CMA publishes final Green Agreements Guidance

On 12 October 2023, the final version of the UK Competition and Markets Authority’s (CMA) Green Agreements Guidance (Guidance) was published. This follows the publication of its Draft Guidance on 28 February 2023 - see our previous article on the Draft Guidance here. The Guidance preserves much of that original draft and continues to express a determination to ensure that competition law does not prove a barrier to legitimate green collaboration between competing firms.

The publication of the Guidance reflects the CMA's increasing focus on environmental issues, in line with the commitment made in its Annual Plan 2023/2024 that one of its main areas of focus would be promoting environmental sustainability and helping the UK to accelerate its transition to net zero. The CMA's updated Prioritisation Principles, which set out the factors it will consider when deciding on its choice of work, were published on 30 October 2023 and similarly refer to the CMA's ambition that the UK economy can grow sustainably.

We summarise the key takeaways from the Guidance below.

Scope of the Guidance

In line with the Draft Guidance, the Guidance applies to:

1. Environmental sustainability agreements (ESAs) which are unlikely to infringe the Chapter I prohibition, either because they do not relate to how businesses compete or because they will not have an appreciably adverse effect on competition. Examples may include agreements concerning the internal corporate conduct of business (such as to eliminate single-use plastic in business premises), agreements to pool funds to engage in activities to mitigate the effects of greenhouse gas emissions, joint lobbying for policy or legislative changes, the creation of industry standards aimed at making products or processes more sustainable, and setting non-binding targets or ambitions for the whole industry with regard to environmental sustainability.

2. ESAs which could infringe the Chapter I prohibition unless they benefit from the exemptions for ESAs generally or for climate change agreements specifically. In addressing these types of agreements, the CMA highlights a distinction between "object" restrictions (where harm is assumed) and "effects" restrictions (where harmful effects must be shown). Particular caution is needed for agreements which involve price-fixing, market or customer allocation, limitations of output or limitations of quality or innovation as these typically restrict competition by "object". The CMA simultaneously advises that parties to such agreements should not automatically assume that they are prohibited, and should instead consider whether they might benefit from the exemptions.

3. ESAs which can benefit from exemption subject to four conditions, set out further below, being met.  In order to qualify for exemption, the benefits of an ESA must be substantiated, objective, concrete and verifiable. Although arguably a high threshold, the CMA goes on to recognise that benefits may only materialise in the long-term. Similarly, when assessing whether consumers will receive a fair share of the benefits, these can include future as well as current benefits, and to direct and indirect customers.

CMA at the forefront of the antitrust/sustainability interface

The CMA demonstrates its willingness to further flex the arms of competition law in addressing "climate change agreements". In recognition of the "exceptional nature of the harms posed by climate change", the CMA is willing to take into account the totality of benefits to all UK consumers arising from an ESA, rather than apportioning those benefits between consumers within the relevant product market affected by the agreement and those in other markets. This marks a significant departure from the accepted approach to horizontal agreements under EU competition law and puts the UK at the forefront of this developing area.

Furthermore, the CMA has shown an interest in sustainability issues more broadly in the UK through various announcements that it will scrutinise "green" claims - i.e. so-called "greenwashing". For example, the CMA has stated that it will focus on environmental claims around household essentials (or 'fast-moving consumer goods') (see here), and has launched an investigation into fashion brands, ASOS, Boohoo and Asda, over the ways in which they have marketed products as eco-friendly (see here).  More recently, this month, the CMA also opened an investigation into Worcester Bosch (and wrote letters to 12 other businesses) over concerns that the firm is misleading consumers into believing its boilers are more environmentally-friendly than they are by marketing them as 'hydrogen-blend ready' (see here). These statements and investigations feed into the wider push we are seeing by the CMA into consumer protection with new legislation (the Digital Markets, Competition and Consumers Bill) anticipated to come into force next year which will significantly enhance its consumer protection powers.

ESAs falling outside the Chapter 1 prohibition

The Guidance states that low-risk green collaborations include those that do not relate to the way that businesses compete or may compete with each other, or do not have an appreciable adverse effect on competition. Examples of such agreements include:

• Agreements concerning the internal corporate conduct of businesses, such as reducing the quantity of printed materials or moderating the use of air-conditioning in offices.
• Joint funding of activities to mitigate, adapt, or offset the effects of greenhouse gas emissions, for instance, to promote greener practices or methods in the sector.
• Agreements to jointly run a campaign to raise awareness about environmental sustainability challenges within a sector or among consumers, provided the initiative does not equate to collaborative marketing or promotion of specific products.
• Joint lobbying for policy or legislative changes, such as on carbon pricing. Such collaborations should not, however, involve the exchange of competitively sensitive information and the advocacy should not aim to side-line a competitor, particularly in scenarios such as standard-setting.
• Agreements to do something jointly which none of the parties could do individually, for example, where each party individually lacks the relevant resources or expertise.
• Cooperation required (and not simply encouraged) by law.
• Pooling information about suppliers or customers, provided participants are not required to purchase (or refrain from purchasing) from those suppliers.
• Creation of industry standards where certain conditions around the creation and implementation of the standards are met.
• Phasing out/withdrawal of non-sustainable products or processes where this will not result in higher prices or lower quality of choice.
• Industry-wide environmental targets, provided these targets are non-binding on the participating businesses.
• Agreements between shareholders, discussed further below.

