Sustainability and Competition Law in Germany

Abstract

 For some time now, there has been a debate in German competition law about how and to what extent sustainability concerns can and should play a role in cartel, abuse of dominance and merger proceedings. Most academics and practitioners in Germany share the view that sustainability and competition law do not usually collide. Nevertheless, conflicts can arise in situations of market failure. The paper first analyses the legal provisions relevant for dealing with these in competition law matters, in particular constitutional law, European law and the German Climate Protection Act. While German competition law used to contain sustainability related exemptions, these have gradually been abolished. In addition, the paper shows that compared with older cases, the Federal Cartel Office has recently taken a more restrictive view on the extent to which sustainability issues can be considered when applying competition law. The paper then examines the case law of German authorities and courts to shed light on how competition and sustainability objectives can be reconciled, focusing on sustainability as both a sword and a shield. Finally, the paper summarizes reform proposals for the next amendment to the German Act against Restraints of Competition which has been announced to focus, inter alia, on sustainability.

1 Introduction

German competition law has been witnessing a long-standing discussion on how and to what extent non-economic goals can and should play a role in the application of the German Act against Restraints of Competition (GWB).¹ Recently, this discussion has centered on sustainability as a partly economic, partly non-economic goal, which is universally recognised but seems to lack a clear-cut definition (see Sect. 7.2.1). Indeed, promoting sustainability, in particular with regard to climate protection and the protection of human rights in supply chains, is currently one of the most prominent hot topics in economic law in many jurisdictions. In Germany as well as in Europe, not only company law² and capital market law³ but also competition law has come into the focus of this debate. At the outset, it should be stressed that most scholars and practitioners in Germany share the view that sustainability, in particular climate protection, and competition law do not usually collide as competition promotes an efficient use of resources in line with sustainability targets (see Sect. 7.3.1). However, conflicts may arise, in particular in situations of market failure (see Sect. 7.2.2).⁴

This discussion is not completely new. As a spin-off of the debate and the vast scholarship on (certain) non-economic goals and competition policy, the period between (at least) the early 1970s and the late 1990s saw an intense discussion on German competition law vis-á-vis environmental protection, in particular with regard to so-called self-restraint agreements by undertakings (Selbstbeschränkungsvereinbarungen) and regulation on waste disposal.⁵ Besides, since the 1990s, several German monographs have been devoted to the topic, placing a focus on European competition law.⁶

Especially since 2020, the discussion has gained traction again in light of the broader concept of sustainability but is still focussing on environmental aspects, as evidenced by a steady stream of recent articles in German journals and commemorative publications.⁷ From a legal perspective, this renewed attention on sustainability-related matters is motivated by international law obligations for climate protection, both by European law and by German constitutional law (see Sect. 7.2.1). Another important driver is the practical need for companies to react to the aforementioned developments: companies must adapt to new laws on supply chain liability⁸ and sustainable finance, to increasing societal pressure to stop irresponsible business practices and to growing consumer demand for ESG-compatible business behaviour and products.⁹ For these reasons, several companies have already approached the German Federal Cartel Office for advice on whether they can pursue joint sustainability initiatives (see Sect. 7.3). Against this background and in view of recent policy activities in other jurisdictions, such as the Netherlands and on the EU level, the current German government has announced that it will examine whether changes in the GWB to facilitate sustainability initiatives are in order (see Sect. 7.4).

2 General Framework

2.1 Definition of Sustainability

There is no statutory definition of sustainability specifically for German competition law. Neither the German Federal Cartel Office nor competition law scholarship offer clear-cut definitions of what sustainability precisely is. That said, sustainability is generally understood to be a broad concept that should be determined in particular with a view to UN standards and international treaties, such as the Paris Agreement of 2015. The German Federal Cartel office usually stresses that sustainability includes environmental as well as social aspects or standards,¹⁰ sometimes referring to the UN agenda 2030 for sustainable development¹¹ with its 17 sustainable development goals.¹² In a similar vein, journal articles on competition law briefly state that sustainability includes environmental, social and governance standards.¹³

While it is generally accepted that sustainability comprises all ESG dimensions, the environmental dimension of sustainability, in particular climate protection, is currently at the heart of the case law (see Sect. 7.3) and the academic as well as political discourse in Germany.¹⁴ Secondly, social standards such as the protection of human rights in supply chains get attention.¹⁵ By contrast, governance factors as such appear to play a minor role so far.

The lack of a clear explanation or even a precise definition of sustainability in German competition law and practice is partly remedied by the deliberate conformity of the German prohibition of cartels in Sections 1 and 2 GWB with the European prohibition of cartels in Article 101 TFEU, as expressed by the German legislator when amending the GWB in 2005. By consequence, legal terms are generally to be interpreted in parallel, and the legislator intended that the Commission's guidelines be considered in that regard.¹⁶ Adding to that, sustainability has so far been discussed mostly with respect to the prohibition of cartels, not in relation to the prohibition of abuse of a dominant position, which is where German and European Union competition law diverge. Therefore, German competition law can and should draw on definitions of sustainability in European (competition) law whenever possible. This may even be a legal requirement in all cases where the German Federal Cartel Office also enforces Article 101 TFEU (see Article 3 (1)1 reg. 1/2003). In those cases, the application of national competition law may not lead to the prohibition of agreements, decisions by associations of undertakings or concerted practices, which may affect trade between Member States but which do not restrict competition within the meaning of Article 101 (1) TFEU. The same goes for corporate behaviour exempted by Article 101 (3) TFEU or covered by a Regulation for the application of Article 101 (3) TFEU (Article 3 (2)1 reg. 1/2003).

European competition law does not provide a clear-cut definition of sustainability either. With reference to Article 101 TFEU, Article 210a (3) of Regulation 1308/2013 of the European Parliament and of the Council of 17 December 2013 establishing a common organisation of the markets in agricultural products,¹⁷ as amended by Regulation 2021/2117 of the European Parliament and of the Council of 2 December 2021,¹⁸ defines the term “sustainability standard”. Again, this definition stresses the environmental dimension of sustainability. Besides, the EU has enacted a taxonomy regulation that defines sustainability for capital market law.¹⁹

However, from a legal perspective, definitions within secondary EU law are inferior to the goals and the provisions associated with sustainability enshrined in the European treaties.

In the EU treaties, sustainability and environmental objectives are enshrined, inter alia, in recital 9 preamble TEU; Article 3 (3) and (5) TEU; Articles 11 and 191 TFEU; and Article 37 CFR. Moreover, there are horizontal clauses on certain aspects of sustainability in the broad ESG sense, such as social protection (Article 9 TFEU), health protection (Article 168 (1), Article 9 TFEU, Article 35 sentence 2 CFR), development policy (Article 208 (1) TFEU), consumer protection (Article 12 TFEU, Article 38 CFR), gender equality (Article 8 TFEU, Article 23 (1) CFR) and culture (Article 167 (4) TFEU).²⁰ As a general matter, many of these horizontal clauses reflect values integral to the European Union (see Article 2 TEU).

Against this background, the draft Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (horizontal guidelines) acknowledge a broad concept of sustainability but, just like the discussion in Germany, focus on the environmental dimension. The Commission rightly states that sustainable development is a core principle of the TEU and a priority objective for the Union’s policies. At the same time, the Guidelines recall that the Commission committed to implementing the United Nation’s sustainable development goals and the growth strategy of the European Green Deal.²¹ The draft horizontal guidelines go on to explain:

in broad terms, sustainable development refers to the ability of society to consume and use the available resources today without compromising the ability of future generations to meet their own needs. It encompasses activities that support economic, environmental, and social (including labour and human rights) development. The notion of sustainability objective therefore includes, but is not limited to, addressing climate change (for instance, through the reduction of greenhouse gas emissions), eliminating pollution, limiting the use of natural resources, respecting human rights, fostering resilient infrastructure and innovation, reducing food waste, facilitating a shift to healthy and nutritious food, ensuring animal welfare, etc.²²

To sum up, there is a lot of agreement on what sustainability means in abstract due to general European and international rules on sustainability. Nevertheless, there is no concise definition that makes sustainability goals readily operational in practice. This vagueness is circumvented to the extent that current practice, scholarship and policy discussions on competition law and sustainability in Germany as well as in Europe deal with the environmental dimension of sustainability.

