Sustainability & Modern Merger Control: Uncertainty Prevails

Rudresh Mandal[1]

Whether modern merger control is fit for purpose in today’s economy yields a range of possible questions. This article focuses on a few of these questions: Should merger control consider the effects of a transaction on sustainability given the continued dominance of the price-sensitive consumer welfare standard? If so, how? What are the conceptual difficulties? Antitrust agencies have historically contended with weighing anticompetitive harm against social benefits, and as ‘sustainability gains’ begin to be equated with ‘efficiency gains’, regulators are grappling with whether sustainability-linked mergers warrant differential treatment.

Against the backdrop of recent climate-related calamities, the capacity of businesses to mitigate climate change is now firmly on the regulatory agenda. However, as companies explore mergers to facilitate transitions to net-zero, the ‘fear of competition law’[2]and the continued cross-jurisdictional divergence on the inclusion of sustainability in competitive assessment has resulted in an uncertain regulatory environment, hindering cross-border M&A activity. If one major jurisdiction blocks a cross-border merger disregarding the sustainability gains from the transaction, the delay in approval could extend beyond the long-stop date, chilling future dealmaking.

American agencies remain restrictive on incorporating sustainability metrics in merger control, due to the politicised debate and the neo-Brandeisian view that environmental benefits flow from increased competition. However, the European and Asian views[3] are more permissive. European regulators are expanding the definition of ‘consumer’ (from in-market to out-of-market) and widening the ‘consumer welfare standard’ to the ‘citizen welfare standard’, enabling analysis of sustainability improvements beyond traditional price/efficiency benefits. Asian regulators, particularly Japan and Singapore, are also following suit.

Accordingly, in cases of transactions that may raise prices but have positive effects on the environment, a common merger notification strategy across jurisdictions may be difficult to reach. While competition authorities have previously recognised that positive environmental externalities may potentially offset the adverse effect of increased prices, such instances have been rare.For instance, the Australian Competition and Consumer Commission’s decision approving the Brookfield/Origin Energy merger in October 2023 and the European Commission’s decision in Case IV.F.1/36.718. – CECED on account of the merger’s environmental benefits outweighing its anti-competitive effects indicate that sustainability goals in merger review processes are pertinent. The Netherlands Authority for Consumers and Markets also investigated a theory of harm based on, amongst other things, sustainability considerations, where a merger risked lowering animal welfare and encouraging less sustainable dairy farming. The efficiencies produced by the prospective environmental benefits of the merger however must be verifiable, likely to arise in a timely manner and transaction-specific (Case M.9409 – Aurubis / Metallo Group Holding). Antitrust law will have to compete with two key conceptual difficulties towards achieving a uniform standard vis-à-vis sustainability.

First, antitrust agencies reviewing sustainability-linked mergers will have to wrestle with quantifying non-price effects (such as effects on the environment) and balancing these effects against purely economic considerations[4] (such as potential increase in prices). The traditional focus on static efficiency under the consumer welfare standard is not readily compatible with environmental implications of a merger which may not be immediate or apparent economically. Current prices (and related measures such as the Gross Upward Pricing Pressure Index), which typically serve as the metric considered for competitive assessment by most authorities inadequately reflect the potential effects of a transaction on the environment.

Recognising these limitations, the Greek and Dutch competition authorities and the OECD issued technical reports on environmental impact and antitrust, demonstrating how the potential environmental effects of a transaction are to be assessed. These calculation methodologies will help parties demonstrate the nature, amount, timeline, and probability of materialisation of environmental efficiency, and potentially form the basis for widening of the assessment of consumer welfare.  However, international convergence on such issues is unlikely within a short time, and merging parties may struggle with presenting the environmental benefits to different competition authorities on the basis of different theories and econometric analyses. The adoption of different merger notification strategies in different countries and the potential engagement of multiple economists and lawyers is likely to lead to an overall increase in the time taken to obtain merger control clearance in various countries.

