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Analysis: Global climate coalitions need safer harbour from antitrust turbulence

2023-04-05T17:17:48Z

Munich Re Group logo is seen on a smartphone in front of displayed same logo in this illustration taken, December 1, 2021. REUTERS/Dado Ruvic/Illustration

Global companies that form alliances to help them to tackle climate change need clear “safe harbour” guidelines from governments to allay fears they could be tripped up by antitrust rules, legal experts said.

Hundreds of companies have banded together into various groups with pledges to reduce carbon emissions to net zero by mid-century.

But there is limited guidance from governments and regulators on how far they can collaborate to reach that goal without overstepping antitrust boundaries.

Zurich Insurance Group (ZURN.S) on Wednesday said it was quitting an industry grouping of insurers focused on cutting carbon emissions. That followed Munich Re (MUVGn.DE)‘s unexpected announcement last week that it was leaving the group – the Net Zero Insurance Alliance (NZIA) – to avoid antitrust risks.

The German reinsurer on Friday quit group less than two years after co-founding the coalition, part of the Glasgow Financial Alliance for Net Zero (GFANZ) umbrella group of sectors pushing to decarbonise.

Alec Burnside, a partner at law firm Dechert, said both Britain and the European Commission had offered “relatively timid” guidance when what was needed were “explicit safe harbours for companies.”

“There should be confirmation in the guidance coming out of antitrust agencies to re-assure companies committing to GFANZ,” he said.

Also last week, a Danish pension scheme said it could quit the Net Zero Asset Owner Alliance because of a perceived lack of ambition among peers, which several sources said stemmed from fears of attracting antitrust lawsuits.

The antitrust tensions mark a further setback to GFANZ several months after U.S. asset manager Vanguard pulled out, citing a need to express its own views independently to investors.

The European Union and Britain have published draft guidelines on how companies can co-operate within the law, but have not released guidance specific to financial institutions and net-zero alliances.

A European Commission spokesperson said its guidance, to be finalised in June, is designed to show agreements with a “genuine sustainability objective” will not violate antitrust laws, and that some will benefit from exemptions.

Britain’s competition regulator in February explained how it would ease rules to ensure businesses were not “unnecessarily or erroneously deterred” from collaborating.

Businesses can get exemptions if they demonstrate a climate change agreement between companies meets four conditions, including provision of benefits such as promotion of economic progress and that consumers will gain.

In the U.S., some Republican politicians have highlighted the potential antitrust implications of these climate groups.

They have been threatening court action as part of a broader attack on environmental, social and governance investing. U.S. authorities are yet to offer companies any formal protection.

Some legal experts said that while they believe the antitrust fears to be overblown, the risk is that members of alliances will use them as a reason to quit.

Keith Johnson, CEO of Global Investor Collaboration Services in Minnesota, who advises asset managers and owners on fiduciary duties and governance, said Republicans may not have much legal ground for their arguments but they might still get executives to dial back their ESG efforts.

“It’s not as much as the actual liability exposure as it is the intimidation factor,” he said, noting that companies would want to avoid the hassle of litigation even if they can ultimately win.

When it gave guidance in January, NZIA made clear members were committed to complying with regulations, including antitrust laws, and were free to make their own policies and set their own carbon reduction targets.

Munich Re said its concerns were linked to the relative market share of NZIA, which has 29 members representing around 15% of insurance premiums sold, globally.

The Net Zero Asset Owner Alliance (NZAOA), which Munich Re also belongs to, has 85 members managing $11 trillion against more than $126 trillion in global invested assets. Munich Re said given that ratio, the associated risks were “significantly lower,”

Munich Re also said it remained committed to its own climate targets, and it has restrictions on financing and underwriting of some fossil fuel business, including new oil and gas fields.

Zurich said it wanted to focus its resources “to support our customers with their transition” and that it remained committed to its sustainability ambitions, but did not elaborate further on its reasons for leaving the NZIA.

Reuters contacted its 17 other members, three of which confirmed they would remain members. The other 14 declined to comment or did not respond to requests for comment.

Aviva (AV.L) said it remained committed to NZIA as achieving net zero was “something companies cannot do in isolation”.

Allianz (ALVG.DE) said the net-zero alliances were world-leading in their efforts to mitigate climate change and that it continued to chair the NZAOA.

Grupo Catalana Occidente told Reuters that because the path to net zero was still being decided, assessing antitrust concerns was “not possible, at this stage”. Its NZIA membership is a “firm commitment to climate neutrality”, it said.

Ben Caldecott, director of the Oxford Sustainable Finance Group at the University of Oxford, said that anti-competition concerns were used as a “smokescreen” for some companies that do not want to adhere to the requirements of a climate alliance. He said this made it all the more urgent for regulators to provide better clarity.

“These alliances depend on momentum,” said Caldecott. “If they start to lose critical mass it becomes potentially existential.”

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