This focus partly distinguishes the discussion on competition law and sustainability from the closely related but more general discussion on non-economic goals in competition law. While sustainability is often considered a non-economic goal and while joint sustainability initiatives can conflict with the cartel prohibition, environmental problems are often caused by external effects, i.e. a kind of market failure that impedes workable competition.²³ From that perspective, the promotion of sustainability can actually promote efficiency, workable competition and long-term consumer welfare, a goal central to competition law. However, conventional competition law only involves the welfare of the consumers in the markets affected by the restriction of competition. In western economies, these consumers will often be the ones who produce and take advantage of external effects rather than the one exposed to them (see Sects. 7.2.2.2.2 and 7.2.2.4).²⁴

2.2 Role of Sustainability in Competition Law

2.2.1 General Framework: Constitutional Law, European Law, Climate Protection Act (KSG)

As a general matter, the German constitution (Grundgesetz (GG)), similarly to European primary law, obliges the state to protect certain dimensions of sustainability, in particular natural livelihoods and human rights, see Articles 1, 2 (1) and 20a GG. Article 20a GG has recently come into focus as an obligation for the legislator to fight global warming in order to protect future generations.²⁵ It is generally acknowledged that Article 20a GG, while predominantly addressing the legislator, is also binding for public authorities. When applying and interpreting a general clause, i.e. a statute that grants an authority discretion, the authority must take the goals of Article 20a GG into account.²⁶ In the same vein, the interpretation of general clauses must incorporate the protection of fundamental rights (interpretation in conformity with fundamental rights or other constitutional law).

This applies to competition law, too, as both the prohibition of anti-competitive agreements (Section 1 GWB) and the exemption pursuant to Section 2 GWB as well as the prohibition of an abuse of a dominant position (Section 19 GWB) are general clauses. By consequence, the German Constitutional Court as well as the German Federal Court (Bundesgerichtshof (BGH)) have repeatedly held that Section 19 GWB must be interpreted in conformity with fundamental rights.²⁷

Furthermore, since 2019, Section 13 (1)1 of the Climate Protection Act (Klimaschutzgesetz (KSG)) has spelled out and clarified that (inter alia) federal state authorities must interpret and apply general clauses with regard to climate protection when they make discretionary decisions. The purpose of the KSG is to soften the effects of global climate change by ensuring that national and European climate protection targets are met. Section 13 (1)1 KSG requires that wherever substantive federal law uses legal terms that require interpretation or accord assessment or discretionary powers, the purpose and objectives of the KSG need to be included in the considerations as (co-)decisive aspects. This can significantly influence the application practice of other federal laws.²⁸

Notably, however, this requirement is restricted to discretionary decision-making within the framework of the statutory requirements.²⁹ Moreover, Section 13 (1) KSG only requires that climate protection be taken into account. Section 13 (1) KSG does not postulate a strict obligation to effectively take account of climate protection targets, nor does it give them a special weight in the sense of an optimisation requirement. This means that climate protection concerns can be set aside in favour of other concerns.³⁰ Therefore, it seems somewhat doubtful whether Section 13 (1) KSG goes beyond the requirements of Article 20a GG.³¹ Regarding competition law, the discussion so far has been mostly about whether and under which conditions the GWB allows the Federal Cartel Office to apply more lenient standards to (potentially) anti-competitive behaviour at all (see Sects. 7.2.2.2 and 7.2.2.3). If the GWB does not grant permission to do so, there will arguably be no scope for (discretionary) decision-making with regard to climate protection, and Section 13 KSG may not come into play as far as substantive competition law is concerned.

To summarise, for the reasons explained above, from a theoretical point of view, Section 13 KSG does not necessarily affect the positions in the discussion on German competition law and sustainability at all. Nevertheless, the legislative intention of Section 13 (1) KSG ought to get more attention in German competition law scholarship. So far, it seems to have been completely ignored.

Another source of conflict between competition law and sustainability have been the legislator’s efforts to encourage cooperations aiming to achieve sustainability goals, even though their agreements were likely to contravene competition law. This scenario can put authorities in an enforcement dilemma (see Sect. 7.2.2.2).

2.2.2 Cartel Prohibition

2.2.2.1 Section 1 GWB (Equivalent to Article 101 TFEU)

The obligation to interpret general clauses in conformity with the constitution is not to say, however, that Sections 1 and 19 GWB can be narrowed or even set aside to account for fundamental rights or sustainability according to Article 20a GG. Whether this is possible is in dispute. If it is possible by law, the KSG (see Sect. 7.2.2.1) requires a climate change impact assessment.³² The position of the Federal Cartel Office regarding the latter has changed over time.

Until 1995, the German Federal Cartel Office used to apply a balancing test to justify restrictions of competition for public interest reasons, along two lines of reasoning: sometimes the balancing test was meant to restrict the scope of application of Section 1 GWB; sometimes it was presented as a part of prosecutorial discretion. Arguably, the Federal Cartel Office has applied this policy mostly to issues of health protection³³ but also to agreements in the interest of environmental protection.³⁴

Following a conference with scholars on packaging regulation,³⁵ the Federal Cartel Office in 1995 changed its policy in view of scholarly critique³⁶ and backed by critical studies of the Centre for European Economic Research (ZEW) as well as the German Monopolies Commission:³⁷ The agency gave up the approach of a balancing test and moved instead to exclusive reliance on opportunity decisions (discretionary prosecution principle – Opportunitätsprinzip, Section 47 (1) OWiG), i.e. toleration (non-prosecution) of certain kinds of sustainability agreements even if they were considered to violate competition law (for particular cases, see Sect. 7.3.1).³⁸

The Federal Cartel Office may have had different reasons for its decision. First, as a general matter, the discretionary prosecution principle shall enable the authority to avoid spending resources on infringements that, although (potentially) illegal, are thought not to produce meaningful harm, for instance because the affected business volume is (very) small.

Second, in the 1990s, the Federal Cartel Office used this strategy to avoid an enforcement dilemma with sustainability goals. In particular, environmental law on European as well as on German level has occasionally pursued the strategy to encourage (as opposed to require) companies to cooperate in order to achieve certain regulatory goals, for instance with regard to the reduction or recycling of waste or the avoidance of CFC.³⁹ This tendency can give rise to a conflict with competition law. Most notably, when enacting the packaging ordinance (Verpackungsverordnung) in 1991, the German legislator had been warned beforehand by the German Federal Cartel Office of a conflict with competition law but decided to leave the regulatory framework unchanged. This presented the competition authority with the dilemma that strict competition law enforcement could have rendered the regulatory concept vacuous. The authority therefore decided to tolerate cooperation under certain circumstances (see also Sect. 7.3.1).⁴⁰

Such a decision does not prevent the Federal Cartel Office from changing its conclusion and finding an infringement in the future, nor does it affect the civil law consequences of a possible infringement of the cartel prohibition. Hence, there remains legal uncertainty for the undertakings concerned.⁴¹ Inter alia for this reason and in fear of a possible influence of political and social interests, this newer line of reasoning has been subject to criticism.⁴²

Today, the German Federal Cartel Office and the leading opinion in German competition law scholarship continue to hold the view that it is not possible to deny a violation of Section 1 GWB, the prohibition of anti-competitive agreements, by means of a balancing test. Weighing the benefits of competition via-á-vis other legal interests⁴³ can therefore not justify a sustainability or an ecological cartel privilege, unless explicitly stipulated by law (on such provisions see Sect. 7.2.3). If no such exemptions exist, restrictions of competition that serve a public interest do not escape the prohibition of cartels. In particular, it is considered impossible to tailor the cartel prohibition by interpretation for it to protect only competition on the merits (Leistungswettbewerb) as this would give rise to enormous problems of delimination.⁴⁴

A strong argument in support of this position is that previous versions of the GWB explicitly allowed for the exceptional permission of cartels due to overriding reasons of the overall economy and of public interest (Section 8 GWB former version; see Sect. 7.2.3). The legislator has abolished these provisions so that the current GWB lacks a (codified) public interest exception. Any exemptions are deliberately left to Section 2 GWB, the German equivalent of Article 101 (3) TFEU. One can therefore argue that acknowledging an uncodified balancing test would circumvent the abolishment of the old exemptions and thereby contradict the intention of the legislator.⁴⁵

Besides, the German Federal Cartel Office and German scholarship argue that it is good policy to separate objectives related to competition from those related to non-economic goals, such as sustainability. The Federal Cartel Office considers itself well positioned to safeguard the former but argues that the democratically legitimised legislator is best positioned to protect the latter and, when doing so, to strike a balance with the interest in workable competition.⁴⁶ This task should not be imposed on companies in their self-assessment nor on the Federal Cartel Office.

