Authored By: Lwandile Dlamini
University of the Witwatersrand, Johannesburg
Ⅰ Introduction
Human-induced climate change is no longer a future concern but a present reality. According to the Intergovernmental Panel on Climate Change (IPCC) in its Climate Change 2023: Synthesis Report, human activities have unequivocally caused global warming, with global surface temperatures reaching 1.1°C above 1850–1900 levels during the period 2011–2020.1 In response, companies are increasingly integrating environmental, social and governance (ESG) considerations into their corporate strategies and governance frameworks as part of broader efforts to achieve sustainable value creation.2
As governments and corporations intensify efforts to combat climate change, sustainability has become a strategic priority and an integral component of corporate strategy. Achieving meaningful environmental objectives, however, often requires industry-wide cooperation. Competitors may adopt common sustainability standards, invest jointly in green technologies, or coordinate initiatives to reduce carbon emissions and eliminate environmentally harmful practices. While such cooperation can generate significant environmental and societal benefits, it also creates legal tension. Agreements between competitors, even when motivated by legitimate sustainability objectives, may fall within section 4(1) of the Competition Act 89 of 1998, which prohibits restrictive horizontal practices, including agreements and concerted practices that substantially prevent or lessen competition.3 This raises a fundamental question: where should competition law draw the line between legitimate environmental cooperation and unlawful collusion? This article argues that, while section 4(1) plays a vital role in preventing anti-competitive conduct, its application should not unduly inhibit genuine sustainability agreements that produce demonstrable environmental benefits. Instead, South African competition law should adopt a principled framework distinguishing legitimate environmental cooperation from cartel conduct disguised as sustainability initiatives.
Ⅱ The Competition Law Framework
Section 4(1) of the Competition Act 89 of 1998 is a cornerstone of South African competition law, regulating agreements and concerted practices between firms in a horizontal relationship. Section 4(1)(a) prohibits agreements that substantially prevent or lessen competition unless the parties demonstrate that any technological, efficiency or other pro-competitive gains outweigh their anti-competitive effects, while section 4(1)(b) prohibits certain hardcore restrictions outright.4 The provision reflects the principle that competitors should determine their commercial conduct independently rather than through coordination that distorts market outcomes. By prohibiting anti-competitive cooperation, section 4(1) promotes effective competition, economic efficiency, consumer welfare and innovation. It is against this statutory framework that the legality of sustainability agreements between competitors must be assessed.
Sustainability agreements have emerged because many environmental challenges cannot be addressed effectively through unilateral corporate action. Initiatives such as common sustainability standards, joint investment in low-carbon technologies, industry-wide recycling systems and the phasing out of environmentally harmful products often require coordination between competitors. The Organisation for Economic Co-operation and Development (OECD) observes that sustainability challenges, particularly climate change, may require collective action where individual efforts are insufficient.5 This presents competition authorities with a genuine dilemma: the coordination necessary to achieve environmental objectives also exposes such agreements to scrutiny under section 4(1) of the Competition Act. A framework that treats all horizontal coordination with suspicion risks discouraging the collective action needed to address climate change, while an overly permissive approach risks shielding anti-competitive conduct disguised as sustainability initiatives. The challenge is therefore not whether sustainability agreements should be accommodated, but how competition law can distinguish genuine environmental cooperation from collusion.
Ⅲ Where Should the Line Be Drawn?
South African competition law already contains a mechanism capable of accommodating legitimate sustainability agreements without compromising the integrity of the Competition Act. Unlike section 4(1)(b), which prohibits hardcore cartel conduct irrespective of its effects, section 4(1)(a) requires a balanced enquiry into whether an agreement substantially prevents or lessens competition and, if so, whether any technological, efficiency or other pro-competitive gains outweigh those anti-competitive effects.6 This effects-based assessment provides sufficient flexibility to consider the broader benefits of sustainability agreements, particularly where collaboration enables firms to achieve environmental objectives that would be difficult or impossible through unilateral action.
Rather than creating a blanket exemption for sustainability agreements, South African competition authorities should interpret section 4(1)(a) in a manner that permits genuine environmental cooperation where the demonstrable public and environmental benefits outweigh any harm to competition. In my view, this enquiry should be guided by clear criteria. The parties seeking to rely on the efficiency defence in section 4(1)(a) should bear the burden of proving, through objective and verifiable evidence, that the agreement delivers measurable environmental benefits rather than merely asserting sustainability objectives.
Furthermore, the European Union framework offers a useful point of comparison. Under that framework, sustainability collaborations that fall within Article 101(1) of the Treaty on the Functioning of the European Union remain subject to Article 101(3), and may be justified only where the cumulative conditions for exemption are satisfied, including that the restrictions are indispensable to the attainment of the sustainability objective and do not eliminate competition in respect of a substantial part of the relevant market.7 The collaboration must therefore be limited to what is reasonably necessary to secure the asserted sustainability benefits. Safeguards of this kind would ensure that section 4(1)(a) accommodates only genuine sustainability collaborations while preventing anti-competitive arrangements from being disguised as environmental initiatives.
