Damian G. Didden is a Partner at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell memorandum by Mr. Didden, Adam Emmerich, Jonathan Moses, and Sabastian Niles. Related research from the Program on Corporate Governance includes Corporate Purpose and Corporate Competition (discussed on the Forum here) by Mark J. Roe.
As boards continue to evaluate how environmental, social and governance (“ESG”) considerations factor into corporate operations, some lawmakers and regulators have raised potential antitrust concerns about coordinated efforts. For example, several U.S. Senators sent letters to law firms admonishing them to advise clients of increased congressional scrutiny of “institutionalized antitrust violations being committed in the name of ESG.” And, a group of state attorneys general inquired whether an investor-driven initiative on climate risks called Climate Action 100+ implicates antitrust laws. FTC Chair Lina Khan opined last month in The Wall Street Journal that ESG benefits are no defense for otherwise illegal mergers.
As we have previously explained (most recently here), a board’s decision to take account of ESG factors is neither a corporate charitable activity nor anticompetitive. Quite the opposite. It reflects a business judgment that taking account of ESG matters, such as long-term sustainability, can create value and reduce risk for all company stakeholders. Some regulators in the United States have recognized that ESG considerations and antitrust principles are not in conflict. For example, a recent letter signed by seventeen state AGs argues that mutual support of climate policies by investment fund managers does not violate the Sherman Act. Antitrust regulators in the United Kingdom and the European Union, moreover, have offered specific guidance on applying antitrust laws to sustainability agreements and similar multi-firm conduct. As these regulators correctly recognize, in most circumstances, antitrust principles should not be a serious impediment to incorporating ESG into decision-making that is otherwise in the corporate interest.
