Antitrust & ESG: UK CMA issues final guidance on environmental sustainability agreements

The CMA’s newly released “Green Agreements Guidance” provides welcome clarity and comfort to businesses, trade associations and NGOs looking to work together to achieve environmental sustainability objectives. It provides guidance on the types of agreement that are unlikely to infringe competition law – and how parties should self-assess restrictive agreements which may (and may not) benefit from sustainability-related exemptions. It also opens the door to ongoing, constructive discussion between industry participants and the CMA on how the benefits of sustainability agreements to UK consumers should be properly assessed and quantified. 

Newly published on 12 October 2023, the UK Competition and Market Authority’s (the CMA) final Green Agreements Guidance (the Guidance) demonstrates a flexible and progressive approach to assessing agreements aimed at achieving environmental sustainability objectives from a competition law perspective. 

It is broadly consistent with the CMA’s draft guidance (published on 28 February 2023) so our earlier blog post remains a useful summary of the key aspects of the Guidance. These include the important distinction made by the CMA for “climate change agreements” (i.e. those which contribute to combating climate change) where the CMA takes a more permissive approach towards the benefits taken into account when assessing whether consumers are compensated for any harm resulting from the agreement. This issue has been at the heart of the debate among authorities in Europe. 

In this blog post we identify six key areas where the CMA has provided further clarity on its approach, going beyond that in the draft guidance, in response to input from industry and advisers (including us) during a consultation process earlier this year.

6 key points to note: 

(1)  The CMA clarifies the types of agreement that will benefit from its enforcement policy set out in the Guidance

• The Guidance applies mainly to agreements between competitors and potential competitors that may fall under Chapter I of the UK Competition Act 1998 (the prohibition on anti-competitive agreements). However, the CMA confirms that parties to vertical agreements (i.e. parties operating at different levels of the supply chain) can also use the Guidance to the extent that it covers issues relevant to a particular agreement, in addition to the CMA’s separate guidance on vertical agreements and exemptions. Importantly, any assessment under Chapter I is without prejudice to the possible parallel application of Chapter II (the prohibition on abuses of a dominant position). 
• The Guidance contains more illustrative examples of ‘environmental sustainability agreements’ (e.g. agreements to reduce biodiversity loss, water pollution and waste) and the sub-set ‘climate change agreements’ (typically agreements to reduce greenhouse gas emissions), which will assist businesses when assessing their own agreements. 
• The CMA confirms that agreements which aim to reduce biodiversity loss do not benefit from the more permissive approach afforded to climate change agreements, despite many representations made on this point during the consultation. The CMA acknowledges that combating biodiversity loss may be considered broadly analogous in many respects to combating climate change, but notes that the causes of biodiversity loss are more diverse and disparate. However, the CMA helpfully says that it will keep this point under review.
• Unlike the equivalent EU guidelines and Dutch guidelines which take a broader view of ‘sustainability’ (also including, for example, human rights, living wages and animal welfare), the Guidance confirms that agreements pursuing broader social objectives (beyond environmental sustainability) are out of scope and will not benefit from the CMA’s open-door policy or protections from enforcement and penalties. 
• For agreements that generate multiple environmental benefits (e.g. climate change and biodiversity), the CMA has created a new category of ‘mixed agreements’ and explains how the benefits should be quantified and split. If quantification of benefits is necessary to demonstrate that benefits outweigh any negative effects, businesses will need to quantify the benefits in two categories (climate change benefits and other benefits). This may prove challenging in practice. 

(2)  Specific inclusion of agreements between businesses and trade associations or NGOs – and the role these bodies can play in liaising with the CMA on behalf of industry groups

• The CMA clarifies that agreements between ‘businesses’ can also include agreements between businesses and trade associations or NGOs when they are engaged in an economic activity. Specifically, the Guidance clarifies that a trade association or an NGO providing legitimate assistance to businesses taking part in an environmental sustainability agreement of the sort set out in Section 3 (‘Environmental sustainability agreements which are unlikely to infringe the Chapter I prohibition’) is unlikely to raise competition concerns.
• The CMA is also willing to accept requests for informal guidance from representative bodies such as trade organisations, NGOs or a nominated representative of the parties to an agreement. That is particularly the case in circumstances where a significant number of businesses are involved in an environmental sustainability agreement or where such a representative has been responsible for coordinating the development of the initiative within the industry.

(3)   Helpful areas of new guidance:

Other areas of guidance which will be welcomed by businesses and shareholders include:

• The CMA recognises that both the Guidance and the CMA’s updated guidance on horizontal agreements (published in August 2023) may apply to certain types of environmental sustainability agreements (e.g. R&D agreements) and confirms that, in such circumstances, parties should use the guidance that is more favourable to them. 
• New guidance on agreements between shareholders to vote for promoting corporate policies that pursue environmental sustainability indicates that the following initiatives are unlikely to raise competition concerns: (i) an agreement between shareholders of a single business to vote in support of, or to lobby for, such corporate policies; (ii) one shareholder indicating how it will vote in respect of such corporate policies; and (iii) an agreement (or network of similar agreements) between shareholders of competitor businesses to vote in support of, or to lobby for, such corporate policies so long as those policies support, encourage or require the adoption of any of the categories of agreement set out in Section 3 of the Guidance.

