- The Competition and Markets Authority (CMA) has followed the European Commission (EC) in adopting guidance dedicated to the application of competition rules to sustainability agreements.
- In contrast to the EC’s wide understanding of sustainability, which covers both environmental and wider social objectives, the CMA’s Green Agreements Guidance focuses solely on agreements pursuing environmental objectives.
- Environmental sustainability agreements are those aiming to prevent, reduce or mitigate the adverse impact of the parties’ activities on the environment or assisting with the transition towards environmental sustainability.
- The CMA specifically promotes climate change agreements, which contribute to combatting climate change, by making it easier for parties to prove the benefits of these agreements.
- The CMA will operate an open-door policy without eligibility conditions, enabling businesses to approach it with any questions they may have regarding its guidance. In contrast, businesses can only approach the EC for informal guidance if their agreement poses a novel or unresolved question, whose clarification would be in the public interest.
- While the two regimes have minor differences, the overarching message from both the CMA and the EC is that competition rules will not stand in the way of genuine collaboration in pursuit of environmental sustainability objectives.
On 12 October 2023, the UK’s Competition and Markets Authority (CMA) published its Green Agreements Guidance, coming hot on the heels of the European Commission’s (EC) earlier adoption of a chapter dedicated to sustainability agreements in its updated Horizontal Guidelines on 21 July 2023. Both the CMA’s guidance and the EC’s guidelines address growing calls for a relaxation of competition rules to enable increased cooperation between competitors to achieve sustainability objectives.
The CMA’s guidance focuses solely on environmental sustainability agreements, specifically those aiming to prevent, reduce or mitigate the adverse impact of the parties’ activities on the environment or assisting with the transition towards environmental sustainability. The CMA also goes beyond the EC in its treatment of climate change agreements, which contribute to combatting climate change, by making it easier for companies to prove the benefits of such agreements. Despite the differences in the two regimes, the message from both the CMA and the EC is clear: competition rules should not prevent collaboration in pursuit of genuine ESG objectives.
The CMA has diverged from the more expansive approach to sustainability that the EC has espoused. The notion of sustainability in the EC’s guidelines encompasses not only environmental protection, but also wider social objectives, such as the protection of human rights and promotion of labour rights. In contrast, the CMA’s guidance focuses solely on environmental sustainability agreements, and promotes, in particular, agreements focusing on climate change. Examples of environmental sustainability agreements include agreements between competitors to reduce the use of pesticides, stop the use of microplastic polluting materials, or increase recycling rates. Climate change agreements are a sub-set of environmental sustainability agreements and include agreements reducing the negative externalities of the greenhouse gases emitted from the production, distribution or consumption of the relevant products, such as an agreement between manufacturers of a product to phase out a highly emitting production process, or an agreement between delivery companies to switch to using only electric vehicles.
The CMA noted that its narrower focus is warranted due to the scale and urgency of the challenge to ensure environmental sustainability, and especially to combat climate change. Businesses have an important role to play in meeting the UK’s climate targets, with industry collaboration being key to this. Hence, the CMA clarifies, through its guidance, that where collaboration between competitors is needed to promote environmental sustainability, competition rules will not stand in their way.
The CMA clarified that other types of sustainability agreements are out of scope of its Green Agreements Guidance, but these can be examined under its general Guidance on Horizontal Agreements. As such, these agreements could nonetheless be considered compliant with UK competition law after an effects-based assessment, whereby the agreement’s benefits will be assessed against any harm it causes to competition. Therefore, it is expected that the CMA’s effects-based assessment of non-environmental sustainability agreements will likely not result in markedly different outcomes than those expected under the EC’s Horizontal Guidelines.