BY Darren Smith AND James Brand
Sustainability Collaboration: Competition Law Considerations
There is a proverb that says “If you want to go fast, go alone. If you want to go far, go together”. Systemic risk requires a systemic response and the application of this proverb is likely to become key as we emerge from COP26 to address the challenges that we face.
collaboration at state level
The science on climate change has matured to the point that 194 countries accept it as a reality, as indicated by their signing up to the Paris Agreement 2015. This represents the collective consensus by nearly every nation on earth that there is a problem that needs to be addressed. In the lead up to COP 26, like other signatories to the Paris Agreement, South Africa submitted its nationally determined contribution (“NDCs”) that provides the range of South Africa’s planned greenhouse gas emissions over time to achieve alignment with the Paris Agreement. South Africa’s NDC is heavily caveated on the ability for this transition to be adequately financed by developed countries, consistent with Article 9 of the Paris Agreement. This recognises the fact that developed nations contributed considerably more towards the increased levels of GHGs in the atmosphere. However, the OECD technical paper of October 2021 estimated that the climate finance required from developed countries would not hit its 2020 yearly target of USD100-billion until 2023. The estimates are that developed nations have already made available USD79.8-billion in climate finance as of 2019, so it is not as if there is not sufficient funding to get started. In this regard, it was announced at COP 26 that Germany, the United States, the United Kingdom and France had struck a deal worth over ZAR130-billion with South Africa to allow South Africa to launch the Just Energy Transition Partnership and its move away from coal. The intention is to use this as a template on how to support just transitions around the globe. The COP26 Catalyst’s Access to Finance and the work of the Task Force on Access to Climate Finance, established earlier this year, are expected to ratchet up and focus the international climate finance effort.
South Africa’s Climate Change Bill
Last week, South Africa’s Climate Change Bill was introduced to Parliament, seeking to provide the framework for climate change adaption measures to anticipate and deal with the disruptions that are to come at the national, provincial and local levels. But it is not all acceptance of an inevitable more disrupted future. The Bill also introduces mitigation measures by providing a framework for the establishment of a national carbon budget programme, as well as the establishment of sectoral emissions targets to ensure alignment with our NDCs. Exceedance of these emission targets will give rise to a greater carbon tax in terms of the Carbon Tax Act 15 of 2019, a previously established key piece of South Africa’s climate change regulatory puzzle. South Africa’s reporting regime on greenhouse gases (“GHG”) is already fairly mature as in 2016, GHGs were formally declared priority air pollutants under the National Environmental Management Act: Air Quality Act, 2004 (“NEMAQA”). This was followed in 2017 by the gazetting of GHG reporting regulations, together with the requirement that large emitters submit annual pollution prevention plans. So when read together, the Carbon Tax Act, NEMAQA and the Climate Change Bill provide the regulatory levers the State is going to be using to ensure compliance with its NDCs in exchange for unlocking the finance it needs to achieve a just transition.
vertical collaboration at corporate level
But we live in a world where the annual revenues of large multi-national companies dwarf the economies of many countries across the globe and their related emissions of GHGs exceed those of many countries. So there is a significant role for the corporate sector to play in addressing our collective challenges. There is a growing collective consensus that there is a systemic risk that needs to be better understood, priced and mitigated. More than half the world’s institutional investors (USD103.4tn (GBP74tn)) are signatories to the Principles for Responsible Investment (“PRI”), established in 2006 by United Nations Environment Programme Finance Initiative (“UNEP FI”). One-quarter of the world’s insurers (more than 25% of world premium volume) are signatories to the Principles for Sustainable Insurance (“PSI”), established in 2012 by UNEP FI and more than one-third of the global banking sector have signed up to the Principles for Responsible Banking (“PRB”) representing USD57tn (GBP41tn) in total assets. The business case for investees to position themselves to harness the sustainable finance in the Environmental, Social and Governance (“ESG”) is compelling and this is likely to intensify as we approach 2030, the target year for delivery of the UN’s sustainable development goals (“SDGs”). To avoid climate adaption and mitigation measures being more than a revolution on paper, sustainable finance from the private sector will be key to providing the lifeblood to our regulatory aims and ambitions. If ESG regulatory developments in the EU, as part of the EU Green Deal, are replicated globally it can be anticipated that the sustainable finance regime will provide the regulatory levers to achieve a just transition at a corporate level as well.
horizontal collaboration at corporate level
Significant benefits can be attained by corporates through collaboration in addressing challenges relating to sustainability and climate change. However, corporates may be hesitant to be “first movers” where such initiatives may lead them to incur extra costs or be placed at a competitive disadvantage. Similarly, while collaboration on sustainability issues and simultaneously implementing sustainability initiatives throughout a sector are an important and effective way of allowing for meaningful change, fears of contravening competition laws may discourage corporates from doing so. This has the potential to inhibit the unlocking of desirable benefits to society. However, just as the COVID-19 pandemic has tested the application of competition law around the world and has galvanised governments and regulators to try to ensure that their competition laws do not serve as barriers to economic recovery efforts, so too are sustainability and climate change issues similarly important and deserving of similar treatment. The issue has been recognised in the EU and extensive work has been done to synergise their relevant legislation and regulations. South Africa’s regulators and competition law authorities should be readying themselves for this enquiry. In South Africa, the Competition Act, 1998 prohibits certain agreements, practices and/or conduct between competitors or potential competitors. This does not mean that any and all contact between competitors falls within such prohibitions. Even if they do, it is possible to apply for an exemption, on a case by case basis, where such coordination is required and contributes to the attainment of certain objectives stipulated in section 10(3)(b). But for the sake of legal certainty, it is likely to be more preferable to effect statutory amendments that allow for collaboration between competitors on SDG activities, without detracting from the objectives of the Competition Act. Alternatively, the South African Government could issue a “block exemption” in the same manner that it did when responding to the COVID-19 pandemic. Finally, the Competition Commission could release guidelines that provide clarity on what can and cannot be done by competitors when collaborating on SDG issues, such as those that it issued in respect of collaboration required between competitors to give effect to the Government’s local procurement initiative and the introduction of sugar taxes.
As COVID-19 continues to teach, when faced with unprecedented disruption events, we can go far when acting together and the law has a role to play in facilitating a cohesive response to the other collective challenges that we face.
Reviewed by Carlyn Frittelli Davies | NRE | Consultant
Natural Resources and Environment | Senior Associate
+27 79 877 7778
Competition | Senior Associate
+27 82 788 0396