New CMA Green Agreements Guidance

On 12 October 2023 the Competition and Markets Authority (‘CMA’) published its ‘Green Agreements Guidance’  on how competition law applies to environmental sustainability agreements between firms operating at the same level of the supply chain, to help them act on climate change and environmental sustainability.

The guidance follows the environmental sustainability advice the CMA provided to the UK government in March 2022.  As part of that work, the CMA found businesses wanted more clarity about what is, and what is not, legal when working together towards environmental sustainability goals.

As explained in the guidance, one of the aims of the guidance is to ensure that competition law does not impede legitimate collaboration between businesses that is necessary for  the promotion or protection of environmental sustainability.  The guidance is drafted with those aims in mind and seeks to balance those objectives. 

When will this guidance apply

Environmental sustainability agreements are agreements between competing businesses that involve co-operation to achieve green outcomes, such as tackling climate change. 

The guidance sets out the key principles which apply, along with practical examples that businesses can use to inform and shape their own decisions when working with other companies on environmental sustainability initiatives. In terms of situations where this guidance will be relevant, examples are given of businesses deciding to combine expertise to make their products more energy efficient or wanting to use packaging material that meets certain standards to reduce waste.  

When entering into an environmental sustainability agreement with another competing business, a business must ensure that it complies with competition law. The CMA advises that businesses should review the guidance before entering into any environmental sustainability agreements with their competitors.

The CMA advises that environmental sustainability agreements are likely to restrict competition if they are likely to result in: (i) an increase in price; and (ii) a reduction in choice, quality, or output.

Some agreements can be particularly harmful and are therefore very likely to be unlawful. These include: 

• Restrictions on the use or development of more environmentally sustainable products or services
• Price fixing
• The allocation of customers or markets between competitors
• Bid rigging
• Limitations on quality or innovation

When environmental sustainability agreements are unlikely to infringe relevant law and guidance

Examples are provided by the CMA of when environmental sustainability agreements are unlikely to infringe competition law and the guidance.  Some of the examples given include:

• Agreements about internal corporate conduct (for example, to eliminate the use of single-use plastic in the workplace)
• Agreements to run joint campaigns to raise awareness about environmental sustainability (as long as it does not amount to joint advertising or joint selling)
• Agreements to set non-binding industry-wide environmental sustainability targets or ambitions
• Agreements to participate in an environmental sustainability standard (such as a green labelling initiative) or to phase out unsustainable products
• Agreements that cover less than 10% of the market and are not trying to restrict competition through for example, price fixing, market sharing or bid rigging

Exemptions

Circumstances where an agreement is capable of exemption is addressed in sections 5 and 6 of the guidance.

An environmental sustainability agreement that restricts competition may still be lawful if it meets the criteria for an exemption. One of the criteria for exemption is that the benefits consumers receive from the agreement outweigh the harm caused by the agreement.  For example, agreements that result in price rises (for example, because the more sustainable input is more expensive) may be permitted if businesses can show the benefits of the agreement to consumers who purchase the product or service outweigh the additional costs to those consumers.  If an agreement helps to combat climate change, the benefits of that agreement for all UK consumers may be able to be considered.  

Conclusion

For companies in doubt as to how they guidance may or may not apply, the CMA is operating an open-door policy where businesses (and representative bodies such as trade associations), non-governmental organisations and charities can approach the CMA for informal guidance on proposed environmental sustainability initiatives.  

The guidance expressly says that the CMA does not expect to take enforcement action against agreements that are in line with the guidance.  For parties who engage openly in the CMA’s open-door policy, the CMA goes as far as to say it would not issue fines against parties implementing an assessed agreement even if it subsequently concluded the agreement infringed the Competition Act.  However, parties to these agreements should keep their agreements under review to ensure that they continue to correspond clearly to the principles of the guidance.

In terms of steps businesses should take:

• Environmental sustainability agreements will be important moving forwards for businesses – both for the climate and commercially. They are likely to become more and more prevalent. This guidance is therefore important. 
• However, parties need to keep in mind the issues that can arise outlined in the guidance and act in conformity with that guidance.
• The CMA does have an open door policy and where doubts exist in a business’ mind as to the correct approach to take, it would be prudent to discuss the agreement with the CMA. An open approach with the CMA will be helpful for businesses and make enforcement action against the business less likely.