Greening up its Act? UK’s CMA gives a steer regarding imminent draft Sustainability Guidance and expands investigation into green claims

It’s been a busy few days for the UK’s Competition and Markets Authority (CMA), as CEO Sarah Cardell gave a high level steer regarding its long-awaited draft Sustainability Guidance, and the CMA expanded its ‘greenwashing’ investigation into Fast Moving Consumer Goods (FMCG).

While we will need to wait a few more weeks for the detail of the draft Guidance, the direction of travel looks promising for companies engaging in legitimate environmental sustainability cooperation – at least as far as their UK enforcement risk profile is concerned.

CMA: from tortoise to hare?

The CMA has so far moved at a comparatively slower pace on laying out its approach to sustainability cooperation than peers elsewhere. While this has meant that it has not been front and centre of the sustainability debate to date, it has had the opportunity to consider the diversity of approaches taken by other regulators, in particular the leading liberal position adopted by the Dutch ACM, as well as the legislative amendment route pursued in Austria.

The CMA published its advice to government almost a year ago, in March 2022, on how the competition and consumer regimes could better support the UK’s net zero and environmental sustainability goals. The advice foreshadowed publication of the draft Guidance, as well as establishment of a cross-organisational Sustainability Taskforce. However, while we have been waiting, the CMA has been notably muted in its further contribution to the debate regarding the application of the competition rules to cooperation for sustainability objectives.

The CMA is now playing catch-up. Speaking at the Scottish Competition Forum on 24 January, Cardell confirmed that environmental sustainability is firmly on the CMA’s radar for 2023, outlining three strategic priorities in this space:

1. Competitive markets for sustainable products / services: Priority focus on work in emerging markets for environmentally sustainability products, services and technologies, which may take the form of market studies (as occurred with electric vehicle charging) or advocacy functions (to advise government, regulators or industry participants).
   
   
2. Helping consumers make informed choices: Continued action on potential ‘greenwashing’ claims in additional sectors, further to publication of the CMA’s ‘Green Claims Code’. Consideration of further steps the CMA can take to tackle unfair or misleading practices in respect of home energy efficiency.
   
   
3. Ensuring that competition law is not an unnecessary barrier: Public consultation on, and eventual publication of, Sustainability Guidance to assist firms pursuing environmental sustainability initiatives but who may be worried about competition law preventing or impeding their work.

Clearing the obstacles to a sustainable future

With regards to the CMA’s desire to ensure that competition law isn’t chilling bona fide sustainability initiatives, it is anticipated that the draft Guidance will cover three scenarios, being agreements which:

1. have no effect / engagement with the way firms compete: Firms can rule out any concerns about competition law compliance. Example: Joint campaign by competitors to raise awareness of industry / customer sustainability issues.
   
   
2. have some relation to the way firms compete, but no appreciable restriction of competition: While in theory, such agreements could breach competition law, firms may be confident that in practice, there is no appreciable restriction of competition that would infringe the law. Example: Codes of conduct promoting environmentally conscious practices (joint production standards, certification labels), provided participation is on the basis of transparent, non-discriminatory criteria.
   
   
3. do restrict competition appreciably but may nevertheless be exempt: the most important area where competition law could hinder progress. The CMA will provide guidance on how environmental sustainability agreements can meet each of the Section 9 CA98 exemption conditions, including what sort of benefits are likely to be relevant and how businesses can demonstrate consumer fair share (including quantifying, where appropriate). In such cases, the CMA would not intend to take enforcement action.

For agreements which make a “substantial and demonstrable contribution to tackling climate change, in line with well-established national or international goals”, the CMA is proposing to take into account the full benefits to UK society which derive from the agreement (provided that consumers in the ‘relevant market’ form part of this wider group). This is an important step which would allow the CMA to take an expansive approach when assessing the benefits of a sustainability agreement to society.

Following public consultation on the draft Sustainability Guidance, and any subsequent revisions, the Guidance will likely be integrated as Part 11 of the CMA’s broader Guidance on the application of Chapter I CA98 to Horizontal Agreements (which was released for separate public consultation on 25 January).

With new challenges, we might also see a return to more ‘fireside chats’ with the regulator. Given the challenges in quantifying benefits/efficiencies in such a novel area, and the importance of ensuring there is no block on legitimate sustainability agreements, Cardell flagged the CMA may be open to providing comfort, where appropriate, on whether competition law is engaged or application of the Guidance. Companies are encouraged to contact the CMA at an early stage to discuss options, concerns, risks, and possible solutions.

But what if the cooperation is cross-jurisdictional / global?

As we explored in our recent blog post, positive steps by regulators on a jurisdiction-by-jurisdiction basis may be cold comfort for companies pursuing collaboration on the global stage. While the CMA’s exact position on the liberal-to-conservative spectrum of regulator approaches remains to be seen, the litigation risk landscape in the US and (understandable) concerns from companies as a result, may continue to result in the position of the most ESG-conservative jurisdiction or entity determining the progress of initiatives as a whole.

Expanding ‘greenwashing’ investigations

Linked to the CMA’s second strategic priority, the CMA also launched an investigation on 26 January into green claims in Fast Moving Consumer Goods (FMCG), expanding the remit of its current investigation into eco-friendly and sustainability claims in the fashion sector. 

This new action will analyse environmental claims (e.g., use of vague and broad eco-statements for example packaging or marketing a product as ‘sustainable’ or ‘better for the environment’ with no evidence, or misleading claims re. recyclability of materials) in respect of essential items used by consumers on a daily basis, such as food and drink, cleaning products, toiletries and personal care items. If the CMA considers that green claims may be unfounded, it can consider taking enforcement action against specific companies.

Stay tuned for more!