Environment, social, and governance (ESG) considerations related to investment and corporate governance have made front-page news in recent months, as US elected officials debate whether industry-related ESG practices may violate antitrust laws.

This is not surprising, as companies have increasingly adopted ESG goals into their decision-making and reporting, and consider the potential environmental and social impacts as part of business or investment decisions. While such goals do not necessarily have an impact on competition, if competitors are working together — whether directly or through trade associations or other organizations — that cooperation among competitors can implicate antitrust laws, no matter how socially, environmentally, or financially positive the outcome.

In this latest installment of the ESG Litigation series, we explore the overlap between the ESG space and antitrust law. Previous posts in this series tackle carbon-related ESG claims; circular-economy related “greenwashing” claims; how regulatory environmental justice (EJ) reforms tie into the ESG efforts (including a brief primer on ESG more generally); and EJ claims in ESG litigation.

This post discusses recent antitrust developments in the ESG space in the United States, and outlines potential antitrust considerations for companies interested in incorporating ESG goals into their decision-making.

Republican Pushback through Antitrust

While the Biden Administration has generally supported ESG initiatives, Republican officials at both the state and federal level have expressed concerns that ESG collaborations violate antitrust laws.

In August 2022, a group of 19 Republican state attorneys general sent a letter to the CEO of BlackRock, Inc., claiming that BlackRock’s ESG policies, including coordinating with other financial institutions to achieve net-zero emissions, “appear to intentionally restrain and harm the competitiveness of the energy markets.” (A group of 17 Democratic state attorneys general responded with a letter arguing that this position was “unsupported.”)

In October 2022, 14 Republican state attorneys general sent civil investigative demands to six major banks, investigating potential antitrust issues associated with their participation in the United Nations Net-Zero Banking Alliance.

In November 2022, five Republican Senators issued letters to 51 law firms warning of impending investigations into ESG-related antitrust violations.

And in December 2022, Republican members of the US House Judiciary Committee announced an investigation into members of the ESG initiative Climate Action 100+, requesting a broad range of information and expressing concerns that companies in the initiative were violating antitrust laws.

Given the focus of these enforcers and legislators, it seems likely that antitrust litigation and enforcement will continue to be used to limit ESG actions.

Potential Antitrust Challenges

Antitrust challenges to ESG initiatives have been framed in terms of illegal agreements between competitors to harm competition. For example, a plaintiff could try to frame an ESG standard as an agreement amongst participants in a relevant market to boycott the services of a company or vendor that do not meet that standard. It is clear that agreements that harm competition will not escape antitrust scrutiny just because they have potential or actual environmental or social benefits. The US Supreme Court has held that an anticompetitive agreement among competitors still violates the law, even when the agreement provides broader social benefits, like safety.^[1] This is not a partisan issue; Federal Trade Commission (FTC) Chair Lina Khan, a Democrat, has also stated that ESG goals cannot “rescue an illegal deal,” and that “there is no such thing” as an “ESG exemption” from antitrust laws (see here).

However, it is far from clear that merely pursuing ESG goals would constitute an agreement among competitors to harm competition. Unilateral decisions by companies to adopt best practices or seek ESG certifications do not require agreements among competitors. And the decision to embrace ESG goals may make a company more competitive, as they become more sustainable or embrace values that reflect those of their customers, increasing competitiveness and choice in the markets where they operate.

In addition, the US Antitrust Guidelines for Collaborations Among Competitors, published by the FTC and US Department of Justice Antitrust Division, would likely protect smaller ESG collaborations. The guidelines establish a “safety zone” or safe harbor for competitor collaborations when “the market shares of the collaboration and its participants collectively account for no more than [20] percent of each relevant market in which competition may be affected.”

As with many legal concepts, the devil will be in the details. Companies must be cognizant of the antitrust risks of cooperating with competitors, and ESG will be no different. Agreements among competitors should be carefully assessed for potential impact on competition, and companies should be aware of the heightened scrutiny that some enforcers may bring to the adoption of ESG standards.

Takeaways

Here are some big picture takeaways for companies when considering ESG goals:

• Do your homework when considering a group ESG pledge. If you are thinking about joining an ESG initiative or group pledge, take into account whether the group is well-run, whether they have antitrust counsel advising their decisions, who the other members are and whether they include competitors, and whether the group has a good history of creating standards consistent with antitrust law.

• Consider antitrust concerns. If you are participating in a trade association or industry group involved in setting ESG standards, consider potential antitrust concerns associated with that involvement. For example, pay attention to the potential impact of the standards being adopted on competition and whether all members are free to adopt or reject the standard as they see fit.

• Keep your company’s individual interests in mind. Make sure to choose what is in the best interest of your business and your ability to compete. Contemplate whether these considerations should be documented as you make your decision, in order to create a record of your company’s contemporaneous considerations.

• Remember that ESG benefits won’t save you. Be very wary of any proposed agreement among competitors to set common ESG goals. Though it may have environmental and social benefits, an anticompetitive agreement will not be saved by ESG goals.

• Consider unilateral ESG goals. Consider whether it would be preferable to set your own ESG goals, rather than signing onto a pledge or adopting a common standard defined by another entity.

• Consult with your antitrust lawyer. Given the current enforcement environment, companies should consult with their antitrust counsel before engaging with their trade associations or industry groups regarding ESG goals, especially when interacting with competitors directly.

FOOTNOTES

^[1] Nat'l Soc. of Pro. Engineers v. United States, 435 U.S. 679, 695–96 (1978).