A green bill of health? The CMA advises UK government on how competition and consumer law support sustainability goals

Last week the CMA published its advice to the UK government on whether (and how) competition and consumer laws act as obstacles for businesses pursuing sustainability projects and trying to achieve the UK’s Net Zero goals. The government asked the CMA to consider these issues in June 2021, and the CMA then issued a ‘Call for Inputs’ to gather public responses last autumn.

The key headline is that, in the CMA’s view, neither the competition law framework (including the antitrust, merger control and market inquiry regimes) nor the consumer law framework act as obstacles to achieving sustainability goals. As such, it does not think that (immediate) legislative changes to the regimes are currently necessary.

New guidance on sustainability agreements coming

However, despite the support for the status quo, the CMA has made several significant proposals. In particular, it recognises that businesses face a lack of clarity in this area, and plans to issue specific guidance on:

• when sustainability agreements won’t restrict competition;
• the concept (and measurement) of accounting for sustainability ‘benefits’ arising from agreements between competitors; and
• what constitutes a ‘fair share’ of benefits for consumers.

This guidance will be welcomed by businesses and advisers (the CMA did previously release an ‘information sheet’ on sustainability agreements but this largely restated competition law principles).

Can sustainability benefits offset harms from a loss of competition?

Moreover, the CMA has, for the first time, provided its views on the important issue of how environmental benefits arising from an agreement can be used to offset potential harms from a loss of competition – particularly if those sustainability benefits do not directly flow through to customers within the relevant market. The answer from the CMA is that, while you can, in principle, account for sustainability benefits, based on existing EU case law, these must fully compensate the customers within the relevant market for any detriment suffered.

Importantly, this generally aligns with the approach set out by the EU Commission earlier this month in its draft horizontal guidelines (see our post here). However, the CMA tantalisingly suggests there may be room for future divergence in order to better account for sustainable considerations. In particular, it points out that the CMA and courts now have scope to depart from EU precedent for future cases. However, the CMA also invites government to consider more far-reaching changes – such as amending competition law to explicitly enable environmental benefits to justify agreements that may restrict competition (as Austria has done) or even change the merger control regime to recognise sustainability as a ‘public interest’ consideration.

Sustainability is a key policy priority for the CMA 

The CMA is also setting up a Sustainability Task Force, which will handle requests for informal advice from businesses, engage with stakeholders, government and partner organisations, and pursue the CMA’s goal to be a global thought leader on sustainability issues.

The CMA also committed to launching a market study in a Net-Zero related market in the next year. This could be a significant move, allowing it to shape emerging markets key to the low-carbon transition. Last year, the CMA undertook a study of the electric vehicle charging market – which resulted in several recommendations to government, as well as an antitrust investigation into competition concerns on motorway charging stations.

Reforms to consumer law

Finally, the CMA made several significant recommendations on strengthening consumer law. It suggests that government may wish to legislate to:

• establish standardised definitions of commonly-used environmental terms;
• require disclosure of certain environmental information for products/services, both for consumers and business customers;
• ban misleading and/or unsubstantiated environmental claims; and
• extend consumer protection remedies to address environmental harm caused by commercial practices directed at consumers.

Next steps

The key next step for the CMA will be issuing its guidance on sustainability agreements, which will expand on (and formalise) its interpretation of how to account for economic benefits, as well as its continued engagement on sustainability issues with businesses and other stakeholders.

Further changes may also be forthcoming if the government opts to proceed with any of the CMA’s proposals, especially as it is already consulting on a number of legislative changes to the competition and consumer regimes.