Balancing competition and sustainability for India
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The revised framework for the Business Responsibility and Sustainability Report requires companies to account for their value chain’s environmental impact, enhancing transparency, combating greenwashing, and ensuring that sustainability benefits permeate through the value chain. Image for representation.
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Markets are the centre of the economy, evolving from the barter system to today’s digital marketplaces. The forces of supply and demand are primarily responsible for price determination and consumer preferences. Climate change disturbs the supply side of the market leading to a mismatch between supply and demand, which in turn impacts consumer demand and the overall economy.
In 2023, the Securities and Exchange Board of India introduced a framework for reporting actions towards sustainability by corporates. The revised framework for the Business Responsibility and Sustainability Report requires companies to account for their value chain’s environmental impact, enhancing transparency, combating greenwashing, and ensuring that sustainability benefits permeate through the value chain.
Globally, competition authorities have expressed doubts about competitors’ need to neutralise the potential disadvantages of being a pioneer of change, and also reach sustainability goals. Many authorities were hesitant to embrace sustainability considerations fearing that competitors were looking for an excuse to collude. However, authorities must focus on encouraging companies to pursue sustainability goals jointly and assess cooperation where enterprises can demonstrate the objective of a sustainability goal.
Japan’s Anti Monopoly Act approach towards the realisation of a ‘green society’ were guidelines brought to help private businesses navigate themselves in horizontal collaborations. These guidelines suggest that most activities seeking environmental sustainability are unlikely to restrict competition. These activities have pro-competitive effects that might result in consumer benefits.
The European Commission recently published the draft of revised guidelines on horizontal agreements which now has a specific section on sustainability agreements. This will only raise concerns if they entail serious restrictions of competition in the form of restrictions by object, or produce appreciable negative effects on competition contrary to Article 101(1). The objectives are to address climate change, reduce pollution, limit the use of natural resources, and promote resilient infrastructure and innovation.
In Singapore, the Environmental Sustainability Collaboration Guidance Note aims to provide greater clarity to businesses on how the Competition and Consumer Commission of Singapore (CCCS) will assess collaborations pursuing environmental sustainability objectives. It provides businesses with relevant information so they can safely collaborate in pursuing environmental sustainability objectives without harming competition.
In the Netherlands as well, a cartel prohibition does not apply if the competitive process is not significantly impeded or if sustainable production offers consumers benefits. The Netherlands Authority for Consumers and Markets has announced a more permissive enforcement position where it states that in certain cases adopt a broader definition of agreements that do not restrict competition and count environmental benefits to society overall.
While several countries across the globe have been including sustainability policies for competition law in the form of coop between competitors and guidelines, the Competition Commission of India (CCI) may also explore the possibility of including sustainability policies in its evaluations. India has pledged to achieve net-zero emissions by 2070, but in 2023, it ranked fifth on the list of contributors to global warming. The CCI chairperson, Ravneet Kaur, recently stated that the CCI will look into sustainability policies for markets.
During the pandemic, the CCI issued an advisory and acknowledged that COVID-19 had caused disruptions in supply chains. It also noted that information sharing may be required by businesses to ensure fair distribution of products and services. The Competition Act, 2002 has built-in safeguards to protect businesses from sanctions. The CCI only considered such businesses that were necessary to address concerns arising from COVID-19. The CCI can consider releasing advisories where enterprises can be exempted if collaborations are for sustainable goals or greener technological innovations when necessary and proportionate.
Under Section 49(3) of the Competition Act, 2002, the CCI may take measures to promote competition advocacy and awareness. It may also participate in formulating economic policies that will touch upon competition and sustainability. The CCI can emphasise on sustainability policies and enterprise collaboration for greener innovations and release guidance notes on sustainability agreements and exemption methods under the Competition Act, 2002.
In the U.K., the Competition and Markets Authority launched a market study into the electric vehicle charging sector to consider the development of competition alongside innovation, more choice, lower prices, greater investment, and improvements in quality. A similar comprehensive study on green initiatives and market feasibility would benefit the Indian market. In 2011, the TRAI released recommendations such as sustainability practices must be a part of the then-proposed National Telecom Policy and that promoted an environmentally friendly telecom sector. The CCI can also consider including sustainability practices in the National Competition Policy in the future.
Competition cannot remain insulated from sustainability. Combating climate change requires adapting and adopting newer technology that reduces resource consumption and increases innovation through sustainability policies. For India, to reach its pledged state of net zero emissions, every economic sector must contribute to greener means of production. The CCI can enforce competition policies that improve innovation while considering environmental concerns. Competition policy should integrate sustainability economics while considering market failures and collective action problems. Through actions like issuing guidelines, the benefits of sustainability will outweigh the potential negative effects on competition. Including sustainability considerations in assessments of cooperation among competitors can be a strong measure of benefitting sustainability in markets.
(Vallari Dronamraju is a Research Fellow, Corporate Law and Financial Regulation, Vidhi Centre for Legal Policy)
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