ESG’s function in merger reviews is likely to grow

March 15, 2022
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Increasingly, environmental, social and corporate governance, or ESG, issues are emerging in antirust matters.

In this Law360 article, Matthew List describes how a new focus on environmental concerns may require an updated assessment of the potential for entry in a market when analyzing the potential competitive effects of a merger. In particular, in markets where entry has been viewed as unlikely in the past, the potential for new capacity to offer products that are more environmentally friendly may provide a new competitive constraint on incumbents.

Environmental standards have attracted the attention of antitrust agencies. In 2019, for example, the US Department of Justice opened an investigation into whether a voluntary standard among automobile makers to limit emissions beyond what was required by regulations constituted an illegal agreement among competitors. The investigation was closed the following year.

The European Commission, on the other hand, levied fines of approximately $1 billion dollars against automobile makers for allegedly agreeing not to outperform government emission standards despite having the technology to do so.

For mergers, ESG may take on a larger role as the Federal Trade Commission broadens the scope of its investigations and the agencies consider revisions to the merger guidelines. In some recent proposed transactions, the FTC has begun requesting information from merging parties regarding environmental concerns and other ESG topics that have not traditionally been the focus of merger probes. In light of the new focus on ESG issues, merging parties should consider how these factors may enter into the review of a potential transaction.

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