Deep Dives
KEY POINTS
> Fashion companies are increasingly collaborating on climate initiatives like Fashion Leap for Climate and the Future Supplier Initiative to accelerate sustainability efforts.
> It is important to note that collaborations can face regulatory scrutiny on the basis of anti-competitive practices, as seen in investigations by the European Commission and U.S. lawmakers.
> Navigating legal complexities varies by region, with the U.S. maintaining strict antitrust rules, the EU offering limited exemptions, and the UK providing more flexible guidelines for ESG agreements.
Fashion industry occupants are being encouraged to join forces to accelerate their climate-centric efforts – and many are doing just that. In December, for instance, ASOS, Selfridges Group, and Boozt announced that they signed on to Fashion Leap For Climate, the climate education program launched by About You, Yoox Net-a-Porter, and Zalando. Before that, Gap Inc., H&M Group, and Mango were among the companies that joined the Future Supplier Initiative, which aims to “accelerate the transition to net zero by sharing the financial risks and responsibilities of transitioning to renewable energy sources in Tier 1 and 2 factories.”
Most recently, Global Fashion Agenda and Deloitte Global announced that they have established “a strategic Knowledge Collaboration – to help set the global agenda on sustainability in fashion, raise awareness, educate, convene, and foster innovation … and accelerate action to transform the industry for the better and create an environment for change.”
These types of collaborative efforts are being lauded as an important step towards advancing important climate targets, with collaboration offering several advantages, including “pooling resources, knowledge and expertise to develop scalable solutions to combating climate change, fostering innovation and spreading risks across stakeholders,” per Deloitte. Yet, these types of alliances can also lead to scrutiny from a regulatory perspective.
“When businesses work together – for whatever reason – they run the risk of breaching the competition laws” by way of anti-competitive practices that can hurt consumers, like cartel behavior and misuse of market power, according to Stephanie Perkiss, an associate professor in accounting at University of Wollongong. Perkiss notes that these risks remain even if companies are teaming up for “all the right reasons.” For instance, she suggests a situation in which two competing businesses with shared environmental concerns agree to exclusively source environmentally friendly products from a specific supplier. “Such a collaboration could arguably amount to cartel behavior if it restricted the amount or type of goods these businesses came to offer.”
In a less hypothetical scenario, the European Commission launched an anti-competition probe a few years ago in response to an effort by a group of big-name brands to spearhead “fundamental changes in the industry to make it more environmentally and socially sustainable.” The EU targeted an international group of designers, executives, retailers, and other fashion industry figures, all of which signed “an open letter issued that proposed adjusting the seasonal runway show and product delivery schedules in order to encourage more full price sales” and fewer discounted wares in the wake of the COVID-19 pandemic.
The European Commission stated back in 2022 that it had “concerns that the companies concerned may have violated Article 101 of the Treaty on the Functioning of the European Union (‘TFEU‘) and Article 53 of the European Economic Area Agreement, which prohibit cartels and other restrictive business practices.” While the regulator ultimately opted not to take action against the brands, the investigation, nonetheless, illustrates how effort to collaboration could prompt allegations of collusion.
All the while, U.S. lawmakers and policymakers have also argued that the emerging collaborations (primarily in the financial sector) to address risks associated with environmental, social, and governance may be anti-competitive. Back in 2023, Alabama Attorney General Steve Marshall told the House Oversight Committee that climate alliances “threaten consumers by limiting output, raising prices, risking retirement funds, and creating anti-competitive conduct.” And throughout 2024, congressional leaders investigated coalitions they believed engaged in improper activities, subpoenaed executives of ESG-embracing organizations for depositions and released committee reports discussing their findings on these issues
With the foregoing in mind and given that many companies are, in fact, hesitant to join forces with competitors for fear of facing competition-specific legal challenges, a survey of some of the existing guidance and regulatory positions is worthwhile.
United States: In the U.S., regulators have confirmed that there are no special antitrust exceptions for sustainability or ESG commitment collaborations. “Lawmakers are keeping the pressure on ESG/sustainability initiatives through continued investigations of the potential anticompetitive impact of collaborations, information exchanges and agreements advancing social and environmental goals,” Faegre Drinker Susanne Johnson and Kathy Osborn stated in a recent note.
European Union: The European Commission opted not to expand the exemption criteria for sustainability agreements in its final guidance on sustainability agreements, which was adopted in 2023 as part of the Horizontal Agreements Guidelines. However, Horizontal Guidelines set out four examples of agreements that are not likely to run afoul of competition law:
> Agreements aimed solely at ensuring compliance with requirements and prohibitions in legally binding international agreements that are not fully implemented or enforced by the member state;
> Agreements concerning the internal corporate conduct of companies and not their business activity;
> Agreements setting up databases with general information on suppliers that follow sustainable/unsustainable practices if these do not prohibit or oblige parties to purchase products from such suppliers; and
> Agreements to organize industrywide awareness campaigns on environmental and other impact of consumption if they do not amount to joint advertising.
United Kingdom: In 2023, the UK Competition and Markets Authority (“CMA”) set out guidance that establishes a framework under which certain ESG agreements can expect to be exempt from anticompetitive enforcement. Specifically, the CMA provide extensive examples of the types of environmental sustainability agreements that are unlikely to give rise to competition concerns, including those (as highlighted by Skadden) that:
> Are entered into by parties have a very small combined market share of the affected market and the agreement does not restrict competition by object;
> Do not relate to competing businesses;
> None of the parties could carry out individually;
> Pool non-sensitive information about suppliers or customers (provided parties are not required to purchase or refrain from purchasing from them);
> Create industry standards or targets; and/or
> Phase out sustainable products or processes (if no appreciable increase in price, quality or choice).
Skadden further noted that an agreement that restricts competition by object or by effect may still be lawful if it meets the criteria for an exemption, namely, if consumers “receive a fair share of the benefits that result from the agreement and that the benefits outweigh the competitive harm.”
THE BOTTOM LINE: On one hand, collaborative initiatives can drive innovation, share risks, and accelerate progress toward climate targets. At the same time, such collective action must be carefully structured to ensure that companies are not running afoul of breaching competition laws.