The Federal Court of Justice has also held on several occasions—which did not concern sustainability agreements—that a restriction of Section 1 GWB by means of a balancing test is impossible.⁴⁷ The German Federal Court as well as the German Constitutional Court have so far adhered to this principle when employing a so-called materialisation in their interpretation of competition law (Pechstein, Facebook; see Sect. 7.2.2.1 with fn. 27): as indicated by recent judgments, the courts have resorted to fundamental rights only as an argument for applying competition law, i.e. a strict interpretation, but, to our knowledge, never as an argument to effectively weaken it.

2.2.2.2 Section 2 GWB (Equivalent to Article 101 (3) TFEU)

It follows that according to the Federal Cartel Office and the majority view in scholarship, sustainability or other political objectives (such as “fair trade”) may only be taken into account as a consumer benefit within the scope of the exemption requirements of Section 2 GWB, the German equivalent of Article 101 (3) TFEU. Section 2 (1) GWB was aligned with Article 101 (3) TFEU in 2005, and Section 2 (2) GWB has since then contained a dynamic reference to the European block exemption regulations.⁴⁸ By consequence, the question to what extent sustainability can be a benefit offsetting a restriction of competition in German competition law should generally be answered in the same way as in European competition law.⁴⁹ However, European competition law is currently witnessing an intense legal and policy discussion on the matter. At present, the Commission is of the opinion that sustainability agreements are to be examined according to the usual criteria for Article 101 (3), i.e. they do not receive preferential treatment (see Sect. 7.2.2.5). In line with this, the Federal Cartel Office and the majority opinion in Germany require that consumers consider the relevant feature (such as sustainable production) to be a qualitative value of the product.⁵⁰ Additionally, the benefit needs to accrue essentially to the same group of consumers negatively affected by the restriction of competition.⁵¹ Such collective advantages do not require every single consumer who is negatively affected to profit from the advantages. Nevertheless, this prerequisite does not seem to allow for restrictions of competition that would internalise external effects, e.g. in situations where consumers in Western Europe produce emissions that cause damage (predominantly) in other parts of the world. Again, this issue is in dispute. The opposing view advocates a more generous inclusion of the non-economic goals that are enshrined in the constitution.⁵² Besides, the Federal Cartel Office as well as German competition law scholarship show great interest in pioneering approaches in other jurisdictions to broaden the scope for efficiency exemptions, e.g. by the Dutch Competition Authority.⁵³ Finally, the Commission has put forward a partly more generous concept of collective advantages in the draft horizontal guidelines.⁵⁴

2.2.3 Prohibition of Abuse of a Dominant Position (Section 19 GWB)

While there is an intense discussion on sustainability with regard to the prohibition of cartels in Section 1 GWB, sustainability has not played a considerable role so far with regard to Sections 19–20 GWB, the prohibitions of abuse of a dominant position and of relative market power, respectively. The conventional leading opinion argues that the German law on abuse of a dominant position is essentially competitive in nature. Therefore, according to this view, non-competitive considerations can only be taken into account in the interpretation if this is permitted by a special provision. Otherwise, the inclusion of non-competitive considerations would generally counteract the basic legislative intention according to which the control of abusive behaviour is to promote the regulatory principles of free competition.⁵⁵

This strict position may seem somewhat surprising because, as far as constitutional law and European primary law are concerned, the requirements for the interpretation of general clauses are the same for the cartel prohibition and for the prohibition of abuse. When applying and interpreting a general clause, the authority and the courts must take the fundamental rights and the goals of Article 20a GG into account (Sect. 7.2.2.1). Section 19 GWB seems even more prone to the influence of non-economic goals, such as sustainability, than Section 1 GWB because the application of Section 19 GWB always requires a balancing test. This can incorporate, apart from the interest in the protection of free competition, certain value judgments that the legislator has made in constitutional law and public law.⁵⁶ Indeed, the German Constitutional Court as well as the BGH have repeatedly interpreted Section 19 GWB with regard to fundamental rights (Sect. 7.2.2.1) and with regard to value judgments of other laws, e.g. of social security law.⁵⁷ In principle, the same holds with regard to the horizontal clauses in European primary law. To the extent that they apply, they can affect the interpretation of the prohibition of abuse.⁵⁸ If there is scope to consider environmental sustainability, Section 13 (1) KSG requires the Federal Cartel Office to perform the above-mentioned climate change impact assessment (see Sect. 7.2.2.2.1).

There are, however, also reservations against taking value judgments of other laws into account, in particular with regard to a line of reasoning according to which a violation of another law can amount to or contribute significantly to finding an infringement of Section 19 GWB.⁵⁹ A popular argument for a restrictive reception of other laws in the balancing test for Section 19 GWB is that Section 19 GWB should not become the repair kit for enforcement problems in other parts of the law unrelated to competition. This topic created great controversy on the occasion of the Facebook case. The German Federal Cartel Office argued that a dominant company violating data protection law at the same time abuses its market power vis-à-vis consumers, irrespective of whether there is a causal link between the company’s market power and the violation of data protection law.⁶⁰ This gave rise to the question of whether and to what extent the violation of other laws, inter alia environmental laws, can amount to an abuse of a dominant position.⁶¹ After the Higher Regional Court of Düsseldorf had halted the decision of the Federal Cartel Office,⁶² the BGH upheld it with a modified line of reasoning.⁶³

As a reaction to the fierce dispute about the case, the German legislator modified Section 19 GWB to support the position of the German Federal Cartel Office.⁶⁴ However, the legislator also intended to restrict the scope of provisions whose violation can amount to an abuse of a dominant position. The legislator did not want to include any kind of illegal conduct by dominant companies. This shall only be the case if a statute is market related, i.e. if it regulates a supply-demand relationship, and if it serves to protect market participants. According to the government’s explanatory memorandum to the tenth amendment of the GWB, data protection law fulfils these criteria. Conversely, according to the government's memorandum, violations by dominant companies of other norms do not suffice to constitute a violation of competition law. The government’s explanatory memorandum mentions infringements of tax, labour or environmental law as examples.⁶⁵

However, not all of the negative examples mentioned by the government memorandum are self-explanatory or readily apparent from a competition law perspective.⁶⁶ As far as sustainability is concerned, environmental law, though it will generally not be relevant,⁶⁷ could at least selectively have an impact on market relations, especially in times of increasing emphasis on CSR and sustainable finance. The outcome of individual cases will depend on whom the laws in question are intended to protect. With this in mind, it does seem possible to meet the requirements spelled out in the government’s explanatory memorandum even for areas of the law that the government has explicitly excluded. Ultimately, only the violation of a norm can reveal its competitive relevance because strategies that conform to competition law as well as those that do not are the result of a development process. The decisive test should therefore rather be whether a violation can negatively affect the objectives of Section 19 GWB, not a formal grouping of statutes that are considered per se relevant or irrelevant for competition.⁶⁸

To sum up, even though it does not seem inconceivable that a violation of certain environmental laws by a dominant firm may, depending on the circumstances of the case, be a strategy to strengthen the dominant position or exploit the opposite market side, amounting to a violation of competition law, such a line of reasoning has not yet been accepted by the majority view in Germany.

2.2.4 Merger Control

Similar to the prohibition of abuse of a dominant position, German merger control has so far only played a peripheral role in the discussion on competition law and sustainability.

A concentration that would significantly impede effective competition, in particular a concentration expected to create or strengthen a dominant position, shall be prohibited by the Federal Cartel Office, Section 36 (1)1 GWB. Importantly, the Federal Cartel Office has no discretion in that regard.⁶⁹ It follows that, in contrast to horizontal or vertical agreements between undertakings (see Sect. 7.2.2.2.1), the Cartel Office cannot tolerate mergers that do not pass the legal test but would be beneficial to sustainability. This means that the Federal Cartel Office’s current main tool with respect to sustainability concerns is not available in merger control.

