Sustainability and Competition Law in Switzerland

Abstract

This chapter examines the intersection between sustainable development and Swiss competition law. It considers the impact of sustainable development initiatives on competition and their justification on environmental grounds, in particular under Article 5(2) of the Swiss Cartel Act. It describes Switzerland's commitment to sustainable development in line with the global sustainable development goals. Although Swiss competition law does not contain explicit provisions on sustainable development, it is guided by constitutional principles. The chapter analyses specific cases, highlighting the interaction between sustainability and the application of competition law, whether as a defensive "shield" or as a challenging "sword" against anti-competitive behaviour in the context of sustainability initiatives. While there has been a limited focus on sustainability cases in Swiss competition law, recent legal developments in the areas of public procurement and sustainable finance demonstrate the growing importance that Switzerland attaches to sustainability objectives.

1 Introduction

While environmental protection and sustainability more generally are topics of increasing importance in public policy, the question arises as to the extent to which they may interact with the Swiss competition law framework. For example, sustainability initiatives may stem from behaviour affecting competition or such behaviour may be justified on environmental protection grounds.

This contribution therefore discusses the role of sustainability goals in competition policy and enforcement. It will present how the Swiss competition authorities, particularly the Competition Commission (‘Comco’) and its Secretariat, address sustainability within the existing legal framework.

We will first provide a brief description of the relevant legal framework on sustainability in general in Switzerland, as well as the interaction between sustainability and competition law, focusing mainly on the role of sustainability in the application of Article 5 para 2 of the Swiss Cartel Act ¹ (‘CartA’) (Sect. 11.2). We will then briefly illustrate this interaction with cases dealing with sustainability (Sect. 11.3). Finally, we will give an overview of recent policy developments in terms of sustainability by the Swiss authorities (Sect. 11.4).

2 General Legal Framework

2.1 Introductory Remarks on the Concept of Sustainability in Swiss Law

Switzerland bases itself on the definition provided by the World Commission on Environment and Development (the Brundtland Commission) in its report 1987 report ‘Our Common Future’, namely that ‘sustainable development is a development that meets the needs of the present without compromising the ability of future generations to meet their own needs’.²

Sustainable development is a principle to which the Swiss Confederation and the cantons are bound. Article 2 (Aims) of the Federal Constitution³ establishes sustainable development as a national goal,⁴ and Article 73 (Sustainability) calls on the Confederation and the cantons to strive for ‘[…] a balanced relationship between nature and its ability to renew itself, on the one hand, and the demands placed on it by the human race, on the other’.⁵ To date, the Federal Council has implemented these constitutional requirements through sustainable development strategies.

The Federal Council understands sustainable development as follows: Sustainable development enables the basic needs of all human beings to be met and ensures a good quality of life throughout the world, now and in the future. It encompasses the three dimensions of environmental responsibility, social solidarity and economic efficiency in an equal, balanced and integrated manner, while considering the tolerance limits of the planet’s ecosystems.⁶ The 2030 Agenda for Sustainable Development (‘Agenda 2030’) provides the framework⁷ with its underlying principles and 17 global sustainable development goals.

Some cantons have also adopted laws on public action for sustainable development, which govern the respective cantonal policies on sustainable development.⁸

2.2 The Role of Sustainability in Swiss Competition Law

There is no specific mention or obligation of sustainability in the CartA. Thus, Articles 2 and 73 of the Constitution serve as guiding principles for the actions of the federal authorities, including the Comco.

2.3 The Intersection Between Sustainable Development and Competition Law

The sustainable use of available resources, a component of sustainable development, can play a certain role in Swiss competition law. Indeed, Article 5 par. 2 lit. a CartA mentions the more rational use of resources as a reason for economic efficiency⁹ that can justify¹⁰ significant restrictions on competition.¹¹ This is particularly the case for environmental protection agreements which at the same time bring economic benefits to consumers.¹²

The term ‘resources’ includes (i) entrepreneurial resources, such as money, (ii) public resources, (iii) natural resources and (iv) knowledge.¹³

An agreement that aims at the efficient use of resources or public goods is by its very nature positive for the consumer and therefore for the community, even if it is not obvious that companies always derive an immediate benefit that can be passed on to the consumer through the market.¹⁴ The CartA Message cites the case of confectionery manufacturers who choose to use a more environmentally friendly (in terms of energy consumption and waste disposal) packaging material for their products instead of aluminium as an example of a possible efficiency justification.¹⁵

