On 28 March 2025, the CMA published its response to a request for guidance from the Builders Merchants Federation (the BMF). This is the third piece of informal guidance published under the CMA’s Green Agreements Guidance (the Guidance) and associated “open door” policy, the purpose of which is to encourage businesses to collaborate on initiatives that pursue sustainability objectives, without fear of repercussions from breaching competition law.

Background

Under the open door policy, parties may seek the CMA’s views on proposed green agreements. Following the submission of information on the proposed agreement, and the parties’ preliminary competition law assessment of it, the CMA provides informal, non-binding guidance as to the agreement’s compatibility with the Chapter I prohibition of the Competition Act 1998 (CA98). Whilst not a definitive statement on the legality of the agreement, where appropriate the CMA will confirm in such guidance that it does not expect to take enforcement action in respect of the agreement.

Pursuant to the Green Agreements Guidance, where a cooperation agreement is deemed to help the UK meet its international climate change obligations, the CMA will take into account relevant substantiated benefits accruing to UK society as a whole – not just to consumers in the markets concerned. In the case of “mixed agreements” – i.e. those (such as the BMF’s proposal) that pursue climate change objectives alongside other sustainability-related objectives – the climate change benefits are assessed separately to the other stated benefits of the agreement.

The CMA’s first piece of guidance under the policy in December 2023 dealt with a proposal from the Fairtrade Foundation to enhance sustainability in food supply chains by increasing grocers’ purchases of fairtrade products. The second piece of guidance was issued in March 2024 to WWF-UK and concerned a proposal to reduce emissions in the grocery sector by requiring suppliers to set science-based net-zero targets and requiring retailers to commit to introduce incentives (e.g. preferred payment terms) for suppliers who achieve certain net-zero milestones (with the nature of such incentives to be decided individually by each of the retailers).

This latest piece of guidance follows a proposal from the BMF to introduce a standardised approach to supply chain assurance (SCA) in the construction sector (the Proposal).

The BMF’s proposal

The BMF is a trade association for building materials supply, representing builders merchants and suppliers of building materials with combined sales of over £50bn.

According to the BMF, its members face growing demands for thorough, audited supply chain assessments. Whilst some members have already developed or procured their own solutions in this regard, the BMF believes a collaborative, standardised approach would be most efficient, enabling an assessment of suppliers’ ESG credentials on a like-for-like basis. 

The BMF therefore proposed selecting a single, recommended SCA platform to simplify how builders merchants assess the economic, social and governance (ESG) credentials of their supply chains and improve transparency and standards across the construction industry. 

In partnership with the preferred platform provider (initially Verisio), the BMF will create a standardised ESG questionnaire (the Questionnaire) for industry-wide use. Supplier responses will be processed and assessed through the platform and an ESG risk rating assigned to each supplier. Merchants will then decide unilaterally whether or not to trade with a given supplier, in view of the relevant risk rating. BMF members may choose alternative SCA providers if they prefer; those that do choose to use Verisio will contract with it individually, with the relevant fees set by Verisio and applying equally to BMF members and non-members. 

Potential competition issues identified by the CMA

The CMA concluded that the Proposal would not restrict competition by object. It then considered whether the Proposal might potentially lead to the adverse effects on competition highlighted below.

Exploitation of a strong market position resulting from the foreclosure of other providers from the market for SCA platforms, and ineffective competition for the market in future

The CMA considered that BMF’s recommendation of a single preferred provider had the potential to foreclose other SCA providers and limit competition in the market, by effectively reserving BMF members’ demand to that provider. This might give Verisio market power, at least for an initial period, which it could exploit by raising its charges or reducing quality. 

Verisio’s market power might also be reinforced by network effects, if merchants’ widespread use of the platform in turn prompted an increased uptake by suppliers and a reluctance to switch away from it. This could lead to customer lock-in and give Verisio an unassailable competitive advantage, limiting competition “for” the market, as and when the preferred provider is re-selected.

These concerns were (at least partially) addressed by other features of the Proposal, some of which were introduced by the BMF following its initial submission and discussions with the CMA (the Additional Steps).  These included:

• making the Questionnaire open source and available to rival SCA providers;
• ensuring data portability, with supplier assessments and merchants’ supply chain information capable of being transferred to alternative SCA platforms; and
• running regular competitive tenders for the preferred platform provider status, with the first tender to take place within 24 months of the platform’s launch.