By consequence, the Federal Cartel Office can only consider sustainability in merger control if the substantive merger test allows for this. According to the majority view, the extent to which this is possible is broadly similar to Section 1 GWB. The merger control test is generally taken to focus predominantly on competitive concerns, as does Section 1 GWB.⁷⁰ Therefore, sustainability can only be considered as part of the competitive process, for instance if markets for certain sustainable products exist and/or if consumers value sustainability as a product quality.

As with Section 2 GWB, the Federal Cartel Office can take efficiencies into account, which might allow for the promotion of sustainability to come into play.

First, it might be possible to consider efficiencies in the competitive assessment of the merger as part of the SIEC test. As the GWB does not allow for this explicitly, it is in dispute whether this is possible; the question has not yet been clarified by the BGH.⁷¹ The Federal Cartel Office has already examined efficiency arguments raised by the merging parties.⁷² However, the standard of proof that the parties face concerning efficiencies seems very high. So far, the Federal Cartel Office has always held that the submissions of the parties to the merger did not meet the requirements formulated by the Commission in this regard.⁷³ Furthermore, the efficiencies must be passed on to the consumers, that is the opposite market side,⁷⁴ which implies that merger efficiencies do not usually contribute to internalising external effects. In principle, the discussion concerning Section 2 GWB, Article 101 (3) TFEU, whether and how the concept of (collective) efficiencies should be broadened, applies here mutatis mutandis (see Sects. 7.2.1 and 7.2.2.2.2). However, as German merger control already offers another solution to account for non-economic goals (ministerial approval, see Sect. 7.2.3.1), it seems more difficult to argue that the current approach must be changed to promote sustainability.

Second, German merger control explicitly allows for an examination of efficiencies and certain other advantages under the so-called balancing clause, Section 36 (1) 2 No. 1 GWB. This clause allows for a merger to be cleared if it improves the competitive conditions—which, according to the majority view, must refer to other markets⁷⁵—and if these improvements outweigh the restriction of competition caused by the merger. The “other markets” must at least partly extend to Germany—purely foreign markets are irrelevant.⁷⁶ According to the wording of Section 36 (1) 2 No. 1 GWB, only positive effects on the conditions of competition are relevant. Whether these improvements can include efficiency-related advantages is in dispute; the majority view seems to answer in the affirmative.⁷⁷ By contrast, non-economic advantages are clearly excluded.⁷⁸

2.2.5 Reference Point: European Competition Law

When authorities of the member states, such as the German Federal Cartel Office, enforce European competition law, they must comply with Article 51 (2) CFR which protects several dimensions of sustainability. In particular, it requires a high level of environmental protection (Article 37 CFR⁷⁹) (see Sect. 7.2). Furthermore, though the matter is controversial, it is argued that member states must also respect the horizontal clauses,⁸⁰ which include several aspects of sustainability, in particular environmental protection, when applying or enforcing European (competition) law (see Sect. 7.2).

As a general matter, both fundamental rights and horizontal clauses can influence the application of European competition law. With regard to sustainability, in particular environmental protection, this can occur in two forms:⁸¹ first, competition law can be narrowed or restricted to the benefit of sustainability. In order to achieve this, one can interpret competition law in a way that allows for sustainability-friendly measures, or beyond that, one could even set competition law aside to the benefit of other non-economic goals related to sustainability. Second, in other circumstances, one can tighten the application of competition law in order to prevent activities that are harmful to sustainability.

There is long-standing and wide-ranging case law of the Commission and by the European courts on non-economic goals in the application of Article 101 (1) and (3) TFEU.⁸² Several aspects of this case law are in dispute or somewhat unclear.⁸³ A detailed analysis would surpass the scope of this chapter, which focuses on Germany and includes EU law only as an important reference point for the application of German competition law. Therefore, a rough sketch shall suffice.

The case law of the European Court of Justice (ECJ) on Article 101 (1) TFEU recognises that certain non-economic objectives enshrined in European primary law can exempt anti-competitive arrangements from the cartel prohibition if the associated restriction of competition is necessary to achieve the non-economic objective.⁸⁴ On some occasions, the ECJ has restricted the ban on cartels with such teleological considerations, such as in Albany⁸⁵ (collective bargaining autonomy) and Wouters⁸⁶ (liberal professions). In essence, this is an uncodified restriction of the cartel prohibition clause, by which the objectives established in particular in the horizontal clauses of Article 8 ff. TFEU are brought to a balance with the interests protected by competition law. This provides a solution for those cases where the exemption clause of Article 101 (3) TFEU seems unsuitable to achieve such a balance.⁸⁷ However, so far, the ECJ has not extended this line of reasoning to sustainability agreements.⁸⁸

To date, only the case law of the Commission has explicitly dealt with environmental issues. However, its approach has changed over time and does not always appear to be clear and consistent.⁸⁹ The Commission’s draft horizontal guidelines (see Sect. 7.2.1) refuse to set competition law aside, referring to the aforementioned case law.⁹⁰ In a nutshell, the draft horizontal guidelines examine sustainability agreements broadly along the standard lines of competition law. The Commission, while open to a favourable treatment of sustainability agreements, does not acknowledge more lenient competition law standards for them. Several problems in that regard are currently unresolved, in particular how to verify and quantify qualitative and quantitative environmental efficiencies for Article 101 (3) TFEU.⁹¹

All in all, German and European competition law thus seem mostly aligned in their approach to sustainability agreements. That said, there also appear to be two divergent tendencies.

On the one hand, the fact that the ECJ has at least occasionally restricted the ban on cartels due to teleological considerations seems to be an important deviation from German competition law, where the majority view rejects such sweeping exemptions. This majority opinion is in dispute. The opposite view in scholarship argues that since German competition law was aligned with European law in 2005,⁹² German competition law ought to embrace the case law of the ECJ.⁹³ Regardless, for the time being, it does not seem realistic that broad exemptions will be justified in this way.

On the other hand, there is so far no indication for a stricter interpretation of European competition law when activities harmful to sustainability are at stake.⁹⁴ This could only influence the level of the fines imposed on undertakings. By contrast, in Germany, the interpretation of competition law general clauses in conformity with fundamental rights has so far served to advocate a strict application of competition law (see Sect. 7.2.2.3). While the relevant cases did not concern pure sustainability cases, it seems possible to make similar arguments with regard to environmental sustainability, drawing on Articles 2 (1), 1 (1) and Article 20a GG.⁹⁵

2.3 Specific Legislative Provisions on or with Relevance to Sustainability and Competition Law

2.3.1 Exemptions in Force

At the time of writing, German competition law does no longer contain specific legislative provisions that focus on sustainability as such. This has been different in the past (see Sect. 7.2.3.2) and is likely to change again with the next amendment to the GWB (see Sect. 7.4.2).

With that said, four provisions or groups of provisions with relevance for sustainability in competition law deserve mention.

First, concerning the cartel prohibition, Section 2 GWB, the German equivalent of Article 101(3) TFEU, can exempt an agreement that restricts competition if it promotes sustainability. This requires that, in the case at hand, sustainability be a quality that consumers appreciate or that the promotion of sustainability result in a more efficient use of resources that in turn creates cost savings. Furthermore, these savings need to be passed on to the consumers affected by the restriction of competition. More far-reaching approaches are currently being discussed but have not yet been accepted by the majority view in Germany (for more detail, see Sect. 7.2.2.2.2).

