost producers in that industry, for example, “it might attract antitrust scrutiny.”
They also outline numerous other potential antitrust risks that need to be navigated, such as making sure members of an ESG initiative do not share competitively sensitive information, such as future product or investment plans.
Improper sharing of information, price-fixing and other anticompetitive practices have been under renewed scrutiny not only by the FTC but also the U.S. Department of Justice.
Just last September, U.S. Assistant Attorney General Jonathan Kanter boasted of 11 corporate guilty pleas and 22 individual guilty pleas since January 2022, declaring that “criminal enforcement of the antitrust laws is foundational to protecting competition.”
In general, collaborative conduct among firms has long been the focal point of antitrust law, though not all collaborations are as equally suspect, said Hill Wellford, co-head of Vinson & Elkins’ antitrust group.
“It is correct that the agencies are somewhat concerned that ESG collaborations can be misused. But in the grand scheme of all the other things that they are worried about it is not a top priority,” said Wellford, a former chief of staff of the DOJ’s antitrust division.
That’s not to say regulators haven’t targeted ESG efforts.
One of the largest antitrust investigations involving ESG was in 2019, when the DOJ probed BMW, Ford, Honda and Volkswagen over a collaboration with the California Air Resources Board to curb carbon emissions.
The following year the DOJ dropped the case after finding no laws were broken, though the automakers had to devote legal resources to the case.
Many smaller companies, on the other hand, couldn’t endure such a regulatory battering. Wellford said one safe harbor to consider is the federal Antitrust Guidelines for Collaborations Among Competitors.
Though created 24 years ago and in need of updating, the guidelines essentially state neither the FTC nor DOJ will challenge a competitor collaboration when the market shares of the collaboration and its participants “collectively account for no more than 20% of each relevant market in which competition may be affected.”
While that won’t shield industrywide ESG collaborations, “it is large enough to protect most bilateral or small multilateral collaborations,” Vinson & Elkins said in a client note.
Wellford said regulators grasp the potential for ESG collaborations becoming anticompetitive. But until abuses surface the attitude seems to be, “we shouldn’t chill this activity because generally speaking it’s good for the environment, it’s good for workers’ rights, anti-pollution or whatever else.”
In fact, Wellford said generally he’s seen ESG collaborations successfully navigate regulatory land mines.
“I’ve dealt with more than a dozen of these, many of which are currently ongoing, and they pay a lot of attention to antitrust,” he said of participants.
Many of the third-party consulting firms hired as part of the collaboration also seem to be getting the message about being careful in how information is shared, for example.
“I have not seen an ESG collaboration die as a result of [antitrust] concerns,” Wellford said. ”I have seen repeatedly it somewhat slow it down, but not materially.”
He credits care taken by in-house and outside counsel to put antitrust safeguards in place, including creation of an antitrust statement and carefully monitoring each stage of collaboration.
Though Wellford at times has been critical of antitrust regulators, he said they deserve some credit in regard to ESG initiatives. In private conversations, regulators have expressed concern about not unreasonably chilling pro-competitive behavior or efforts to improve the environment or workers’ rights.
“They’re very attuned to the idea that if they are perceived as unreasonably aggressive, then they might prevent collaborations that would do good for society and they take some pains to prevent that. And I think that’s very smart