Competition regulation: an unconventional tool to advance ESG initiatives

Consequently, companies have focused their attention on designing sustainable strategies centered on the circular economy. However, such ambitious objectives cannot always be achieved individually, so they require the efforts of entire industries or, at least, of some of their main players, a phenomenon that can translate into a controversial concept for the legal discipline of Economic Competition: collaboration among competitors. Below, we highlight how overlooking the economic competition implications of ESG initiatives can result in disruptive complications and, even, in the breakdown of agreements, not only for the industries or agents involved, but also for governments and, consequently, for entire communities. On the one hand, we have companies working on ESG strategies that must be aware of the importance not only of accurately assessing competition risks, but also of carrying out such risk assessment at the appropriate time. On the other hand, we have the government's responsibility to provide a stable and secure legal environment that allows and promotes the effective implementation of business initiatives seeking sustainability goals, within a healthy competitive environment. Currently, the Mexican Federal Economic Competition Law does not provide for an exemption for collaboration agreements among competitors whose purpose is to pursue large and complex challenges (climate change, for example), nor a special ex ante approval procedure for such purpose that is binding. Unfortunately, the only clarity we have today is that coordination among competitors with the purpose or effect of restricting competition is a highly punishable conduct that may even be prosecuted as a crime. Fines for collusion amount to up to 10% of the agent's annual revenue, in addition to other legal and reputational consequences. Compliance with economic competition laws is a crucial factor that companies must include in the risk assessment of any ESG project -preferably, at an early stage-. At the same time, companies must constantly seek efficiency and socially responsible behaviors in a world that is conscious of resource scarcity. In weighing the benefits that an efficiently and effectively implemented ESG initiative can bring to all the parties involved (from cost reduction and accelerated research and development to environmental impact and community development, among others), competition regulations should not represent a decisive impediment to the functioning of the project. Unfortunately, due to the lack of regulation on this specific type of collaboration for the common good, economic competition law risk looms over these projects, forcing participants to remain in constant uncertainty or simply to abort the idea of collaboration. The risk intensifies when we introduce the notion of an informant into the equation. The alternative offered by the immunity program can jeopardize the course of interactions, especially in industries with hostile competitive environments. In the Mexican scenario we have witnessed how the economic competition authorities began to consider more receptive positions on collaboration agreements as response measures to the economic crisis caused by the COVID-19 outbreak. The pandemic and its massive impact on the socioeconomic environment led governments to realize that only reactions of the same magnitude would help reactivate and balance the markets, creating the perfect scenario for the economic competition authorities to reconsider the exponential benefits and impacts that synergies among competitors could represent. We must not underestimate the traction generated by this crisis, which can be leveraged as an opportunity to continue driving the debate, now toward a sustainability angle. Despite COFECE's decision not to proceed with the publication of the Guidelines on Collaboration Agreements among Competitors,1 in April 2021 the regulator opted to include a small section on this topic in the Guidelines for the Notification of Concentrations, sharing some parameters to assess whether a collaboration among competitors should be considered a notifiable transaction. Nevertheless, we cannot ignore that such guidelines issued by the Mexican economic competition authorities are not legally binding and, therefore, do not constitute a legal precept that can be used as binding legislation in the defense of future cases. Synergies and collaboration are essential to accelerate innovation and scale up to address the world's largest and most complex challenges. ESG policies must be on the agenda of governments, regulators, companies, academics and economic competition professionals worldwide. Governments and regulators must chart clear principles and well-defined regulation that allows (if not promotes) certain types of collaboration among competitors to face challenges as massive as a single industry, while ensuring a healthy competitive environment in the market for goods and services. An example of how necessary collaboration is is the implementation of joint circular economy and sustainability strategies that can only work if the efforts are industry-wide. As they transition to safer legal ground, practitioners will face the exciting challenge of providing their clients with legal strategies that improve the viability of projects and foster their completion, by reducing risks such as competition law. From the foregoing arises the need to evolve our competition legal framework, for which it will be essential for companies to have multidisciplinary legal support with an ESG perspective. For additional information on the subject of this note, please contact our experts: Fernando Carreño, Partner: +52 (55) 5258-1042 | fcarreno@vwys.com.mx Michel Llorens, Associate: +52 (55) 5258-1042 | mllorens@vwys.com.mx César Martínez, Associate: +52 (55) 5258-1097 | cemartinez@vwys.com.mx Mónica Cabeza de Vaca, Associate: +52 (55) 5258-1097 | mcabezadevaca@vwys.com.mx

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