Second, concerning the cartel prohibition and the prohibition of abuse of a dominant position, the GWB (inter alia) contains special provisions for agriculture (Section 28 GWB) and a sectoral exemption for the water industry. The latter one applies to companies involved in the public supply of water, in particular municipal water supply companies (Sections 31–31b GWB).⁹⁶ None of these provisions are tailored to sustainability, but one might argue that they can, in principle, promote at least some aspects of sustainability: the exemption for the agricultural sector in Section 28 GWB corresponds in essence to the regulation at European level by Council Regulation (EC) No 1184/2006 of 24 July 2006 applying certain rules of competition to the production of, and trade in, agricultural products.⁹⁷ It declares Section 1 GWB inapplicable to certain agreements by agricultural producers, inter alia about production. This allows for agreements about sustainable production, irrespective of consumer preferences.⁹⁸ Section 28 (2) GWB adds a limited exemption for vertical price maintenance. Besides, there is a sectorial exemption in the German law on forestry (Section 46 Bundeswaldgesetz – BWaldG), inter alia concerning the planning and execution of silvicultural measures. Again, this could pave the way for agreements on sustainable measures. However, neither of these exemptions have been introduced with the goal of promoting sustainability. Section 46 BWaldG is rather heavily criticised for being the result of successful lobbying to avoid effective competition law.⁹⁹

Section 31 (1) GWB stipulates that the prohibition of cartels under Section 1 GWB does not apply to certain anti-competitive contracts that are customary in the water industry sector. It forms the basis of the territorial monopolies of the municipal water supply companies. To compensate for the permission of these territorial monopolies, Section 31 (3)–(4) provides for control of abuse conducted by the Cartel Offices. However, Section 185 (1) 2 GWB determines that Sections 19–20 and 31b (5) GWB do not apply to fees and contributions under public law. This serves the purpose of preventing competition law control of water charges. These rules are considered by some to be a reason for the exceptionally high water prices in Germany.¹⁰⁰ However, one could argue that this result promotes sustainability because, ceteris paribus, high water prices will make consumers more frugal in their use of water.¹⁰¹

Third, with regard to merger control, German law grants companies the option to apply for ministerial approval after the Federal Cartel Office has prohibited a merger project. Pursuant to Section 42 GWB, the Federal Minister for Economic Affairs may, upon application, permit a merger prohibited by the Federal Cartel Office if the overall economic benefits of the merger outweigh the restrictions on competition in the case at hand or if the merger is justified by an overriding public interest. According to the Ministry’s legal application of Section 42 GWB and the explanatory memorandum to the second amendment to the GWB, reasons of public interest can only be taken into account if they are of great weight in the individual case, demonstrated by concrete evidence, and if there are no alternative state-induced remedies that are better in line with competition law.¹⁰²

The public benefits recognised in the ministerial approval may overlap with the efficiencies examined under the efficiency defence in the proceedings of the Federal Cartel Office. However, these are not usually cost savings that can be quantified but rather benefits that should be assessed more qualitatively. According to the Ministry, fields of public interests potentially relevant to Section 42 GWB include economic policy, environmental concerns, employment, social and educational aspects, academic research, defence policy and health policy.¹⁰³

Moreover, public welfare benefits may be, and will usually be, benefits that (also) have an impact outside of the affected markets. Against this background, environmental protection in general and climate protection in particular are generally accepted as important public interests that can justify ministerial approval.¹⁰⁴ As concerns the legal-economic peculiarities of climate protection—so far at the heart of the sustainability debate – the Ministry set out the requirements of the public benefit exemption of Section 42: with regard to future scenarios for which no experience rates (Erfahrungssätze) exist, the public benefit prognosis has to rely on reliable facts, satisfy the general rules of logic and occur with sufficient probability.¹⁰⁵

Nevertheless, the aspect has not been very important in the case law so far.¹⁰⁶ The only case in which it played a major role was the Miba/Zollern merger (see Sect. 7.3.2.1.2). In the E.ON/Ruhrgas merger, the parties put forward environmental advantages as a public interest, but neither the Monopolies Commission¹⁰⁷ nor the Minister for Economic Affairs¹⁰⁸ followed this line of reasoning. The Minister granted approval for other reasons (see Sect. 7.3.2.1.2).

Fourth, Sections 24–27 GWB allow business and trade associations and professional organisations to establish competition rules within their area of business and to have these, upon examination, recognised by the Federal Cartel Office. Competition rules are provisions that regulate the conduct of undertakings and that aim to safeguard and encourage fair competition on the merits, Section 24 (1)–(2) GWB. It has been discussed whether the target of effective competition on the merits can capture agreements on sustainability.¹⁰⁹ In current practice and in leading commentaries, however, the topic does not seem to play a role. In principle, it seems conceivable to argue that effective competition on the merits should not create external effects. Accordingly, effective competition should cover sustainability agreements that internalise external effects. In any event, however, a recognition of competition rules by the Federal Cartel Office only implies that the authority will not exercise its enforcement powers with regard to the rules. Private plaintiffs and the courts are not bound by this and may consider certain competition rules an infringement of competition law.

2.3.2 Former Exemptions

In the past, German competition law used to contain more exemptions, which have gradually been abolished. Sometimes this was intended to effectively restrict the scope for exemptions; at other times, the deletions were not considered to bring about a change in substance. While none of the former exemptions focused on sustainability as such, several of them captured or at least were able to capture certain aspects of sustainability.

First, from the oldest version of the GWB in 1957 until the seventh reform in 2005, the GWB contained an explicit exemption for agreements on standards and types in Section 5 GWB old version. This exemption could also apply to agreements on sustainability standards.¹¹⁰ Today, such agreements are examined under Section 2 GWB. Over the same period, the GWB contained an explicit exemption for agreements on rationalisation in Section 5 GWB old version. Somewhat surprisingly, however, this did not seem to apply to agreements that promote sustainability because the provision required that the cost/income ratio of the undertakings concerned be improved. Therefore, the internalisation of external effects, i.e. of costs that were caused by the producing companies but borne by others, was not covered.¹¹¹

Again from 1957 until the seventh amendment in 2005, Section 8 GWB provided that if the requirements of the exemptions pursuant to Sections 2-7 GWB were not met, the Federal Minister for Economic Affairs could, upon application, grant permission for a contract or decision within the meaning of Section 1 GWB. This exception required the restriction of competition to be necessary for overriding reasons related to the economy as a whole and the public interest. It was in dispute whether “overriding reasons for the economy as a whole” and “the public interest” were cumulative criteria or if one or the other sufficed to grant permission. In any event, arguably the majority view, shared in particular by officials of the Federal Cartel Office, considered Section 8 GWB suitable to legalise sustainability agreements.¹¹²

Third, in 1999, as part of the sixth amendment to the GWB, the legislator passed Section 7 GWB old version, which enabled the Federal Cartel Office to exempt agreements between companies that contributed to an improvement, inter alia, in the take back or disposal of goods or services. This required that consumers receive a fair share of the resulting benefit and that the improvement could not be achieved by the undertakings in any other way. Furthermore, the benefits had to be proportionate to the restriction of competition, and the latter could not create or strengthen an undertaking’s dominant position.

The requirement of “take back or disposal” was supposed to exempt agreements from Section 1 GWB that aimed at ensuring compliance with the obligations arising from the Recycling and Waste Management Act (Kreislaufwirtschafts- und Abfallgesetz).¹¹³ The goal of this act (and thus of the aforementioned elements of Section 7 GWB old version¹¹⁴) was to protect natural resources and make waste disposal more environmentally friendly.¹¹⁵ Besides, the legislator argued that European law required competition policy to account for environmental protection.¹¹⁶

Section 7 GWB was removed in 2005 as part of the seventh amendment to the GWB. The legislator did not intend to bring about a change in substance. Rather, the deletion intended to align German with European competition law (Article 101 (3) TFEU).¹¹⁷ Aspects that were previously relevant to Section 7 GWB should henceforth be covered by Section 2 GWB.¹¹⁸

3 Case Law

3.1 Sustainability as a Sword

As already explained in Sect. 7.1, it is generally acknowledged that the objectives promoted by competition, such as the effective use and allocation of resources tend to go hand in hand with sustainability objectives.¹¹⁹ Despite some constellations in which public interest objectives and the objective to protect competition do in fact collide, competition law enforcement is typically designed to foster innovation, and innovation includes the realm of sustainability. Against this backdrop, the German Federal Cartel Office in several cases ended up promoting sustainability by intervening against anti-competitive practices.¹²⁰ The fact that the agency did not explicitly mention possible concerns about sustainability in its reasoning raises the question of whether the beneficial consequences to sustainability were in fact intended or merely coincidental in nature.