Second, antitrust agencies must also determine the category of consumers to consider in their merger reviews, when applying the traditional antitrust analysis to sustainability-linked initiatives. Despite the normative quest towards attaining consumer welfare, competition law does not clarify the specific definition of who a ‘consumer’ is, and whose interests are to be prioritised—which category of consumers benefit from the environmental consequences of the merger, and can benefits accruing to consumers in other markets be considered? These questions are complicated in two situations: when some (or most) of the sustainabilitybenefits accrue to individuals outside of the relevant market, or where the benefits of the merger accrue to consumers at some point in the future, or to future generations. While some jurisdictions weigh the positive impact of environmental mergers on society against anti-competitive effects, jurisdictions strictly applying the consumer welfare standard without analysing the dynamic efficiencies that may arise in the future, would be unable to analyse environmental effects benefitting consumers outside the concerned market, geographically or temporally.

Jurisdictions therefore differ in their approaches toward navigating this conceptual difficulty while maintaining the sanctity of the consumer welfare standard. Just as privacy was successfully analysed within consumer welfare in Case No COMP/M.7217 – Facebook/WhatsApp and Case M.8124 – Microsoft/LinkedIn, a workable solution could be to perhaps allow consideration of out-of-market environmental benefits when they arise substantially in favour of the category of consumers affected by the anticompetitive merger. In fact, Christine Wilson, former Commissioner of the US FTC, argues that the consumer welfare standard has historically considered factors beyond price as part of the antitrust review process, and the term ‘price’ is only shorthand for consideration of non-price factors (like sustainability). The US Horizontal Merger Guidelines (2010) explain that:

Enhanced market power can also be manifested in non-price terms and conditions that adversely affect customers, including reduced product quality, reduced product variety, reduced service, or diminished innovation…When the Agencies investigate whether a merger may lead to a substantial lessening of non-price competition, they employ an approach analogous to that used to evaluate price competition.

The consumer welfare standard is therefore malleable enough to incorporate consideration of environmental benefits. Relatedly, if the proposed merger results in environmental improvement benefitting society at large, a significant share of these benefits could be apportioned to the harmed consumers, thereby compensating them for the anticompetitive conduct. This is consistent with Hicks-Kaldor efficiency and antitrust law’s focus on ensuring allocative efficiency.

Also implicit in this analysis is the question of timeframe for analysing environmental effects: when will the transaction yield benefit? Different timeframes will need to be set-up for shorter-term benefits—like potential improvements in product quality—and for longer-term benefits—like on innovation and pollution reduction—and these will need to be weighed against each other. Also relevant here is whether the longer-term benefits ought to be valued less than the shorter-term benefits and, if so, to which extent.

While we await certainty and predictability as to the extent to which sustainability concerns factor into antitrust analyses, companies should conduct cross-jurisdictional studies and actively engage with the relevant agencies, by leveraging open-door policies for providing informal guidance. Differences in cultural and institutional contexts may prevent a complete harmonisation of approaches to antitrust vis-à-vis sustainability. The inclusion of non-price considerations is also often underscored by political motives and may therefore yield itself to arbitrariness. However, climate-action is imperative. While antitrust may not be the primary avenue towards reaching the EU’s Green Deal, and other regional objectives, Commissioner Vestager indicated that antitrust rules may be interpreted in ways supporting the Green Deal, arguably leading to greater consideration of out-of-market efficiencies and sustainability-linked benefits to consumers, beyond merely lower prices.[5] Global merger control must rise to the interpretational challenge of considering sustainability in antitrust law and meaningfully balance (or harmonise) consumer welfare and sustainability, while ensuring a systematic, coherent approach consistent with the economic underpinnings of competition policy.

[1] LL.M. student at Columbia Law School, New York. The author is grateful to Anik Bhaduri for his comments.

[2] Simon Holmes, ‘Climate change, sustainability, and competition law’ (2020) 8 Journal of Antitrust Enforcement 354, 354.

[3] ‘American trustbusters are losing their focus’ (The Economist, 13 July 2023) <> accessed 1 February 2024.

[4] Jenn Mellott and Ruzica Ciric, ‘Public Interest in Merger Control: The Lay of the Land’ (2020) 65 Antitrust Bulletin 208, 208-210.

[5] See Allen & Overy, ‘Sustainability Belgium –The Impact of the Green Deal on EU Competition Law: How Sustainability Aspects are shaping the Rules and what it means for Businesses’ (5 October 2021) <> accessed 3 April 2024.