ESG measures and sustainability agreements are not specifically regulated by Singapore’s competition regime. However, ESG measures and sustainability agreements that generate competition concerns may be prohibited under Singapore’s Competition Act 2004 ("Act”). The Act is administered and enforced by the Competition and Consumer Commission of Singapore (“CCCS”).

The Act consists of three prohibitions:

Section 34 of the Act prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices which have as their object or effect the prevention, restriction, or distortion of competition within Singapore (“Section 34 Prohibition”) unless exempted under the Third Schedule to the Act or block exemption under Section 36 of the Act. Prohibited agreements may include agreements to stop supplying less sustainable products, exchange of sensitive information on sustainability efforts and setting sustainability standards by associations above existing legal requirements. Such agreements are not expressly exempted from Section 34 Prohibition. We explore this further in our response to "Has your jurisdiction issued guidance regarding competitor collaborations or participating in industry working groups, and if so, do they specifically address ESG?" and "How, if at all, does your jurisdiction quantify or calculate the ESG effects?"

Section 47 of the Act prohibits conduct that amounts to the abuse of a dominant position in any market in Singapore (“Section 47 Prohibition”) unless exempted under the Third Schedule to the Act. Prohibited conduct may include sustainability initiatives such as refusing to supply or price discriminating against buyers who engage in unsustainable practices. Such sustainability initiatives are not expressly exempted from Section 47 Prohibition. We explore this further in our response to "How, if at all, does your jurisdiction quantify or calculate the ESG effects?". 

Prohibition against mergers which result, or may be expected to result, in a substantial lessening of competition within any market in Singapore (“Section 54 Prohibition”). We explore how ESG considerations can enter merger control analysis in our response to Q3 below.

We do not foresee any regulations related to competition law that specifically regulate ESG measures and sustainability agreements coming into place in 2022, apart from how the existing legislation applies. Additionally, CCCS has issued papers on the issues.

Merger control is regulated under Section 54 of the Act. The CCCS Guidelines on the Substantive Assessment of Mergers (“Merger Guidelines”) provide guidance on merger control in Singapore. The Merger Guidelines do not specifically address the role of ESG in merger control analysis. However, ESG considerations can enter merger control analysis in two ways: (a) as part of the theory of harm when assessing whether there is a substantial lessening of competition (“SLC”); and (b) as part of net economic efficiencies to be weighed against any SLC (“Net Economic Efficiencies”).

1. ESG considerations in assessing for SLC

CCCS assesses whether a merger would result in SLC by looking at whether the merger is likely to lead to foreclosure effects, increased prices, reduced quality and reduced consumer choice.

ESG-driven mergers such as green mergers rely heavily on innovation and technical development. The importance of innovation in such markets can impact the assessment for SLC in two ways.

First, non-coordinated effects may occur in markets where innovation is an important feature of competition, and where one or more of the merger parties is an important innovator in ways not reflected in market shares. A merger involving such firms can enable the merged entity to profitably increase prices and/or restrict output due to their high market power.

Second, in markets characterized by innovation, product cycles may be shorter, so barriers to entry are less likely to have a lasting effect.

2. ESG considerations in assessing for Net Economic Efficiencies

To prove Net Economic Efficiencies, merger parties must show that these efficiencies outweigh the adverse effects resulting from the SLC caused by the merger. Such efficiencies include lower costs, greater innovation, greater choice and higher quality. The Merger Guidelines do not expressly provide whether ESG benefits that are not economic in nature constitute Net Economic Efficiencies.

In addition, the Merger Guidelines state that Net Economic Efficiencies must be: (i) demonstrable; (ii) merger specific; (iii) timely; and (iv) sufficient in extent.  Businesses may find it difficult to prove that ESG benefits constitute Net Economic Efficiencies for two reasons. First, environmental benefits are usually only observed in the long term, so such efficiencies may not be timely. Second, environmental and social benefits are not easily quantified and therefore demonstrable, especially in the short term.

The CCCS has issued the Business Collaboration Guidance Note (“Guidance Note”), which addresses competitor collaborations. While the Guidance Note does not specifically address ESG, it can apply to ESG-related collaborations such as the following:

1. Agreements to set ESG standards

The Guidance Note identifies 3 areas of concern with standardization: (i) foreclosure of innovation, (ii) exclusion or discrimination on use of the standards, and (iii) elimination or reduction of competition.