3.1.1 DSD

There seems to be widespread agreement that the primary responsibility to reach sustainability targets resides with the legislator, resulting in no more than a subordinate role for the executive branch – including the competition law agencies – with regard to sustainability matters (see Sect. 7.2.2.2.1). However, as indicated by the case against Duales System Deutschland,¹²¹ this division of responsibility is by no means linear in nature: instead, in this particular case, it was precisely compliance with the obligations created by the legislative branch in its Packaging Ordinance (Verpackungsverordnung¹²²) that caused the competition law agencies to become active (see already Sect. 7.2.2.2.1).

Duales System Deutschland (DSD, “The Green Dot”) used to be the sole nationwide system for the return and disposal of packaging. Operating through a net of service contracts with waste disposal firms, DSD took on the disposal obligations of manufacturers and dealers under the Packaging Ordinance against the payment of a licence fee. The resulting bundling of the demand constituted an appreciable restriction of competition, making DSD a monopoly player in the market for disposal services. After the Federal Cartel Office had been tolerating the DSD contract system within its discretion to take up a case, it initiated a competition law inquiry in 2002,¹²³ motivated by the aforementioned sixth amendment to the GWB and the introduction of the new exemption in Section 7 GWB.

Following an announcement by the Federal Cartel Office that from 2006 on it would no longer tolerate the contract system without intervention, DSD decided to dismantle its cartel-like structure.¹²⁴ Contributing to the “liberalization of the market for disposal services the Commission strives for”,¹²⁵ the Federal Cartel Office successfully refuted the sustainability claims previously made by DSD. According to these, competition in the disposal service market would defeat the objective of the Packaging Ordinance and negatively affect environmental protection. Instead, in its sector inquiry published in 2012, the Federal Cartel Office observed substantial cost savings and improvements in the quality of recycling due to the opening up of the market. ¹²⁶ In fact, contrary to the concerns by DSD, a wave of innovation in technology for sorting the mix of waste material led to higher quality recycling. Disregarding these improvements, municipal waste management providers and the private waste management industry continued to argue for the elimination of competition between compliance schemes to the legal framework, thereby reflecting their entrepreneurial interests.¹²⁷

The German DSD case underscores concerns that sustainability cooperations more often than not turn out to be attempts at greenwashing what turn out to be purely economic interests of market participants. Moreover, the move from a general exemption outside the realm of competition law to a consideration within the competition law framework reflects the overall development in the approach by the German Federal Cartel Office (see Sect. 7.2.2.2.1).

3.1.2 DSD/Remondis

Furthermore, DSD was the subject of yet another competition law case relevant to the field of sustainability: in 2019, the German Federal Cartel Office prohibited the acquisition of DSD by REMONDIS SE & Co. KG, stating that the merger would have significantly impeded competition between the dual systems for packaging recycling.¹²⁸ Remondis is Germany’s largest waste management company and among the contract partners of DSD. Due to the increase in concentration achieved by the merger, Remondis would have had an incentive to charge DSD’s competitors higher prices.¹²⁹ In a way, the prohibition thus served the purpose of maintaining the benefits achieved by opening up the market sector in the previous DSD proceedings. Additionally, the Federal Cartel Office points to sustainability concerns regarding the related market of glassworks: the expected decrease in the supply of glass cullet due to the proposed merger would cause glassworks to resort to alternative raw materials where obtainable. Severe increases in production costs aside, this adjustment would result in greater energy consumption, contradicting the overall aims of the recycling economy.¹³⁰ Even though this implication was not at the centre of the Federal Cartel Office’s reasoning for the prohibition of the merger, the line of thought reveals the authority’s awareness of sustainability effects in the field of disposal services.

3.2 Sustainability as a Shield

3.2.1 Merger Control Cases

On other more recent occasions, German competition law enforcement dealt with sustainability as a potential justification for non-intervention. As explained in Sect. 7.2.3.1, Section 42 GWB allows the Federal Minister for Economic Affairs to override a prohibition by the Federal Cartel Office if the restrictions on competition are offset by public benefits of a certain weight. Three recent cases indicate how environmental concerns increasingly feed into the consultation process required by Section 42 GWB, but they also reveal the shortcomings of this solution.¹³¹ The consideration within the procedure for ministerial approval is subject to similar economic realities and constraints as is the political debate about climate change in general: in E.ON/Ruhrgas (Sect. 7.3.2.1.1), the Ministry clarified that competitive constraints generally occur right after the implementation of a merger, whereas the overall economic benefits can only be determined in the long term.¹³² This is exactly one of the difficulties with climate change protection and a major obstacle to political solutions to the problem. This starting position provokes calls for an examination of sustainability concerns irrespective of their inclusion in consumers’ preferences. Whether or not competition law is the right place for this remains an open question. For the moment, the general opinion within German competition law is doubtful in this regard.

3.2.1.1 E.ON/Ruhrgas

In the merger case of E.ON/Ruhrgas, the Ministry allowed for the merger of the two energy providers to proceed in accordance with additional requirements,¹³³ contradicting the previous prohibition by the Federal Cartel Office.¹³⁴ Besides the procedural particularities of the case,¹³⁵ both the Monopolies Commission’s opposition and the ministerial approval examined the macro-economic consequences of the intended vertical integration.¹³⁶ Highlighting the significance of natural gas for the German energy supply, the companies in their application relied on the joint venture’s international competitiveness, their contribution to securing Germany’s energy supply and the preservation of jobs.¹³⁷ Furthermore, they claimed that the merger would support the government’s climate protection efforts and environmental policy.¹³⁸ They predicted that gas would replace a major part of the energy supplied by oil and nuclear energy and thus help achieve the government’s climate policy goals, fulfilling the public interest criteria of Section 42 GWB. The Monopolies Commission in turn highlighted the primacy of functioning competition for innovation and the efficient use of resources when opposing the merger.¹³⁹ The expert panel also criticised the idea that the government could depend on a single company when trying to achieve its environmental objectives.¹⁴⁰ On a side note, in view of the current energy crisis, the Monopolies Commission’s concerns regarding the diversification of energy sources turned out to be very accurate.¹⁴¹

The E.ON/Ruhrgas case was by no means the first merger in which German’s security of supply had been invoked as an area of public interest: Already in its first approval case in 1974¹⁴² and again in 1978,¹⁴³ the Ministry overruled the Federal Cartel Office’s prohibitions based on similar policy considerations.¹⁴⁴ Criticising its own previous work, the Ministry recognised the problems related to energy policy considerations within the scope of Section 42 GWB.¹⁴⁵ Whether or not the uncertainty of forecast decisions is a problem peculiar to policy considerations or even to the ministry approval procedure is a different issue altogether.

Interestingly enough, irrespective of the environmental implications of natural gas as a fossil fuel, the German government subscribed to safeguarding the reliability of supply and the competitiveness of the energy supply sector as some of its major political targets.¹⁴⁶ Anticipating the market pressure caused by the EU’s efforts to open up the European gas market, the Ministry believed that the merger would contribute to achieving the above-mentioned target while at the same time ensuring the international competitiveness of Ruhrgas.¹⁴⁷

Moreover, the Ministry explicitly went on to discuss contributions to climate protection as potential public benefits within the realm of Section 42 GWB.¹⁴⁸ In accordance with the Monopolies Commission, it observed that, generally, the transition from emission-heavy oil to gas might indeed meet the threshold of Section 42. Nevertheless, it concluded that the reduction in emissions remained uninfluenced by the merger and hence did not fulfill the causality requirement.¹⁴⁹ Even though the E.ON/Ruhrgas case is said to have opened up Section 42 GWB to environmental policy goals,¹⁵⁰ the ministerial approval was granted irrespective of sustainability aspects.¹⁵¹ Instead, the Ministry questioned the R&D intentions of the merging parties, maybe even suggesting that the stated benefits due to improvements in fuel cell technology may have been a sign of greenwashing.¹⁵²

3.2.1.2 Miba/Zollern

The Ministry for Economic Affairs further specified the E.ON/Ruhrgas ground rules in the more recent Miba/Zollern merger.¹⁵³ Initially, the Federal Cartel Office had prohibited the proposed merger in the bearing production sector vital to mechanical and plant engineering as well as engine construction. The joint venture would have increased concentration in a market with only a few suppliers and high barriers to entry.¹⁵⁴ According to the Federal Cartel Office, the parties had not sufficiently substantiated that the merger would result in the claimed efficiencies and synergies.¹⁵⁵ They had not met the requirements set by the balancing clause in Section 36 (1) 2 No. 1 GWB (see Sect. 7.2.2.4).¹⁵⁶ Once again, the agency refrained from deciding whether efficiencies can be considered within the SIEC test, pointing out that the parties’ submissions were insufficient in this regard (see Sect. 7.2.2.4).¹⁵⁷

The parties to the proposed merger then filed for ministerial approval under Section 42 GWB. In addition to the preservation of jobs—a frequently tried argument in merger cases¹⁵⁸—the companies’ application pointed to the “know-how and innovation potential for energy transition and sustainability” and the “preservation of the technological lead of Germany and the EU”.¹⁵⁹ They argued that their pooled production activities would contribute significantly to the desired energy transition and reduction of emissions.¹⁶⁰ The combination of unique expertise, (intellectual) property rights and resources would (re-)establish and ensure the undertaking’s international competitiveness in the highly specialised industry of the bearing production sector.¹⁶¹ Disregarding the contrary recommendation by the German Monopolies Commission,¹⁶² Federal Minister Peter Altmaier granted authorisation for the Miba/Zollern merger to proceed subject to conditions and obligations.