Nevertheless, the possibility remains that the Competition Commission may allege that a sustainability agreement falls within the per se prohibitions contained in section 4(1)(b). In such circumstances, the enquiry should not conclude merely because coordination between competitors has been established. Before the per se prohibition is invoked, it must first be determined whether the impugned conduct is properly characterised as the type of conduct that section 4(1)(b) was intended to prohibit.
Although American Natural Soda Ash Corporation and Another v Competition Commission of South Africa (ANSAC)8 arose in the context of alleged price-fixing, the Supreme Court of Appeal’s development of the characterisation principle provides a useful framework for assessing novel forms of cooperation between competitors. While ANSAC neither concerned sustainability agreements nor created an exception for environmentally motivated collaboration, its reasoning demonstrates that courts are prepared to examine the true legal and economic character of impugned conduct before classifying it as a per se infringement. There is therefore a persuasive argument that, where sustainability agreements are challenged under section 4(1)(b), courts should apply the characterisation enquiry to distinguish genuine environmental collaboration from true cartel conduct.
However, this approach should never permit agreements amounting to hardcore cartel conduct. Environmental objectives cannot justify price-fixing, market allocation or collusive tendering, as such conduct strikes at the heart of the competitive process protected by section 4(1)(b).9 By contrast, where coordination is objectively necessary to achieve a legitimate sustainability objective and lacks the hallmarks of cartel conduct, there is a compelling case for treating such agreements differently from conventional horizontal restraints.
Such an approach preserves the integrity of South African competition law while recognising that effective responses to the climate crisis may, in appropriate circumstances, require carefully circumscribed cooperation between competitors. It also aligns South Africa with comparative jurisdictions such as the European Union and the Netherlands, which have developed structured guidance for assessing sustainability agreements under competition law, recognising that such agreements should be evaluated under established competition law principles rather than presumed unlawful solely because they involve cooperation between competitors.10
Ⅳ Conclusion
The urgency of the climate crisis requires a competition law framework that facilitates genuine sustainability initiatives while preserving competitive markets. As argued in this article, the Competition Act is sufficiently flexible to accommodate legitimate sustainability agreements without legislative amendment, through the effects-based assessment under section 4(1)(a) and the application of the characterisation principle where section 4(1)(b) is alleged.
Greater legal certainty is nevertheless required. The Competition Commission should issue guidelines on sustainability agreements, drawing on the experience of the European Union and the Netherlands. Such guidance should clarify the evidentiary burden for demonstrating environmental benefits, the relevance of consumer welfare and innovation, the requirement that restrictions be proportionate, and the continued prohibition of hardcore cartel conduct.
Ultimately, competition law and environmental sustainability should be viewed as complementary objectives. Properly applied, South African competition law can encourage environmental cooperation while preserving competition, thereby advancing sustainable development without compromising its fundamental principles.
Footnote(S):
1 Intergovernmental Panel on Climate Change (IPCC), Climate Change 2023: Synthesis Report: Contribution of Working Groups I, II and III to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC 2023) 42.
2 Institute of Directors in Southern Africa (IoDSA), King IV Report on Corporate Governance for South Africa 2016 (IoDSA 2016) 24–27.
3 Competition Act 89 of 1998.
4 Competition Act s 4(1).
5 Organisation for Economic Co-operation and Development (OECD), Environmental Considerations in Competition Enforcement, OECD Roundtables on Competition Policy Papers No 266 (OECD Publishing 2021) 5–6 https://doi.org/10.1787/2616c43c-en.
6 Competition Act s 4(1)(a).
7 European Commission, ‘Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements’ [2023] OJ C 259/1, paras 515–521, 528–533.
8 American Natural Soda Ash Corporation and Another v Competition Commission of South Africa [2005] ZASCA 42 paras 44–47, 61.
9 Competition Act s 4(1)(b).
10 European Commission, ‘Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements’ (n 6) paras 515, 521–523; Authority for Consumers and Markets, Policy Rule ACM’s Oversight on Sustainability Agreements (2023) Introduction and para 5.
Bibliography
Table of Cases
American Natural Soda Ash Corporation and Another v Competition Commission of South Africa 2005 (6) SA 158 (SCA)
Legislation
Competition Act 89 of 1998
International and Regional Materials
Authority for Consumers and Markets, Policy Rule ACM’s Oversight on Sustainability Agreements (2023)
European Commission, ‘Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements’ [2023] OJ C 259/1
Reports
Institute of Directors in Southern Africa (IoDSA), King IV Report on Corporate Governance for South Africa 2016 (IoDSA 2016)
Intergovernmental Panel on Climate Change (IPCC), Climate Change 2023: Synthesis Report: Contribution of Working Groups I, II and III to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC 2023)
Organisation for Economic Co-operation and Development (OECD), Environmental Considerations in Competition Enforcement, OECD Roundtables on Competition Policy Papers No 266 (OECD Publishing 2021)