The ‘polluter-pays’ principle enshrined in the Environmental Protection Act (‘EPA’) requires external costs to be internalised.¹⁶ For environmental protection aspects to be considered under Article 5 par. 2 lit. a CartA, the alleged environmental benefits or resource savings must be sufficiently closely linked to the operations of the companies involved in the agreement or to the product in question.¹⁷

The criterion of rational exploitation of resources contained in Article 5 para 2 CartA must, in other words, be interpreted in accordance with the productive function of competition.¹⁸ That is, the agreement in question is only justified on grounds of economic efficiency when it is necessary to rationalise the use of the undertaking’s resources in the production of a good or service. However, this does not prevent the agreement from being environmentally friendly at the same time.

On the other hand, if an agreement protects the environment, but does not reduce the production costs of the companies concerned, then an exceptional authorisation from the Federal Council is required on the basis of overriding public interests¹⁹ under Article 8 CartA.

The justification of a more efficient use of resources can in turn be considered for both horizontal²⁰ and vertical²¹ competition agreements. Such agreements are not regarded as horizontal agreements.²²

In conclusion, the motive of more rational exploitation of resources in Art. 5 para 2 CartA must not serve to achieve a general objective, such as environmental protection.²³

3 Specific Interaction/Cases

In this section, we examine in detail specific cases relating to sustainability and competition law. We will discuss the lack of cases in Switzerland where sustainability could have played a role in competition law enforcement in the form of a ‘sword’ (Sect. 11.3.1), cases where sustainability played a role in competition law enforcement in the form of a ‘shield’ (Sect. 11.3.2), and illegal anti-competitive conduct that occurred in the context of sustainability initiatives (Sect. 11.3.3).

3.1 Absence of Cases Where Sustainability Has Played a Role in Competition Law Enforcement in the Form of a ‘Sword’

As mentioned above (Sect. 11.2.2), there is no specific mention or obligation of sustainability in the CartA. Therefore, there is no case law in Switzerland pertaining to situations where sustainability has played a role in the enforcement of competition law in the form of a ‘sword’. The Comco has not been active in using competition rules protecting competition for the benefit of sustainability goals (e.g. protecting competition in industries crucial to sustainability).

In fact, Swiss competition law pursues only purely economic objectives. If confronted with unsustainable business practices, the Comco would not consider, according to the authors, sustainability or environmental arguments, but only abuses of monopoly power if these abuses affect the economy.

3.2 Cases Where Sustainability Has Played a Role in the Enforcement of Competition Law in the Form of a ‘Shield’

There have been very few decisions illustrating cases where sustainability has been used as a defensive argument in the enforcement of competition law, mainly in the context of the grounds for justifying a non-competitive agreement under Article 5 para 2 CartA (Sect. 11.3.2.1). In such cases, any environmental protection arguments considered in the application of Article 5 para 2 CartA must be sufficiently closely related to the production process of the product that is the subject of the agreement.

The Comco also issued opinions on the compliance of several regional initiatives with the Internal Market Act²⁴ (‘IMA’), rejecting the argument that these initiatives could be justified on grounds of public environmental interest (Sect. 11.3.2.2).

In contrast, in merger control, the Comco only analyses the purely competitive aspects affecting the merger. It does not take into account environmental policy aspects.²⁵ For example, in the merger control proceedings for the creation of the joint venture ‘Swiss H2 Generation’ by Groupe E and ENGIE, Comco mentioned that the creation of the joint venture was aimed at meeting the growing demand for hydrogen and related services for hydrogen-powered vehicles in the context of the global energy transition. However, the merger considerations were only about market shares and the criterion of creating or strengthening a dominant position, not about potential environmental benefits. Therefore, we do not address merger control in this section.

3.2.1 Cases Where Competition Law Has Not Been Infringed

In 1997, the Environmental Convention of the Swiss Business Association for Information, Communication and Organisation Technology (‘SWICO’) on the disposal of electronic waste allegedly constituted a (horizontal) price agreement within the meaning of Article 5 para 3 CartA. The agreement regulated the uniform return and disposal of discarded equipment, the uniform introduction of advance disposal fees and their amount (between competitors). Competition in the organisation of disposal was thus hindered, as the members of the SWICO Environmental Convention took on this task. Nevertheless, the Comco Secretariat carried out a preliminary investigation pursuant to Article 26 CartA, which was subsequently closed without opening an investigation in the final report.²⁶ In the same year, the Comco also issued an opinion indicating that, as a rule, there are more competitive solutions than the introduction of a uniform, industry-wide advanced disposal fee. Such a fee should only be introduced in exceptional cases, as it would restrict customers’ freedom of choice in terms of disposal services. In the Comco’s view, it is sufficient to designate the parties responsible for waste disposal and to leave the subsequent disposal to the market.²⁷