Even though the German legislator made a conscious decision when separating the areas of responsibility of the Federal Cartel Office on the one hand and of the Federal Ministry for Economic Affairs and Energy on the other hand,¹⁶³ the balancing process pursuant to Section 42 GWB might require a re-evaluation of the competitive restraints in individual cases. This balancing process necessitates the weighting of the competitive constraints found by the Federal Cartel Office¹⁶⁴ in order to determine the exact requirements for the public benefits.¹⁶⁵ In principle, the division of responsibility keeps the Federal Cartel Office from taking into account non-competition-related interests in the scope of its merger assessment.¹⁶⁶ Accordingly, the Federal Ministry is bound by the findings of the Federal Cartel Office as far as they concern the restriction of competition.¹⁶⁷ This notwithstanding, the Minister may deviate from this principle when new facts relevant to the ruling demand a re-evaluation of the circumstances.¹⁶⁸ Contradicting the assessment by the Monopolies Commission, the Federal Minister—based on a competitor’s pleading in the oral proceedings—gave greater importance to the remaining competition (Restwettbewerb) in the sector.¹⁶⁹ This in turn caused the Minister to diverge from both the Federal Cartel Office’s and the Monopolies Commission’s evaluations. As a result, the Minister saw only a minor impairment to competition due to the proposed merger.¹⁷⁰

While acknowledging the relation of rule and exception within the framework of the GWB,¹⁷¹ Minister Altmaier concluded that the obligations imposed on the merging parties would safeguard the realisation of the sustainability benefits. Drawing on Section 20a GG, the Ministry set forth its practice from the E.ON/Ruhrgas case:¹⁷² through their joint venture, Miba and Zollern would contribute significantly to the desired energy transition and thus help implement the “leading principle of sustainability” (Leitprinzip der Nachhaltigkeit).¹⁷³ Altmaier based his approval on the public interest in the “know-how and innovation potential for energy transition and sustainability”¹⁷⁴ while rejecting the more standard arguments along the lines of general international competitiveness, job protection, armaments sector security and defence policy.¹⁷⁵ To secure the promotion of the public benefit at the heart of the case, the ministerial approval demanded the creation of an escrow account containing a total investment sum of EUR 50 million.¹⁷⁶

3.2.1.3 Beretta/Ammotec

Without having to undergo the procedure of Section 42 GWB, Beretta, an Italian manufacturer of firearms, was granted permission to acquire ammunition specialist Ammotec earlier this year. The Federal Cartel Office cleared the merger plans, observing only minor market share additions in the area for ammunition for civilian purposes.¹⁷⁷ It elaborated that Ammotec’s supply of low-pollutant ammunition is in great demand by the German army (Bundeswehr). Collaboration with firearms manufacturers would facilitate compliance with goals for environmental protection and occupational safety.¹⁷⁸ The Federal Cartel Office saw no indication that competitors’ access to low-polluting ammunition or its components could be restricted due to the merger. Whether the sustainability implications served as a shield in this particular case is hard to judge, given the little insight that the agency gave in its press release. The Federal Cartel Office’s short remarks give the impression that there was no conflict between competition law and sustainability concerns in the case at hand.

3.2.2 Individual Guidance

The Federal Cartel Office further specified its stance towards sustainability cooperations through its individual guidance in constellations relevant to competition. The authority explicitly acknowledged the increasing frequency and significance of sustainability initiatives.¹⁷⁹

Making use of its discretion to take up a case (see Sect. 7.2.2.2.1), the Federal Cartel Office in “Fairtrade”,¹⁸⁰ “Living Wages”¹⁸¹ and “Initiative Tierwohl”¹⁸² clarified the ground rules for private sustainability initiatives. The Fairtrade Labelling Organisations International, e.V., is an internationally recognised, non-profit organisation that aims for fairer trade terms for farmers and workers in developing countries. Participation in the labelling process restricted to goods produced in non-EU countries is voluntary and non-exclusive. Despite the price elements of the agreement (agreement of a minimum price for certain import goods and the payment of the so-called Fairtrade Premium, irrespective of production costs¹⁸³), the Federal Cartel Office decided not to initiate proceedings against Fairtrade. Drawing on the experience with quality mark associations (Gütezeichengemeinschaften) within German competition law,¹⁸⁴ it seems worth considering if parts of the Fairtrade mechanism could potentially pass as “quality features”¹⁸⁵ and might therefore qualify for an expanded interpretation of the exemptions granted to quality mark associations.¹⁸⁶ Others discuss the application of ancillary restraints or the rule of reason (Immanenztheorie)¹⁸⁷ with regard to the social standards implemented through private initiatives, such as the Fairtrade label.¹⁸⁸ According to this doctrine, competitive restraints necessary to ensure a main purpose can be exempted from competition law as long as that main purpose does not raise any concerns under competition law. Commonly invoked in partnership and acquisition agreements, the same line of thought could extend to environmental protection.¹⁸⁹ This approach is broadly similar to the teleological considerations made by the ECJ in Wouters¹⁹⁰ and Albany¹⁹¹ (see Sect. 7.2.2.3).¹⁹² Nonetheless, it would contradict recent efforts to embed sustainability concerns within the efficiency considerations of Article 101 (3) TFEU/Section 2 GWB (Sect. 7.2.2.2.2).

In its decision regarding Fairtrade, the Federal Cartel Office points to the initiative’s relatively low market coverage within the EU as well as the existence of competing sustainability labels in Germany.¹⁹³ It also stressed the importance of a voluntary and discrimination-free participation in the certifications¹⁹⁴ as well as transparency for consumers.¹⁹⁵ Voluntary labels primarily increase customer choice and thus tend to be less objectionable under competition law.¹⁹⁶ For the same reason, the Federal Cartel Office announced that it has no competition concerns about “Living Wages”, a voluntary commitment to achieving common standards for wages in the Ecuadorian banana sector.¹⁹⁷ Among its objectives are the introduction of responsible procurement practices and the development of monitoring transparent wages. The cooperation operates without any price-fixing arrangements and up to this point seems to comply with competition law requirements.

The guidance issued regarding the Initiative Tierwohl underscored the transparency requirement generally set out by the Federal Cartel Office. Initiative Tierwohl is an industry alliance of agriculture, the meat industry and food retailers. Its purpose is to reward livestock farmers for improving the conditions in which they keep their animals. To do so, the participants (major food retailers) agree to the payment of a uniform surcharge via the participating slaughterhouses. Employing labels for meat produced in line with animal welfare criteria, the initiative wants to create transparency and consumer awareness. Due to difficulties in the implementation of a monitoring process for pork products, the Initiative Tierwohl initially restricted the use of its label to poultry. Again stressing the importance of consumer choice, the Federal Cartel Office demanded an adjustment for the label to include pork products.¹⁹⁸ Later on, it also urged the parties to revise the structure of the financing model by gradually introducing competitive elements. Working towards a reconciliation of competition law requirements and sustainability efforts, the Federal Cartel Office suggested for the participants to part ways with the standard premium and to consider compensation for animal welfare costs instead.¹⁹⁹ Apart from this, the authority early on clarified the need for the participants to avoid the exchange of any information relevant to competition, thereby trying to keep sustainability initiatives from becoming a coincidental facilitator of illegal conduct.²⁰⁰

This detailed advice shows that in order to support companies in their sustainability efforts, the Federal Cartel Office focuses in particular on assisting companies in structuring their respective agreements.²⁰¹ There are further cases along these lines that cannot be analysed in detail here.²⁰² At the same time, it should be noted that there is only limited information publicly available on the cases that are the basis for the Federal Cartel Office’s guidance. This implies a certain degree of opacity and a lack of legal certainty, which constitutes a weakness of the solution via the authorities’ prosecutorial discretion (see also Sect. 7.4.1).