Shareholder agreements

For asset managers, pension funds and other financial services firms, the CMA's new confirmation that agreements between shareholders to vote in support of corporate policies that pursue green goals will be unlikely to infringe competition law will be of particular interest. This covers both voting agreements and agreements by investors to target businesses that compete with each other in the market. Investor agreements on environmental voting and agreements to target sectors collaboratively may therefore be permissible. In particular:

• Voting agreements: the Guidance states that an agreement between shareholders of a single business to vote in support of corporate climate or environmental policies or to "lobby jointly" for corporate changes, "will be unlikely to infringe competition law".
• Agreements by investors: the Guidance states that where there is an agreement covering shareholder conduct "in relation to several businesses that are competitors in a market", it is unlikely to have a negative impact on competition if the changes or policies that investors seek support the adoption of other environmental agreements set out in the Guidance, such as the withdrawal of non-sustainable products.

Notwithstanding the above approach afforded by the CMA on shareholder agreements directed at environmental sustainability, certain joint shareholder activity should still be assessed against other sections of the Guidance, including those sections covering impacts and environmental agreements that have competition restriction as their object, explained further below.

ESAs at risk of being caught by the Chapter 1 prohibition

The Guidance remains substantively unchanged from the Draft Guidance regarding the assessment of ESAs which could infringe the Chapter I prohibition, where an agreement has the object or effect of restricting competition. These are largely agreements which are already understood to infringe competition law, such as price-fixing, market or customer allocation, and/or limitations of output, quality or innovation. The Guidance does in certain circumstances, however, permit vertical collective boycotts, which is where competitors agree not to engage with particular suppliers or customers based on their sustainability credentials.

The Guidance also now provides greater clarity on the types of restriction that may be considered anti-competitive by object, but for which (in certain contexts) the restriction of competition may be permitted. This includes circumstances where the restriction is an "ancillary restraint" to a wider ESA which is not in breach of the Chapter 1 prohibition or benefits from an exemption, provided the restriction is "objectively necessary to implement, and proportionate to the [green] objectives".

Exemptions for ESAs

In line with the approach taken by the European Commission (Commission), section 5 of the Guidance outlines that some sustainability agreements may appreciably restrict competition, but qualify for exemption where four cumulative conditions are met:

1. The agreement must result in objective benefits to production, distribution or technical or economic progress. These must be objective and verifiable. For example, eliminating or reducing harmful greenhouse gas emissions arising from the production or consumption of particular goods.

2. The agreement and any restrictions of competition within the agreement must be indispensable to the achievement of those benefits. Relevant considerations include whether an activity could have been done individually or whether doing it collaboratively enabled the parties to achieve the resulting benefits more quickly or at a lower cost.

3. Consumers must receive a fair share of the benefits. The Guidance emphasises that this will be a test of whether the agreement's benefit to UK consumers outweighs the competitive harm (regardless of whether it has wider impacts outside of the UK).

4. The agreement must not substantially eliminate competition. While the Draft Guidance had stated that this requirement would be fulfilled where "some" competition remained, the Guidance has taken a harder line in requiring that "meaningful" competition should remain.

The CMA's open-door policy

The Guidance outlines the CMA's recommended approach for parties entering into ESAs. Helpfully for businesses, entities:

• are encouraged to approach the CMA for informal advice on such agreements, particularly when uncertain about the Guidance's pertinence. In adopting an "open-door" policy, the Guidance emphasises the CMA's approachability and explains that, if the CMA were to conclude in the future that an ESA discussed under the open-door policy did in fact infringe the Chapter I prohibition, there would be protection from fines provided that the parties did not withhold relevant information that would have made a material difference to the CMA's assessment;
• can expect protection from penalties and director disqualifications when they consult the CMA about their sustainability contracts, provided the CMA identifies no competitive issues, or any raised concerns are duly addressed;
• will be protected against any CMA enforcement action where their sustainability agreements align with the stipulations in the Guidance; and
• should anticipate that the CMA will, as a general practice, publish a summary of the discussed sustainability initiatives, accompanied by an evaluation of potential challenges and solutions.

Whilst businesses considering entering into an ESA can therefore approach the CMA for informal guidance, businesses should stay alert that any "protection from fines" eliminates neither the possibility of fines from regulators in other jurisdictions where the ESA has potential effects nor the possibility of private actions for damages.

Divergence between the CMA and the Commission and other European regulators

In general, the Guidance aligns with the approach of the Commission in its Horizontal Co-operation Guidelines. However, the CMA adopts a "more permissive approach" in the assessment of benefits arising from ESAs which contribute to combating climate change - i.e. the above-mentioned "climate change agreements". Specifically, when assessing whether consumers receive a fair share of benefits under an agreement, the Guidance permits the totality of benefits accruing to all UK consumers arising from the agreement to be taken into account, rather than those accruing only to consumers within the relevant (or a related) market. 

By contrast, the Commission resists any broader assessment of consumer benefits. The Commission maintains that, in order to rely on collective societal benefits for an exemption, there must be a substantial overlap between the consumers of the relevant goods or services affected by a sustainability agreement and any other beneficiaries. This stricter approach is being followed by other European competition agencies. For example, the Dutch Authority for Consumers & Markets's (ACM) position in its draft guidance was that sustainability benefits to "society as a whole" should be taken into account under the 'fair share' assessment. This was the most flexible and permissive approach at the time, allowing parties to rely on a broad set of (potentially global) environmental benefits to justify important sustainability agreements. However, in its Policy Rule published on 4 October 2023, the ACM dropped this approach in favour of the narrower approach of the Commission.

Final thoughts

The Guidance should be welcomed by businesses as an encouragement to explore collaboration that may help drive sustainability. However, for those agreements extending beyond the UK, businesses will need to navigate the divergent approaches of authorities globally. The absence of any overarching framework means that international businesses face uncertainty as to the legality under competition law of any green collaboration initiatives. In practice, businesses should ensure that any ESAs that potentially restrict competition beyond the borders of the UK meet the conditions for exemptions in all relevant jurisdictions.