Malaysia: Navigating Competition Law In Pursuit Of Environmental Sustainability

Environmental sustainability and climate change have become increasingly important agendas for businesses and governments locally and globally. In recent years, businesses and industries are increasingly seeking to enter into collaborations, alliances or agreements with one another to approach sustainability initiatives, such as agreements to establish common standards or to promote sustainable sourcing practices. While such collaborations, alliances or agreements can be beneficial in promoting environmental sustainability, they also raise potential competition law concerns.

Competition law is designed to prohibit anti-competitive behavior, such as collusion between competitors or the abuse of a dominant market position. When businesses enter into agreements with one another, there is a risk that such agreements could be viewed as anti-competitive and thereby infringe competition law.

One of the key concerns with sustainability collaborations, alliances or agreements is that they could be seen as a form of collusion between competitors. For example, agreements between competitors to fix prices for products meeting an agreed environmental sustainability standard may be seen as anti-competitive. In 2016, the environmental pledge by the world's largest palm oil-producing companies in Indonesia towards zero deforestation was disbanded following a threat by Indonesia's anti-monopoly agency to investigate the group for cartel-like practices.

To avoid such competition law risks, it is important for businesses to ensure that their sustainability collaborations, alliances or agreements are structured in a way that is compliant with competition law. One approach to doing so is to seek guidance from competition law experts, who can help companies to identify potential competition law issues and structure their collaborations, alliances or agreements in a way that is compliant with competition law.

Businesses can also consider seeking exemptions for their sustainability collaboration, alliances or agreements from the relevant competition authority. While this approach can be time-consuming, it can provide assurance that the collaboration, alliance or agreement is compliant with competition law and reduce the risk of enforcement action being taken against the businesses involved.

In the UK, its Competition and Markets Authority (CMA) recently released a draft guidance on environmental sustainability agreements with a focus on climate change. The draft guidance on environmental sustainability agreements can be found here. The draft guidance sets out the CMA's views on how it will assess the competition law implications of environmental sustainability agreements which capture agreements between competitors and potential competitors that are aimed at preventing, reducing or mitigating the adverse impact that economic activities have on environmental sustainability. The draft guidance provides examples of the types of environmental sustainability agreements that are likely to be compatible with competition law. For example, a joint campaign to raise awareness about environmental sustainability issues within the industry or among customers. In another example, joint lobbying for policy or legislative changes without sharing competitively sensitive information between competitors. However, agreements to limit their ability to innovate in order to meet or exceed a sustainability goal or to achieve that goal more quickly would be considered anti-competitive. The CMA's draft guidance is an important step in clarifying the competition law implications of sustainability agreements from the regulator's perspective.

In Malaysia, the lack of clear guidelines from the competition regulators may discourage businesses from working together to pursue environmental sustainability initiatives. It is important to ensure that competition laws do not hinder legitimate collaborations between businesses that are crucial for promoting and protecting environmental sustainability. Therefore, the publication of detailed guidance by the competition regulators would be beneficial in providing assurance to businesses looking to collaborate with each other.

In conclusion, collaborations, alliances and agreements can be important tools for promoting environmental sustainability, but they also raise potential competition law concerns. Businesses should be aware of these risks and take steps to structure their collaborations, alliances or agreements in a way that is compliant with competition law. By doing so, businesses can help to promote environmental sustainability confidently while avoiding enforcement action and other legal risks associated with anti-competitive behavior.