Antitrust, environment and social programs: Can competition authorities help leverage the implementation of social policies?
Compliance with environmental and social factors is an element that has been playing a role in investors’ decision-making processes for some time now. More recently, consumers have also started paying close attention to companies’ approach to social, environmental and governance issues, and whether companies contribute or not to solving such problems. As a result, these issues have progressively gained more space in companies’ meeting rooms.
The implementation of policies that comply with this trend may result in benefits for companies in a variety of sectors, such as tax and labor. Could antitrust become one of them?
Possibly. Article 88 of the Brazilian Competition Act provides that concentration acts involving elimination of competition in a substantial portion of the relevant market, which could strengthen a dominant position or result in the domination of the relevant market of goods or services shall be prohibited, except if (alternatively or cumulatively with other factors) it encourages efficiency and technological or economic development (paragraph 6). This provided a relevant part of the resulting benefits are transferred to consumers. The analysis of efficiencies may be the path for environmental and social elements to become a part of merger review.
In general, the Brazilian Competition Authority (Conselho Administrativo de Defesa Econômica – “CADE”) takes into account economic benefits (e.g. price, innovation, quality of service) when analyzing net efficiencies resulting from concentrations submitted for clearance. However, competition authorities around the world, including CADE, have in the past limited the scope of their decisions to focus solely on the core activities being analysed – i.e. the preservation of competition itself.
Thus, whereas it is a known fact that concentrations may produce negative social impacts, such as lay-offs, CADE has steered away from considerations about environmental and social impacts of transactions, such as the preservation of nature or work posts. But truth is that such considerations may have subjective influence on decisions by ecologically or socially minded individual commissioners. Those positive impacts relating to social elements resulting from such concentrations, as mandated by article 88, paragraph 6 of Brazilian Competition Act, might now and perhaps more in the near future offset a negative bias, if effective and duly brought to the attention of competition authorities.
Thus, an entity with a solid environmental and social policy may be benefitted in the analysis - as long as such practices and policies are expanded as a result of the concentration. Such programs may include a variety of actions specifically related to markets, areas and communities affected by the transaction. Examples would be programs towards educational formation of impoverished communities affected by the business or in any way interacting with it, and the adoption of high environmental standards beyond what is required in legislation, leading to sustainable economics. As per existing legislation, evidence should be presented that such benefits eradiate to consumers, for example as cleaner products and/or a safer and more harmonic social environment. An easy task considering the importance and pervasiveness of the issues at stake.
This is not, again, a settled trend for the moment, but it may soon become so, or at least carry subjective influence in approval of concentrations.
On this issue | October 2021