In another decision concerning an advance recycling fee for the benefit of SWICO and Sens, the Comco further indicated that it believed the term resources also include public goods and natural resources, so that ecological parameters can also be taken into account when assessing the efficiency criterion. Environmental protection arguments can be considered in the application of Article 5 para 2 CartA, but they must be sufficiently closely related to the operation (production process) of the undertakings involved in the agreement or the product in question. However, in this case, other grounds for economic efficiency related to production costs were analysed by the Comco, which did not accept this argument.²⁸

3.2.2 Cases Where the Comco Weighed the Environmental Benefits Against the Harm to Competition

In cases concerning a label for products from the Geneva region and a draft new law project giving priority to regional products for collective gastronomy in the Fribourg region, the Comco ruled on the conformity of these sustainability initiatives with the provisions of the IMA.²⁹

Particularly, under Article 3 para 1 lit. a to c IMA, the cantons may restrict market access by means of conditions or requirements, provided that these are indispensable for the protection of overriding public interests and respect the principle of proportionality. Environmental protection may constitute a public interest that may justify a restriction of market access.

In both cases, the cantons of Geneva and Fribourg argued that local procurement and short supply routes can contribute to sustainability in the catering industry.

In the first case, the Comco stated that, in relation to the public interest in protecting agriculture and the environment, from the point of view of sustainability and ecology, the environmental footprint of the transport of the grain and flour was negligible compared to the production of the grain itself.³⁰

In the second case, the Comco considered it conceivable that a non-regional product delivered has a better environmental footprint than a regional product. The canton was silent on the question of the effects of transport in Switzerland on the ecological footprint of products in relation to their production and processing. Therefore, the new law obliging public sector restaurants to systematically give preference to regional products in their purchases, thus restricting market access for non-regional suppliers, could not be justified on environmental grounds.³¹

It is interesting to note that before the revision of the CartA in 1995, such an argument was accepted to justify hard-core cartels: the old law allowed even very drastic restrictions of competition to be justified from the point of view of economic and social policy by using the balance sheet method.³² For example, territorial agreements between competitors lead to a reduction in road transport and can therefore be assessed positively in terms of environmental protection. Based on these considerations, a former Swiss cement cartel was approved under the old CartA: these benefits outweighed the harmful effects on competition.³³

The cement cartel had set up a combined rail/road cement transport system which, as the former Cartel Commission (now Comco) recognised, had beneficial effects from an environmental point of view. Thus, the Cartel Commission opined that agreements which artificially increased the cost of road transport to partly finance rail transport were justified on the basis of overriding public interest grounds within the meaning of Article 29 para 3 CartA (in its version of 20 December 1985).

However, the current CartA now pursues different objectives and these considerations are no longer considered apart from the use of resources under Article 5 para 2 CartA as explained above. Thus, the described scheme could only be justified under Article 5 para 2 CartA if it reduced transport costs (which was not the case here) and if this advantage outweighed the disadvantages from a competition point of view.³⁴

3.3 Illegal Anti-Competitive Behaviour in the Context of Sustainability Initiatives

Illegal anti-competitive behaviour can occur in the context of sustainability initiatives, for example in the case of misleading advertising (Sect. 11.3.3.1) or in the form of an agreement affecting competition (Sect. 11.3.3.2).

Under Swiss law, green washing in advertising can be invoked as a misleading commercial practice, over which the Comco has no jurisdiction. Cases of green washing have been brought before other authorities in connection with violations of the Unfair Competition Act (‘UCA’).³⁵

There was one case where the Comco issued an opinion on a potentially illegal anti-competitive agreement within the meaning of Article 5 CartA, developed in the context of a sustainability initiative, namely the implementation of the CO2 Act.³⁶

3.3.1 Green Washing

The Comco has no jurisdiction in the area of unfair competition and deceptive marketing practices. Therefore, the Comco has not dealt with cases where companies give the (false) impression of pursuing a sustainability initiative when in fact it serves as a cover for anti-competitive behaviour (green washing) and a violation of the CartA.

