Keen, green sustainability machine: UK’s CMA publishes final Guidance on environmental sustainability agreements

Last week, the UK’s Competition and Markets Authority (CMA) published its ‘Green Agreements Guidance’ in final form (having previously published and consulted on draft guidance in February 2023, see our blog post here). In doing so, it has firmly positioned itself as one of the most liberal regulator voices on the application of antitrust to environmental sustainability agreements. 

While there have been a number of changes from the draft Guidance, there is no movement in the position taken by the CMA on the key questions of principle. We continue to believe that the Guidance will provide much-needed clarity to businesses on the antitrust boundaries for environmental efforts amongst industry players operating in the UK. While global initiatives will still have to contend with divergent approaches to enforcement in less ‘green’ jurisdictions, the CMA’s approach should open the door to further collaboration for UK agreements. 

Our key takeaways from the final Guidance, including notable changes since the draft version was released for public consultation in February, are set out below. 

What agreements could get the green light? 

The Guidance applies to environmental sustainability agreements, which “captures agreements between competitors which are aimed at preventing, reducing or mitigating the adverse impact that economic activities have on the environment or assist with the transition towards environmental sustainability.” Examples are agreements aimed at, improving air or water quality, conserving biodiversity and natural habitats or promoting sustainable use of raw materials – these could include farmers improving biodiversity through reducing pesticide use, fashion manufacturers ceasing use of microplastic pollutant fabrics, or initiatives to recycle waste rather than incinerating it. However, broader societal objectives such as improving working conditions are excluded.

A sub-set of “Climate Change Agreements” sits under the environmental sustainability agreements definition and covers agreements which contribute to combating climate change, including agreements contributing towards the UK’s binding climate change targets. The Guidance provides a fulsome list of example agreements, such as those to improve production processes by phasing out emissions-causing inputs, to only purchase and install products (e.g., in a homebuilding context) that perform above a minimum energy efficiency standard, or to require or incentivise suppliers further down the chain to phase down emissions. Importantly for the financial sector, this category also includes agreements not to provide support such as financing or insurance to fossil fuel projects.

What scenarios does the Guidance cover? 

Firms can rule out concerns about competition law compliance where agreements have no effect on the way they compete (e.g., campaigns to raise industry awareness of sustainability issues) – the Final Guidance helpfully clarifies that this includes where the agreement is entered via a trade association or NGO.

Likewise, businesses should not be concerned where agreements do not appreciably restrict competition in practice (e.g., codes of conduct promoting environmentally conscious practices where participation is on the basis of transparent, non-discriminatory criteria). The CMA signals this may be particularly relevant for small and medium-sized enterprises with small combined market shares. Additionally, non-binding target setting by industry (e.g., to reduce carbon dioxide emissions in line with net zero aims) is unlikely to have an appreciable negative effect on competition, provided that the participating businesses remain free independently to determine their own contribution to how they will meet or exceed the targets. 

Where agreements could restrict competition appreciably (e.g., by increasing prices, reducing output or restricting variety), the Guidance provides for an exemption route to the Chapter I prohibition, if four conditions can be satisfied: 

• The agreement contributes to, and the parties can produce evidence of, benefits such as improving production or distribution or contributing to technical or economic progress – benefits will include reducing greenhouse gas emissions, reducing the environmental impact of products, introducing cleaner technologies or developing more energy-efficient processes – the CMA takes a broad approach and includes ‘future’ and non-monetary benefits; 
• The agreement and any restrictions of competition within the agreement must be indispensable to achieve those benefits; 
• UK consumers must receive a fair share of the benefits and the benefits must be substantial and demonstrable – the CMA indicates there may be circumstances where diversion from the traditional approach (i.e., considering consumers within the relevant market) is warranted and it would be appropriate to take into account consumers on a separate but related market (where substantially the same as / substantially overlapping with, those within the market); and
• The agreement must not substantially eliminate competition.

For Climate Change Agreements the CMA takes a broad, ‘exceptional’ approach to the relevant consumer, and considers the benefit to all UK consumers arising from the agreement. 

The final Guidance also acknowledges that environmental issues are closely interlinked, which may result in mixed agreements (e.g., elimination of deforestation from supply chains which may reduce emissions but also have wider biodiversity benefits) – climate change aspects could receive this expanded treatment, while other environmental benefits are assessed under the general approach. Businesses should quantity the benefits in two categories and then add them together. 

What informal engagement approaches and protections will be available? 

Businesses are encouraged to approach the CMA at an early stage, for informal (‘fireside’ chat style) guidance on their environmental sustainability initiatives. The final Guidance takes a pragmatic approach to the challenges in bringing together actors in this space, and so clarifies that approaches can also be made by trade associations, NGOs or nominated representatives of the parties. This should follow self-assessment under the Guidance, with parties highlighting specific issues that remain unclear. 

Businesses can take comfort from clear statements that the CMA will not: 

• take enforcement action (including director disqualification measures) against agreements that clearly correspond to examples and/or that are consistent with the principles set out in the Guidance; or
• issue fines against parties that implement agreements discussed informally with the CMA in advance, where the CMA’s competition concerns (if any) were addressed by the parties (provided that the parties did not withhold any relevant information from the CMA during its assessment phase which would have made a material difference to the outcome).

An interventionist CMA in green cases? 

The final Guidance also notes that if an environmental sustainability agreement in relation to which the CMA has provided informal guidance is subject to private litigation, the CMA may consider intervening – a signal that the CMA may be more active as it continues to push its sustainability agenda! 

Is the CMA going it solo or part of a pack? 

The progressive position taken in the CMA’s Guidance is welcome (particularly the ‘broad’ approach to Climate Change Agreements), and follows in the pioneering footsteps of other regulators across the Channel. The Dutch ACM was the first national competition authority in the EU to publish its own draft guidelines on sustainability agreements (in 2020) and its model of posting digestible case summaries on its website has proved an effective and accessible resource for practitioners and businesses alike. 

Most recently, in early October, the ACM released a ‘Policy Rule’ clarifying how it would apply the recently enacted European Commission ‘Guidelines on horizontal cooperation agreements’ in place of its previous draft guidelines. The ACM will not take enforcement action in two additional situations to the EC, if all conditions are met, being where businesses agree to (a) comply with a binding national or European sustainability rule that is not (or cannot be) fully implemented or enforced – for example, in the area of waste recycling; and/or (b) efficiently achieve environmental goals, such as reduction of CO₂ emissions, if the consumer receives an appreciable and objective part of the benefits.

The EC’s Guidelines came into force on 1 July 2023 (see our post here) and cover a broader scope of agreements than the CMA’s Guidance – rather than being confined to environmental sustainability, the EC version also captures economic and social (including labour and human rights) sustainability objectives. Many aspects of the CMA’s Guidance track closely with the EC’s – for example, the criteria for assessing standard-setting agreements is broadly aligned, but the CMA goes further in relation to Climate Change Agreements than its EU counterpart.