Informal Guidance for WWF-UK on sustainable collaboration

The UK Competition and Marketing Authority has published a second piece of informal guidance under its Green Agreements Guidance, giving WWF-UK and five UK supermarkets the go ahead on their latest emissions reducing initiative.

The Green Agreements Guidance was published in October last year (see here). Sustainability professionals and advisers believe it gives more confidence in what is and isn’t permitted under the competition rules (see our survey results here) especially when taken together with this type of informal guidance which shows how the CMA approaches the analysis in real world situations. 

The WWF-UK co-operation

In November 2022, five UK supermarkets made a public joint-commitment with WWF-UK to support their suppliers to reduce their greenhouse gas (GHG) emissions including through setting emissions targets, supporting suppliers to decarbonise, delivering a retail action plan to reduce emissions and advocating for the reduction of emissions in agriculture and land sectors. 

The proposal considered by the CMA included an extension of these commitment which included the following terms:

• Retailers would commit to require suppliers accounting for 80% (up from 50%) of each Retailer's supply chain emissions to set net-zero Science Based Targets (SBTs) by agreed milestones;
• Retailers would introduce incentives (such as preferred payment terms) to suppliers who achieve the milestones and disincentives (such as penalties or delisting) to suppliers who do not.  

The CMA's Assessment

The CMA confirmed that since the Proposal was designed to reduce greenhouse gas emissions, it could be assessed as a Climate Change Agreement. This means that any restriction of competition can be offset against benefits to the whole of the UK population (and not just customers of the affected products), unlike guidance at EC level. 

The CMA conducted a light touch review of the proposal, in particular as there was a lack of reliable data regarding suppliers existing emissions targets and it was uncertain which products services would be affected. Nevertheless, the CMA found that although it could not make a definitive finding, it considered the risk of significant harm to competition and consumers was likely to be low. In particular, the CMA found:

• No likely impact on competition in retail markets because the Retailers remained free to determine the price and quality of products offered to consumers and are incentivised to compete for retail sales. 
• There were potential effects on competition between suppliers if suppliers phased out products limiting the range of available products or increased costs impacted suppliers ability to compete. These were most likely to materialise in supply markets that already had weak competition, but were mitigated by Retailer's incentives to ensure they have a good choice of suppliers to source products from as well as the existence of the Grocery Supply Code. 

In looking at the benefits of the agreement, the Parties told the CMA that they couldn't determine the specific reductions in emissions that would be attributable to the Proposal, but provided indicative estimates of emissions reductions by 2030 and 2050. The CMA quantified these using HM Treasury's Green Book values for carbon abatement to provide a range of possible benefits from the Proposal. In light of the CMA's provisional conclusion that the risk of significant harm from the Proposal was low, the CMA concluded that it was likely that the potential benefits would outweigh the harm and that there were good reasons to believe that the Proposal was indispensable to achieve the benefits. 

What we can learn

• As in its first informal guidance (see our summary), the CMA has followed its own guidance closely looking at the risk of harm and weighing this against the likely benefits of the agreement. There are no surprises in the types of harms or benefits considered by the CMA. 
• The “light-touch” nature of the review may bring comfort to those considering seeking guidance who may be put off by the need to provide information to the CMA, especially in this case the CMA accepting indicative estimates or proxies of the benefits of the Proposal - it appears that the CMA is taking a pragmatic approach and providing a blueprint for the types of evidence they will accept in this type of assessment. 
• The CMA has again provided express comfort for the parties that they would be protected from fines if the CMA were to find in the future that further consideration of the Proposal was needed (e.g. because evidence emerged that there was harm to competition that hadn't been foreseen at the time of the assessment). As expected, the Parties do have an express obligation to keep the Agreement under review to identify any such change.