New CMA guidance on green agreements 

The UK Competition and Markets Authority (CMA) has published its awaited guidance on the application of UK competition law rules to environmental sustainability agreements. This article provides an outline of the guidance. The complete guidance can be accessed on the government's website.

What are environmental sustainability agreements?

"Environmental sustainability agreements" are agreements between competitors aimed at preventing, reducing, or mitigating adverse impacts of economic activities on the environment or assisting with the transition towards environmental sustainability. For example, agreements to improve air or water quality, conserve biodiversity and natural habitats or promote the sustainable use of raw materials.

The guidance provides several specific examples, including: 

• Agreements between farmers to improve and protect biodiversity by reducing usage of pesticides.

• Agreements between fashion manufacturers to stop using certain fabrics that contribute to microplastic pollution in bodies of water.

"Climate change agreements" are a subset of environmental sustainability agreements and covers agreements which contribute to combating climate change. For example, by reducing the impacts from greenhouse gases emitted from the production, distribution or consumption of goods and services.

The guidance again provides several specific examples, including:

• Agreements between delivery companies to switch to using electric vehicles.

• Agreements between home builders only to purchase and install products that perform above a minimum energy efficiency standard, thereby reducing future emissions produced as a result of heating or cooling the home.

There are also "mixed agreements" which generate both climate change benefits and other environmental benefits.

The guidance covers how each of these types of environmental sustainability agreements should be assessed in respect of competition law restrictions. 

What does the guidance cover?

UK competition law, specifically the "Chapter I prohibition", typically prohibits agreements between businesses that are restrictive of competition. The guidance covers three broad situations:

1. Environmental sustainability agreements which are unlikely to infringe the Chapter I prohibition.

2. Environmental sustainability agreements which could infringe the Chapter I prohibition.

3. Environmental sustainability agreements which could benefit from exemption.

The guidance explains when environmental sustainability agreements are likely to fall into each of these categories and provides various examples of such agreements.

It is notable that the CMA takes a more permissive approach to exemption in relation to climate change agreements. When considering whether an agreement which does restrict competition appreciably can benefit from exemption, in respect of climate change agreements the CMA will consider climate change benefits to all UK consumers arising from the agreement, rather than apportioning those climate change benefits between consumers within the market affected by the agreement and those in other markets. The CMA states this is reflective of the magnitude of the risk that climate change represents, the degree of public concern about it, and binding national and international commitments.

The guidance is intended to supplement the CMA's guidance on horizontal agreements. Therefore, businesses should be aware that both guidance documents may apply to the same agreement. However, the guidance provides that businesses may rely on the guidance that is more favourable to the parties to the agreement prevailing.

What is the CMA's "open-door" policy?

Businesses considering entering into an environmental sustainability agreement are encouraged to approach the CMA for informal guidance at the early stages of a proposed agreement should they have any queries or concerns about UK competition law or the application of the guidance. The CMA will then indicate any options, concerns, risks and potential solutions available following a "light touch" review of the proposed agreement, proportionate to its size, complexity and likely impact. This may include the CMA consulting relevant sector regulators, where applicable.

Parties who have engaged with the CMA in this way are expected to implement any adjustments necessary to bring their agreement in line with competition law before the agreement enters effect. Provided this is the case, they will receive protection from potential CMA fines should the agreement be found to require further consideration later, on the condition that no relevant information was withheld from the CMA at the initial assessment stage.

Notwithstanding the above, businesses are still expected to keep their agreements under review.

Comment

The guidance provides welcome clarification to businesses intending to enter into agreements with other businesses operating at the same level in the supply chain to pursue environmental sustainability goals on how they can do this within the remits of UK competition law.

It's clear from the permissive approach taken by the CMA in respect of climate change agreements and the open-door policy that the CMA is keen to encourage businesses to co-operate and act on climate change and environmental sustainability. However, businesses should ensure they are aware of the applicable legal parameters.

If you require further guidance on environmental sustainability agreements or competition law more generally, please contact Christian Silk.