However, the Swiss Commission for Fairness (‘SCF’), a neutral and independent institution aiming to guarantee the self-control of advertising in the communication sector, monitors compliance with the rules of fairness in commercial communication (all forms of advertising, marketing, sponsoring, sales promotion and public relations). The SCF is the executive body of the Foundation for Fairness in Commercial Communication, which brings together the most important organisations in the Swiss advertising industry.

Anyone has the right to complain to the SCF about a commercial communication that he or she considers unfair. In assessing a complaint, the SCF bases itself on the UCA and on the Consolidated Code of Advertising and Commercial Communication Practice of the International Chamber of Commerce. Particularly, under Article 3 para 1 lit. b UCA, advertising statements must not be false or misleading.

The SCF is often confronted to complaints about green marketing. Although SCF decisions are not legally binding, they are accepted by advertisers in most cases.

In recent decisions, the SCF decided that various statements made by a company in its advertising campaign for the sustainability of Swiss dairy production (poster ‘xxxxxxxx and biodiversity: a true love story’) did not intentionally mislead consumers and were therefore not unfair.³⁷ On the other hand, advertising statements in a commercial and on the company’s website that gave the false impression that feeding exclusively with feed from the farm is characteristic of Swiss meat and that farms that fatten on pasture without purchased fodder are the exception, were partially unclear and could therefore be misleading if not corrected and clarified.³⁸

There are therefore cases of green washing, which consists of misleading consumers by giving them the false impression of pursuing a sustainable approach. Such behaviour in Switzerland is, however, apprehended by the UCA and not by the CartA, thus not by the Comco.

3.3.2 Genuine Sustainability Initiatives that Served as a Springboard for Other Anti-Competitive Behaviour

In 2004, the Comco issued an opinion³⁹ to the Swiss Agency for the Environment, Forests and Landscape (formerly the Swiss Federal Office for the Environment) on the climate cent initiative. This initiative was developed by the Climate Cent Foundation, a voluntary system set up by the Swiss business community with the aim of ensuring effective climate protection and investing its funds in greenhouse gas reduction projects abroad. The Climate Cent Foundation was financed by a tax of 1.5 cents per litre levied on gasoline and diesel imports in the years 2006 to 2012. The emission reduction certificates generated by these projects were handed over to the Swiss Confederation free of charge.

The Comco considered that the planned levy of about one cent per litre of gasoline or diesel undoubtedly represented a conscious and deliberate cooperation of the companies concerned and thus an agreement between oil importers. Interestingly, however, Comco did not qualify the agreement as a direct or indirect price-fixing agreement pursuant to Article 5 para 3 CartA, since the companies concerned did not agree on the final price but only on a very small cost element, too small to have a price harmonising effect. The Comco therefore assumed that an indirect price agreement was not intended by the parties. Furthermore, the primary objective of the agreement was to reduce CO2 emissions to meet the requirements of the CO2 Act: if the reduction target had not been achieved by voluntary measures of the industry alone, the Confederation would have been entitled to levy an incentive tax on fossil fuels. The importers could therefore also be considered as fulfilling the mandate of the law.⁴⁰

Nevertheless, the Comco analysed the qualitative and quantitative factors of the agreement to determine whether it could significantly affect competition. First, the climate cent concerns a cost element, which represents 0.7% to 1.5% of the final price of gasoline. Secondly, if one deducts the share of taxes and duties, the share of the climate cent amounts to 2% to 4%. According to the Comco, such a cost element is not negligible and must be considered significant. Furthermore, for the successful implementation of the climate cent project, as many oil importers as possible should participate in the competition agreement, which implies an increase in market shares. Overall, the Comco found that the climate cent project significantly affected competition.⁴¹

On possible grounds for justification based on Article 5 para 2 CartA and the objective of more rational use of resources, since the revenues generated by the agreement would be used for national measures to reduce CO2 emissions and the purchase of foreign certificates, and thus environmental benefits, the Comco analysed whether there was a sufficient link between the agreement and the production process (gasoline and diesel, not fuel oil).⁴² To be justified under competition law, it had to be ensured that the climate cent would lead to the internalisation of the environmental costs of gasoline and diesel, which was not the case. It was only assumed that the uniform climate cent charge for gasoline and diesel would lead to a reduction in environmental pollution and thus in the environmental costs for petroleum products (not only for gasoline and diesel). This could nevertheless be achieved either by a corresponding reduction in the costs of consumption in Switzerland or, according to the objective of the CO2 Act, by a corresponding reduction of global consumption.

Due to the current state of the project when it was submitted to the Comco, the latter found it difficult to assess to what extent the reduction target of the CO2 Act would be achieved. Therefore, the Comco considered that the agreement could not be justified on grounds of economic efficiency in accordance with Article 5 para 2 CartA.