3.3 Greenwashing Cartels: Sustainability Initiatives as a Cover for Illegal Conduct

3.3.1 GGA

Whether ultimately intended or not, competition law enforcement turned out to promote sustainability by breaking up the DSD cartel (see Sect. 7.3.1 above). Adjusting its policy to European standards, the Federal Cartel Office rejected the suggested pretext that the undertaking’s structure was the only feasible way to meet the requirements imposed by the Packaging Ordinance. Following a similar path, the Federal Cartel Office in 2007 took action against a cooperation of German container glass manufacturers.²⁰³ The participants had set up the “Gesellschaft für Glasrecycling und Abfallvermeidung“ (GGA) to jointly purchase waste glass recovered from household collections. Similar to the line of argument in the DSD case, the parties in GGA claimed that the purchasing cartel was the only way to guarantee high recycling quotas for waste glass. Going beyond the agency’s stance in the DSD proceedings, the Federal Cartel Office’s president accused the companies of greenwashing: “We will not allow anti-competitive cartel agreements to be made under the guise of environmental protection.”²⁰⁴ He went on by referring to end consumers who are denied their share of potential sale proceeds due to the elimination of competition in the sector. The Higher Regional Court sided with the Federal Cartel Office when denying GGA’s motion to suspend the decision’s implementation.²⁰⁵ The purchasing cartel served the individual economic interests of the participants while neglecting the overall public interest in opening up the market.

3.3.2 Agrardialog Milch

Another case that helped draw boundaries for the treatment of cooperative initiatives within German competition law enforcement was the individual guidance provided to Agrardialog Milch.²⁰⁶ This agricultural policy project had suggested a financing concept in favor of raw milk producers whose costs oftentimes exceed the price paid for milk. The Federal Cartel Office heavily criticised the idea of a surcharge independent of sustainability efforts by the producers. It pointed out the lack of specific criteria for milk production that would take into account sustainability concerns. Reinforcing its stance from the Initiative Tierwohl case, the agency advised the participants to link the intended surcharge to consumer demand.²⁰⁷ The current version proved to be a price agreement to the disadvantage of consumers, rendering the project “not acceptable under competition law”.²⁰⁸ The Federal Cartel Office rejected the claim that the initiative would help finance the transformation of the domestic agricultural sector. Bearing in mind that the Federal Cartel Office in previous decisions attached importance to the market coverage of sustainability cooperatives, the intended sector-wide implementation of Agrardialog Milch certainly did not help its case.

4 Policy and Reform

4.1 General Guidance

The Federal Cartel Office is sympathetic to the goal of sustainability, acknowledging the importance of sustainability for society as a whole²⁰⁹ and for consumers in particular.²¹⁰ Nevertheless, it has not provided general guidance for the consideration of sustainability in competition law yet. This is explained by four reasons: first, there has been insufficient case law on the matter up to now. Second, the effects of the specific conduct in question largely depend on the individual case at hand. Third, the formulation of general guidance would entail the risk of false negatives, i.e. the inclusion of agreements that are on balance harmful to competition and consumers.²¹¹ Fourth, the Federal Cartel Office points out that its primary task is to protect competition; therefore, it wants to consider non-economic goals only in atypical cases.²¹² In the view of the Federal Cartel Office, it is the legislator’s task to determine which goals to pursue and how much weight to attach to them.²¹³ Accordingly, the Federal Cartel Office so far has been acting on a case-by-case basis (see Sects. 7.2.2.2.1 and 7.3.3.2).²¹⁴ This lack of general guidance is subject to criticism since it can discourage companies from implementing sustainability initiatives.²¹⁵ The government has already announced its intention to address this problem; see Sect. 7.4.2.

4.2 Reform Proposals

4.2.1 Monopolies Commission

In 2022, the Monopolies Commission published a report, inter alia, on the consideration of sustainability goals in competition law, focusing on climate and environmental protection. The expert panel shares the majority view in German competition law scholarship that sustainability and competition law tend to go hand in hand, yet it also acknowledges a first-mover disadvantage²¹⁶ for sustainability initiatives and discusses possible remedies. It rejects the idea of exempting cooperations for environmental and climate protection from the cartel prohibition (Section 1 GWB) through teleological interpretation as this would reduce legal certainty.²¹⁷ Instead, the Monopolies Commission suggests further elaboration on Section 2 GWB, Article 101 (3) TFEU, the existing efficiency defence, which requires balancing efficiencies with restrictions of competition case by case.²¹⁸ In a similar vein, the Monopolies Commission is of the opinion that in merger control, the—currently unwritten—efficiency defence provides a suitable framework for sustainability considerations.²¹⁹ It contemplates clarifying this defence in the GWB²²⁰ as this could encourage notifying parties to assert and substantiate a positive impact of the proposed merger in terms of efficiencies with respect to sustainability.²²¹ However, somewhat paradoxically, the Monopolies Commission recommends the discussed amendment only after more companies have invoked the efficiency defence with regard to sustainability.²²²

At the same time, the Monopolies Commission acknowledges several problems for the efficiency defence in its current form: first, it takes note of the fact that especially in merger control, it is difficult for the notifying parties to meet the strict requirements of the efficiency defence as well as the burden of proof, in particular with regard to a positive impact of sustainability issues on consumers.²²³ Second, it raises the question of whether the majority view that excludes out-of-market-efficiencies from Section 2 GWB has to adjust in order to take all efficiencies of climate protection into account.²²⁴ Third, a similar problem arises with regard to the timeline in which efficiencies materialise²²⁵ and to the territorial restriction for efficiencies in merger control, i.e. the fact that only those efficiencies are eligible for consideration that manifest within Germany.²²⁶

In any event, the Monopolies Commission recommends providing the Federal Cartel Office with more resources to perform sustainability assessments, especially experts on environmental issues and climate economics.²²⁷

4.2.2 Legislative Activity

In its coalition agreement, the current German government made climate protection an objective that it will pursue in all policy areas. Accordingly, the social market economy should transform to a social-ecological market economy.²²⁸ While the coalition agreement announced that the 11th amendment to the GWB would focus on digital markets, ministerial approval and consumer protection,²²⁹ the German Ministry for Economic Affairs and Climate Action (BMWK) put forward ten points for making sustainable competition a cornerstone of the socioecological market economy, which address sustainability, social justice and innovation. Inter alia, the BMWK argues that where companies want to cooperate to achieve sustainability goals or human rights standards beyond government requirements, competition policy must provide legal certainty as regards conformity with competition law. The BMWK is therefore examining whether and how the competition law framework can be adapted. Its aim is to provide companies with a clear legal framework for sustainability cooperation while eliminating “greenwashing” cartels or other forms of disguised restrictions on competition.²³⁰ Up until now, it is still unclear how exactly the government intends to achieve these goals. The government has recently announced that the upcoming 12th amendment to the GWB will cover these issues.²³¹

Some scholarly proposals in a series of blog articles have tried to push the debate regarding the government’s reform plans forward. They have advocated going beyond comfort letters by establishing an effective exemption for sustainability agreements, pointing to the Austrian example of Section 2 (1) KartG. Stressing the importance of legal certainty, these authors urge the legislator to focus on contributing to sustainability rather than on prioritizing the prevention of greenwashing.²³² They also highlight a possible supportive effect for reforms on the European level.²³³ Furthermore, the same scholars have proposed strengthening sustainability in competition law by way of private enforcement. If cartels agree to refrain from producing more eco-friendly alternatives, it will be difficult to allocate damages produced by the external effects of the more harmful production. As a remedy, the authors suggest appointing a public interest representative who can claim these damages to the environment.²³⁴