(4)  More clarity on agreements which are unlikely to infringe the Chapter I prohibition

• The CMA’s approach to industry-wide standard setting has been brought further in line with the European Commission’s (EC) position. For example, the CMA has confirmed that the following examples of initiatives are unlikely to create competition issues:
  • Industry-wide target setting agreements which preserve the ability of individual businesses to decide how they will meet milestones. 
  • Cooperation to support capacity building which does not restrict additional unilateral action, or collaboration on R&D to support emissions targets. 
• Note, however, that where an industry standard or other agreement could have an ‘appreciable effect’ on competition, the effects of that standard/agreement need to be carefully assessed. This will be the case, for example, in the event of ‘collective withdrawal’ by a group of competitors which affects a different level of the supply chain – for example, where competitors agree to only purchase from suppliers that sell sustainable products, or agree not to sell to customers that produce environmentally damaging products or services. While such agreements do not obviously affect competition at a horizontal level and will therefore be unlikely to restrict competition by object, the CMA confirms that a further ‘effects analysis’ will typically be required. The evidence needed by parties to demonstrate the likely future effects and benefits of a sustainability initiative is likely to be an area of focus for the CMA and businesses going forward. 

(5)  Conditions for benefits to be recognised for exemptions

• Helpfully, the CMA clarifies that benefits to UK consumers can be presumed for agreements that reduce emissions outside the UK, although it remains the case that the scale of these benefits needs to be quantified and outweigh the harm caused to UK consumers by an agreement.
• The Guidance has been refined to take account of the nuances of consumer ‘willingness to pay’, confirming that in order for an agreement to be treated as ‘indispensable’, parties must evidence that there are not enough consumers willing to pay for a more sustainable product at that point in time. 
• An allowance has been added for elimination of competition ‘for a limited time’ where this has a longer-term impact on the achievement of sustainability objectives in a competitive market.

(6)  CMA’s open-door policy and enforcement

• The CMA has re-iterated – and provided more detail on – its open-door policy and offer of informal guidance for companies that are considering entering into an environmental sustainability agreement. The CMA is open at the outset to exploring with parties whether it would, in principle, be willing to provide informal guidance on an agreement. According to the Guidance, the open-door policy is intended to be ‘a light touch review that is proportionate to the size, complexity and likely impact of the agreement’. The Guidance notes that the CMA will consult with relevant sector regulators, where relevant, as part of its open process.
• The CMA confirms that it will not fine companies that implement an agreement which was discussed with the CMA in advance and where the CMA did not raise any competition concerns (or where any concerns that were raised by the CMA have been addressed). However, parties should note that protection from fines relies on them not withholding relevant information from the CMA which would have made a material difference to its initial assessment and parties are subject to on-going obligations to keep their agreements under review to ensure that they remain in keeping with Guidance.
• The Guidance helpfully confirms that the CMA will not seek to disqualify any directors of businesses party to an environmental sustainability agreement where the CMA has made a commitment not to bring enforcement proceedings against parties. 
• Following the approach of some other authorities in Europe (notably the Dutch and German authorities), the CMA intends to publish summaries of the agreements it assesses in order to provide more clarity on the types of agreements that are and are not permitted. The CMA will give due regard to any confidentiality concerns and consult with the parties on that issue but the Guidance notes that businesses will need to have credible reasons for redacting summaries, delaying their publication or not publishing them at all. 
• There remains the perpetual risk of private litigation in relation to environmental sustainability agreements, although – encouragingly – the Guidance states that the CMA may seek to intervene in any such claim relating to an environmental sustainability agreement on which the CMA provided informal guidance.

Final thoughts…

The Guidance represents a hugely positive step in the right direction for businesses engaging in environmental sustainability agreements, confirming the CMA’s position as one of the leading competition authorities at the forefront of climate change policy development. As the UK Financial Conduct Authority has already confirmed, sector regulators with concurrent competition powers in the UK are also likely to have to regard to the Guidance when exercising their powers. 

Open and ongoing discussions will be key as businesses work to identify both how to apply the Guidance domestically, as well as on a cross-border basis. The Guidance follows closely in the wake of similar guidelines published by the European Commission (see blog), as well as by the Japanese Fair Trade Commission (see blog). It remains to be seen whether agencies can further align to facilitate global cooperation in the fight against climate change. 

In the meantime, please don’t hesitate to get in touch with the team with any queries on this new Guidance, and how it could apply to your business and sustainability goals.