ANTITRUST RISKS RELATED TO ESG EFFORTS
Over the past decade, environmental, social and governance (ESG) concerns have become a hot topic in corporate boardrooms. As concerns about climate change have accelerated, so too have companies’ efforts to pursue and invest in ESG goals. ESG refers to a framework of non-financial considerations, such as environmental sustainability, that companies factor into their strategy and investments. Some companies have begun collaborating with others in their industry in furtherance of these considerations. These collaboration efforts run the gamut, from companies entering into agreements to offer greener products or limit emissions, to industry groups and trade associations promulgating standard-setting recommendations to industry players. For example, over 100 banks representing over 40 percent of global banking assets have joined the United Nations (UN)-backed Net-Zero Banking Alliance, pledging to conform their lending and investment practices to target net-zero greenhouse gas emissions by 2050.
Because collective action problems make it challenging for companies to unilaterally engage in ESG efforts without compromising other financial goals, collaboration among competitors within an industry is perhaps a necessary precondition to achieving any significant climate change results. Firms that invest in environmental efforts, such as lowering emissions, will likely incur costs not shared by their competitors that choose not to invest in similar green efforts. As a result, those competitors may be able to offer consumers lower prices or otherwise gain a competitive advantage over the firm pursuing ESG goals. Collaboration among firms resolves this collective action problem and enables companies to pursue environmentally friendly policies without jeopardising their bottom line.
Jul-Sep 2023 Issue
Holwell Shuster & Goldberg, LLP