A changing climate for the treatment of sustainability agreements under UK competition law?

Growing concern over climate change has led to a keen debate over whether and how competition law enforcement should adapt to facilitate collaboration between competing firms on environmental and sustainability goals.  Many competition authorities have been wary of condoning cooperation for these purposes.¹  Conversely, the Dutch Authority for Consumers & Markets has been at the vanguard of those who propose a more flexible approach, and there have been calls for the UK Competition and Market’s Authority (CMA) to follow-suit.

Until recently, the CMA’s movements in this area were largely focused on consumer protection, such as measures to prevent companies making misleading claims about ‘greenwashing’; and CMA guidance  published on the issue of sustainability agreements in 2021 largely limited itself to a recitation of how established competition law principles should apply to those agreements.

However, in a recent speech delivered to the Scottish Competition Forum, Sarah Cardell, the CMA’s CEO, announced an intention to issue more flexible guidance on how such agreements might be exempted from UK competition law, on the basis that “climate change represents a special category of threat: the sheer magnitude of the risk that climate change represents, the degree of public concern about it, and the binding national and international commitments that successive UK governments have entered into, set it apart”.  Cardell promised further guidance in the coming weeks.

The legal context

Section 2 of the Competition Act 1998 prohibits certain agreements and practices that have “as their object or effect the prevention, restriction, or distortion of competition”.  Not every agreement between competitors falls foul of this provision.  But even where an agreement does so, Section 9 of the Competition Act 1998 can exempt agreements that “contribute to improving the production or distribution … or to promoting technical progress, while allowing consumers a fair share of the resulting benefit” provided they do not impose any restrictions that are not indispensable to achieving those objectives and do not eliminate competition.

An assessment under Section 9 requires a balancing act between the competitive harm and the benefits of an agreement.  Recent years have seen considerable debate about how environmental benefits should be weighed against competitive harm, in particular as regards whether authorities should take account of environmental benefits that accrue to society at large, and not just the narrow group of customers who purchase the relevant product or service.  European competition authorities have tended to focus on benefits accruing only to customers and not broader societal benefits arising from an agreement, though this interpretation of EU law has been challenged, including by the Dutch Authority for Consumers & Markets.

CMA position on the ‘fair share’ criteria

The European Commission has continued to indicate a continued focus on benefits that accrue to the customers that are directly affected by the agreements. Cardell’s speech, however, suggests that the CMA may see the world differently when considering the benefits of ‘climate change agreements’:

“In relation specifically to agreements that make a substantial and demonstrable contribution to tackling climate change, in line with well-established national or international goals, the CMA intends to depart from the more traditional approach to the ‘fair share’ assessment…Provided that consumers in the relevant market form part of the wider group of consumers who benefit from the agreement, we consider it appropriate, when assessing whether a climate change agreement may be exempt, to take into account the full benefits to UK society which derive from the agreement.”²

Cardell made clear, however, that this will not provide a free pass for competitors looking to cooperate.  Rather, firms seeking to argue that environmental benefits will accrue to wider society must be able to demonstrate (and ideally quantify) that those benefits are “substantial and demonstrable” in circumstances where they would otherwise give rise to a risk of anti-competitive outcomes.

The CMA intends to publish draft guidance on this issue “in the coming weeks”. It has the potential to be the most significant substantive departure from EU competition law enforcement since Brexit.

¹ Note in this regard,  Competition policy in support of the Green Deal, Executive Vice-President Vestager’s keynote speech at the 25th IBA Competition Conference of September 10, 2021, delivered by Inge Bernaerts, Director, DG Competition and Environmental sustainability and competition law in Europe – where are we now? - Macfarlanes

² See Sustainability - Exploring the possible - GOV.UK (www.gov.uk)