On 20 September 2022, the US Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights held a hearing on “Oversight of Federal Enforcement of the Antitrust Laws." Senators from both parties questioned the heads of the US antitrust agencies—Chair Lina Khan of the US Federal Trade Commission (FTC) and Jonathan Kanter, Assistant Attorney General (AAG) of the Antitrust Division of the US Department of Justice (DOJ)—on a wide range of topics. During the hearing, both Chair Khan and AAG Kanter made important statements in response to questioning about the antitrust implications of environmental, social, and governance (ESG) initiatives.
No Exemption from the Antitrust Laws for ESG
Senator Tom Cotton (R-AR) asked Chair Khan and AAG Kanter about the antitrust implications of collective net zero commitments (whereby companies pledge to limit fossil fuel production and reduce greenhouse gas emissions). Senator Cotton, citing concerns that net zero commitments involve coordinated conduct that may raise antitrust concerns, asked whether “collusion to restrict supply is generally unlawful,” and whether the antitrust laws include an exemption for ESG initiatives. Both Khan and Kanter testified that they agree generally that collusion is unlawful. Khan said there is no exemption from the antitrust laws for agreements relating to ESG and noted that “[the FTC has] seen firms come to us and try to claim an ESG exemption and we have to explain to them clearly that there is no such thing.” Khan stated that if ESG agreements affect competition, they are “always relevant to us.” In response to Senator Cotton’s questions, Kanter said that “when firms have substantial power and they use that power to achieve anticompetitive ends, that should be actionable under the antitrust laws.”
ESG Commitments Will Not Save an Illegal Merger
Senator Josh Hawley (R-MO) probed Khan about reports that the FTC has conditioned merger approval “if only implicitly” on whether companies have adopted ESG policies. Khan testified not only that such reports are incorrect, but also that the merger laws prohibit the FTC from conditioning merger approval on parties’ adoption of certain ESG commitments. Khan stated that the FTC would “absolutely not” condition merger approval on a company’s adoption of a particular set of ESG policies. In fact, Khan testified that she has seen merging parties proactively offer ESG commitments to the FTC, asking the agency to “take those as a reason to bless the merger.” Khan testified that she does not find these types of arguments compelling, and that she does not think that “ESG commitments or anything in that vein can ever rescue an illegal deal.”
Takeaways on ESG Initiatives: Standard Antitrust Analysis Applies
Kanter’s and Khan’s responses to the Senators’ questions serve as a warning to companies engaging in or considering joint or collective commitments relating to ESG of the need to tread carefully before coordinating with competitors on such initiatives. AAG Kanter and Chair Khan made clear their view that ESG initiatives do not benefit from any special treatment or exemptions under the antitrust laws in the United States.
Although competitor collaborations on ESG remain subject to the antitrust laws, companies still have a number of ways to collaborate on ESG without raising significant antitrust risk. For example, subject to implementing sufficient safeguards, companies can collaborate on ESG by:
Entering into voluntary, non-binding codes of conduct on ESG;
Adopting ESG certification standards and awarding certifications or seals to companies that meet certain ESG requirements; or
Petitioning the government to adopt certain ESG standards (joint petitioning is immune from antitrust scrutiny under the Noerr-Pennington doctrine).
As is advisable with any joint activity involving competitors, before undertaking these or other ESG initiatives, companies should seek antitrust guidance to assess whether the proposed activity raises potential antitrust risks and, if so, what safeguards can be implemented to ensure full compliance with the antitrust laws.
With respect to how ESG considerations may factor into the merger approval process, in defending deals before the antitrust agencies, merging parties should be on alert that their ESG commitments—however laudable—will not carry the day. Instead, merging parties should focus on articulating the procompetitive benefits of their transactions and, to the extent that the relevant agency is open to remedy discussions, identify potential divestitures that will resolve any harm to competition.
While not a focus of the hearing, it is clear that certain Republican Senators are concerned about the antitrust implications of ESG commitments, and want to make sure that agency leadership has these concerns on their radar.