Analysis: CMA Guidance on Green Agreements only goes so far

Regulator offers reassurance to firms acting jointly on sustainability, but lawyer questions what difference it will make. Ian Taylor reports

Competitiom and Markets Authority (CMA) guidance to businesses on how to cooperate on sustainability without contravening competition law “may not make much difference”, according to a leading competition lawyer.

The CMA issued a Green Agreements Guidance document on October 12 to “give firms greater clarity about agreements addressing environmental sustainability, including climate change” which explains how agreements on tackling climate change will be considered, with examples, following a consultation earlier this year.

The authority pledged to offer “an open-door policy” for businesses and their representative bodies, non-governmental organisations and charities to seek guidance informally.

It noted “businesses want more clarity about what is and isn’t legal when working together towards environmental sustainability goals” and said it “does not expect to take enforcement action against environmental sustainability agreements that correspond clearly to the principles in this guidance [or] where parties approach the CMA to discuss their agreement . . . provided the parties did not withhold relevant information”.

The CMA noted: “Climate change represents a special category of threat:

Sarah Cardell, CMA chief executive, said: “We’ve developed the Green Agreements Guidance for all companies considering collaborating so they can understand how to agree green goals without breaking the law.”

Ian Giles, EMEA head of antitrust and competition at global law firm Norton Rose Fulbright, hailed the CMA for “sending a strong signal to businesses and other competition authorities” and said: “The guidance can provide some reassurance for businesses unsure how to navigate competition law compliance.”

He noted: “Confirmation of the CMA’s more permissive approach for ‘climate change agreements’ is a positive development. The definition of climate change agreements in the guidance appears broader than in the draft guidance earlier this year.”

However, Giles warned: “This change may not make much difference in practice because businesses will still need to demonstrate climate change benefits are in line with or exceed existing legally binding requirements or national or international targets and that UK consumers benefit.”

He also warned: “The challenge for companies continues to be that if their sustainability agreements could impact on competition in more than one country, they will need to navigate a range of different approaches.

“While the CMA is keen to ensure UK competition law does not prevent beneficial sustainability agreements, enforcers in other jurisdictions potentially have a different view.”

Businesses need to be able to show benefits of agreements

The CMA Green Agreements Guidance notes “rules around how businesses can and cannot work together” stem from the Competition Act 1998.

It makes clear several categories of agreements are “unlikely to raise competition concerns”. These include agreements to:

Run joint campaigns to raise awareness about environmental sustainability, so long “as these do not amount to joint advertising”,

Set non-binding, industry-wide environmental sustainability targets,

Develop new products or initiatives where none of the parties could do the same individually,

Participate in an environmental sustainability standard, such as green labelling, or to phase out unsustainable products.

The CMA suggests sustainability agreements “are likely to restrict competition” if they result in “an increase in price, or a reduction in choice, quality or output”. However, an agreement that restricts competition may still be lawful if it meets the criteria for exemption, such that “the benefits consumers receive outweigh the harm.

“For example, agreements that result in price rises may be permitted if businesses can show the benefits . . . outweigh the costs.  If an agreement helps combat climate change, the benefits for all UK consumers may be considered.”

CMA recommends changes to consumer and competition law

The Green Agreements Guidance is the third in a series of documents on environmental sustainability issued by the competition, markets and consumer law regulator.

The CMA published a Green Claims Code in September 2021 on the obligations of businesses under consumer protection law when making claims about environmental sustainability, and it issued advice to the government in March 2022 recommending:

“Changes to consumer law to make it easier for consumers to make sustainable choices and to support effective enforcement against breaches of consumer law that may give rise to environmental harm.”

It also recommended the government encourage “greater consistency and coordination across sectors and regulatory regimes in the approach to tackling climate change”.

The CMA outlined “key changes to competition and consumer law the government might consider” including:

Legislating to create standardised definitions of commonly used environmental terms to which businesses must adhere,

Confirming in legislation a requirement for mandatory disclosure of information,

Legislating to require businesses to provide better environmental information to customers,

Adding misleading and/or unsubstantiated environmental claims to the banned practices under consumer law,

Extending consumer protection remedies to address harm to the environment caused by commercial practices.

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