The CCCS is less likely to find competition concerns where: (i) standards are established through a transparent and objective process, (ii) access to the standard (through licensing or otherwise) is provided fairly, and (iii) there are alternatives available in the market.

2. Standard terms & conditions in contracts used by trade associations

When standard terms are widely used within an industry, the conditions of purchase or sale in the industry may become so aligned that there are few alternatives available and fewer choices. The Guidance Note identifies two areas of concern. First, prescriptive standard terms becoming industry norms reduces the incentive to provide a more competitive and differentiated product. Second, price competition may be affected if the standard terms relating to pricing.

The CCCS is less likely to find competition concerns where: (i) there are no overly prescriptive terms relating to important factors of competition such as price and output, (ii) there are credible alternatives to the established terms and (iii) the terms are not used by a large proportion of the market.

Yes. If businesses are in doubt as to whether a proposed ESG initiative that involves competitors coming together to undertake the transaction or where a potentially dominant player seeks to introduce such an initiative complies with the Act, can notify CCCS for guidance or decision as to whether it would be likely to infringe the Act. Please note that notifications for guidance or decision to CCCS incur a notification fee.

How ESG effects may be considered under the Section 34 Prohibition

Agreements with net economic benefit are exempted from Section 34 Prohibition under Paragraph 9 of the Third Schedule to the Act (“NEB Exemption”). Agreements with net economic benefit are those which contribute to improving production or distribution or promoting technical or economic progress and do not:

1. impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives; or
2. afford the undertakings concerned with the possibility of eliminating competition in respect of a substantial part of the goods or services in question.

The CCCS has not issued express guidance on what ESG benefits will be accepted and how they may be quantified or calculated under the NEB Exemption.

However, CCCS considered environmental benefits in assessing for the NEB Exemption in its decision regarding whether a joint venture between five poultry distributors to consolidate slaughtering facilities and operations would infringe Section 34 Prohibition (CCS 400/005/17 at [120]). Specifically, CCCS agreed that the joint venture would improve the containment of waste disposal which would reduce the negative environmental impact. However, CCCS was unable to conclude whether claimed savings in energy, water and carbon emissions were objective, arose directly from the joint venture and were significant in value because merger parties were unable to provide calculations on the estimated savings.

Therefore, while precedent shows that environmental benefits can be considered under the NEB Exemption, businesses may face practical difficulties in quantifying and therefore proving these benefits. Yet, the recommendation is to always push with ESG elements to the extent available in cases before CCCS. The aim would be to ensure that quantifiable supporting data be gathered to support arguments, which will then see the adoption of ESG elements as justifying transactions.

How ESG effects may be considered under the Section 47 Prohibition

The key consideration is whether ESG benefits qualify as objective justifications under Section 47 Prohibition. To prove an objective justification, the dominant undertaking must if demonstrate that its behavior produces countervailing benefits so that it has a net positive impact on welfare.

The CCCS Guidelines on Section 47 Prohibition indicate that only legitimate commercial interests are considered as objective justifications. Arguments, as set out in the preceding section on net economic benefits, can apply equally here as well.

Please refer to our responses to questions 1-9. 

In CCS 400/005/17 Proposed Joint Venture between Mr. Tan Chin Long, Kee Song Holdings Pte. Ltd., Sinmah Holdings (S) Pte. Ltd., Tong Huat Poultry Processing Factory Pte. Ltd. and Tyson Food Pte. Ltd. at [120], CCCS considered environmental benefits in assessing for the NEB Exemption under the Section 34 Prohibition in its decision regarding a joint venture between five poultry distributors to consolidate slaughtering facilities and operations. Please refer to our response to "How, if at all, does your jurisdiction quantify or calculate the ESG effects?" above for detail.

Private Action

Yes. Section 82 of the Act provides a right to take private action for competition law infringements. While this provision is not specifically targeted at ESG matters, it can apply to competition law infringements relating to ESG matters.

Section 86(1) of the Act provides that any person who suffers loss or damage directly as a result of an infringement of an operative provision of the Act can bring an action, subject to a final determination having been made and the applicable limitation periods.

Section 86(2)(a) of the Act clarifies that independent "stand-alone" actions are not permitted.

Class Action

No. The class action regime does not exist in Singapore and the only process available for collective redress is through representative proceedings under Order 4, Rule 6 of the Rules of Court 2021.