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How ESG is associated with Competition Law as an aiding factor?



Environmental, Social, and Governance Factors which are known by the term ESG are usually known as a framework that helps all stakeholders to understand the way how organizations manage risks and opportunities related to the environment and society. Also, Indian companies have even started taking steps to enhance ESG Responsibilities to attract higher investment valuations. In this case, the rationale behind this step stands to be quite simple where the companies working towards promoting their workers, customers, shareholders, and societies stand in the better run thereby making an attractive long-run investment and high valuations. Currently, India is witnessing a rise in terms of values for profit of managers which can assure them of long-term returns.


Where does the need for using an ESG Tool arise?


In most cases, a company can improve and employ ESG tools through internal structuring. But situations also arise that might require a company to collaborate with its competitors to achieve broader goals. This collaborative effort can also point towards a step that might go in the right direction to ensure a sustainable and environmentally conscious industry, raising the alarm bells from the competitive legal perspective. In that case, this kind of situation can also invite allegations of cartelization and anti-competitive behaviour from the Competition Commission of India.


The Competition Commission of India had justified by drawing an inference of the potential anti-competitive behaviour from competitor-based collaborations as those which often require key management competitors to meet and exchange commercial information to regularly communicate with each other. Thus, with the increasing ESG-conscious corporate environments, it becomes quite important to assess the effectiveness of the Indian competitive framework, in order to consider the relevance of the ESG collaboration between competitors.


This intersection between the Indian Competition Law and the ESG collaboration still largely remains unexplored due to a general lack of guidance on this case. As there are no guidelines or regulations being published by the CCI that will address the needs of businesses wishing to collaborate toward achieving their goals. Still, there are several provisions in the Competition Act of 2002 that can be interpreted towards facilitating ESG collaborations between the competitors. Reshaping of business models across the world is actually attracting responsible investment with ESG Performance and agendas of companies increasingly becoming some of the key factors for investors to initiate mergers and acquisitions.


ESG is also seen mostly as an item of priority for various regulators from all around the world who try to ensure how the business will incorporate the practices in their organizations. But as the Governments work towards the task of combatting climate change necessitate contributing to many different fronts, corporations that play a crucial role in accelerating the sustainability movement. However, the manner in which the companies operate in this market for their sustainability objectives where their collaboration with the competitors could potentially come under the ambit of competition law. The question arises regarding the potential conflict of increasing ESG initiatives by collaboration between the companies and competition law.


The Position of ESG in India in comparison to the world-

Till now in India, the sustainability initiative has not gained any significant growth from an antitrust perspective. Also, there may even be an explicit provision for sustainability agreements under the Compensation Act of 2002 or even the Competition (Amendment) Bill of 2022. But presently the existing frameworks for approving mergers to analyze anti-competitive agreements are broad enough to enable the Competition Commission of India to consider the effects of the ESG initiative as a part of the overall assessment. These factors can also include the promotion of relative advantage by way of contributing to economic development, innovation, and in case the mergers outweigh any potential adverse impacts. The competition authorities of the Netherlands, Greece, and the UK were the first regulators who issued detailed guidance on the interplay between competition law and sustainability agreements amongst the competitors on ESG initiatives.


On the other hand, the European Commission has recently published the guidance on assessment of agreements as a part of the European Green Deal’s revised guidelines. Thereafter, these draft guidelines try to define sustainability agreements as any type of horizontal cooperation agreement that genuinely pursues one or more sustainability objectives, which may not only include just, environmental initiatives, but also social initiatives as a part of the cooperation.

As an overarching principle, it can be clearly understood that sustainability agreements are usually captured within the parameters of competition as a result of the defining price, quality, choice, or innovation that typically tries to raise any competition-based concerns.

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