4 The Activity of Agencies, Legislator and Specific Commissions in the Field of Sustainability

The Comco Secretariat has set up a ‘Core Group Sustainability’, which monitors developments in Switzerland and abroad.⁴³ Comco has not undertaken any other specific initiatives in the field of sustainability.

However, we would like to mention the notable developments in the field of public procurement (Sect. 11.4.1) and sustainable finance (Sect. 11.4.2).

4.1 Public Procurement

The new and completely revised Public Procurement Act⁴⁴ came into force on 1 January 2021. The new law marks a paradigm shift towards sustainable public procurement, on the one hand, by introducing the three dimensions of sustainable development among the objectives of the law and, on the other hand, by creating a place for the integration of a sustainability-related criteria at the different stages of the procurement process.

The adoption of the new law has led to numerous works and initiatives: (i) On 29 November 2019 the Federal Procurement Conference adopted the ‘Guiding Principles for Sustainable Public Procurement (of Goods and Services)’;⁴⁵ (ii) the Federal Office for the Environment offers a Guide to Green Procurement;⁴⁶ (iii) the report of the expert group ‘Corporate Social Responsibility: Der Bund als Beschaffer’, published in 2019, provides information on the implementation status of these measures;⁴⁷ (iv) the Federal Council’s report ‘Sanctions at the place of performance: Ensuring compliance with minimum social requirements in public procurement’ details how sustainability (including social sustainability) is and must be taken into account in public procurement;⁴⁸ (v) gradually, sustainability is influencing all procurement, including the choice of automobiles for federal employees.⁴⁹

4.2 Sustainable Finance

In June 2020, the Swiss government published a report on sustainable finance in Switzerland,⁵⁰ taking a position on a series of ongoing European initiatives.

In December 2020, the Swiss government then outlined the next steps in its strategy to make the Swiss financial centre more sustainable by adopting a package of measures.⁵¹

Since then, the Federal Council has launched the consultation on an ordinance on climate reporting by large companies.⁵²

In May 2021, the Swiss prudential regulator — the Financial Market Supervisory Authority (‘FINMA’) — introduced reporting requirements for supervised financial institutions in accordance with the Task Force on Climate-related Financial Disclosures (‘TCFD’) by amending its circulars ‘Disclosure – Banks’⁵³ and ‘Disclosure – Insurers’,⁵⁴ which came into force on 1 July 2021. Initially, only large banks and insurance companies will be subject to the transparency requirements.

The Federal Council intends to make Switzerland a world leader in sustainable investment through climate transparency. To this end, the Federal Council adopted various measures at its meeting on 17 November 2021. Particularly, it recommends that financial market participants create transparency in all financial products ad client portfolios by means of comparable and meaningful climate compatibility indicators.

The Federal Council also invites the financial sector to join international ‘net zero’ alliances and intends to promote the conclusion of sectoral agreements to this end. In addition, the Federal Council has instructed the Federal Department of Finance (‘FDF’), in cooperation with the Federal Department of the Environment, Transport, Energy and Communications (‘DETEC’), to report back to the Federal Council by the end of 2022 on the implementation of the above-mentioned recommendations by the financial sector and, if necessary, to submit proposals for measures.

Finally, the Federal Council has instructed the FDF, in cooperation with DETEC and FINMA, to submit proposals by the end of 2022 on how financial market law could be adapted, particularly with regard to transparency, to prevent greenwashing.

5 Conclusion

Although sustainability does not play a significant role in Swiss competition law, whose objectives are primarily economic in nature, it is worth noting that there is scope for justifying agreements that significantly affect competition on environmental grounds by explicitly mentioning a more rational use of resources.

In terms of interactions and specific cases, Comco has dealt with very few cases impacted by sustainability considerations. These few cases nevertheless show that it is necessary to carefully examine in each case whether there is a competition agreement and whether environmental aspects need to be considered. Particularly, when sustainability is used as a defensive argument, it is necessary to check in each case whether the agreement leads to the expected improvements. Furthermore, there must be no milder means to achieve the environmental objectives set and the restriction of competition and the environmental benefits must be proportional to each other.⁵⁵

Finally, Swiss authorities have developed and implemented several initiatives in related areas, particularly public procurement law and sustainable finance. However, the authors are not aware of any initiatives or activities planned by the Comco or its Secretariat to promote sustainability in Swiss competition law.