The CMA considered that, whilst Verisio’s appointment as the first preferred provider would likely give it an initial advantage, this would be limited to 24 months (and could be truncated by BMF if Verisio were to worsen its terms or quality of service) and regular tenders would ensure ongoing opportunities for rivals. Further, making the Questionnaire open source would lower barriers to entry for rival SCA providers (who would not need to develop their own questionnaires) and portability of supplier assessments and supply chain information would reduce switching costs for merchants and suppliers.

The CMA therefore concluded that the Additional Steps would enhance competition. However, they might not eliminate reluctance among merchants and suppliers to switch providers, such that there remained some risk of an appreciable negative effect on competition.

Foreclosure of providers of associated value-added services

The CMA noted that suppliers and merchants that choose to use Verisio for SCA might also opt to use it for associated value-added services, creating a competitive advantage for Verisio over rival providers of such services.

However, the BMF submitted that users would remain free to choose other providers of such services, and data portability measures would benefit those providers (the relevant SCA data being important to the provision of value-added services).

Exchange of competitively sensitive information (CSI)

The CMA was concerned that the Proposal could facilitate the sharing of CSI between competitors, by virtue of their participation in the BMF’s sustainability working group (which designed the Proposal), or the design of the single preferred platform itself. 

Consequently, the CMA specified that safeguards should be put in place to prevent such exchanges of information – including merchants only being able to view their own supply chain information (as well as the overall supplier pool) on the platform, without seeing which other merchants trade with those suppliers. 

Possible individual exemption

As noted above, the CMA concluded that there remained some risk of the Proposal having an appreciable negative effect on competition. It therefore went on to examine the BMF’s analysis of whether the Proposal might be exempt under section 9 CA98, on the basis that its benefits outweigh any harm to competition. 

The requirements of section 9 are notoriously difficult to satisfy in practice. It is notable, therefore, that the CMA found plausible evidence that the Proposal would generate significant cost savings for merchants and suppliers – with single-homing of SCAs reducing duplication and administrative burdens compared to multi-homing – which would be passed on to consumers in the form of more ESG-assured products, at lower prices. 

Additionally, the CMA considered that there would likely be substantial – and quantifiable – environmental benefits, particularly in terms of greenhouse gas emissions reductions, due to supply chain improvements. These ‘climate change benefits’ were assessed by reference to their effect on UK society at large, with the CMA noting that the Proposal would help the building materials sector achieve the significant emissions reductions required for the UK to meet its net zero targets.

Having also agreed that the appointment of a single preferred provider was reasonably necessary to achieve these benefits, and that steps had been taken to ensure such appointment wouldn’t lead to an elimination of competition, the CMA concluded (albeit not definitively) that the Proposal was capable of satisfying the conditions of section 9 CA98.

Conclusion

In view of the above conclusions, the CMA confirmed that it did not expect to take enforcement action against the Proposal, subject to:

• the Proposal being implemented as described;
• the Additional Steps and safeguards against information exchange being implemented;
• there being equal access for BMF non-members;
• the BMF monitoring the pricing and quality of the recommended platform; and
• the initial 24-month period being kept under review and shortened if warranted.

What this means for sustainability agreements

This further guidance from the CMA is welcome. After a period of relative quiet, it is reassuring to see the CMA continuing to engage constructively (albeit slowly – this process took over a year from start to finish) on such proposals, helping build a body of acceptable practices that should increase business confidence in respect of potential collaborations on sustainability initiatives. 

It is also notable that two of the three pieces of guidance to date have included favourable indications on arguments relating to the applicability of section 9 CA98, with the CMA factoring in climate change-related benefits flowing to all UK consumers (not just those in the relevant market) – something the European Commission does not do under its equivalent regime.

That said, whilst all guidance is welcome, each of the three cases considered by the CMA to date (at least publicly) has stayed on relatively safe ground. As a general rule, competition authorities have not objected to arrangements co-ordinated by trade bodies or similar organisations that aim at improving ESG factors (arrangements aimed at limiting environmental progress are a different matter, however). Businesses and advisers may feel they are still waiting for guidance that truly moves the dial.

It will, therefore, be interesting to see how the CMA’s approach continues to evolve, particularly as and when businesses come forward with more challenging initiatives.