CMA publishes high level guidance on environmental sustainability agreements and competition law

On 27 January 2021 the CMA published high level Guidance on environmental sustainability agreements and competition law (Guidance). Supporting the transition to a low carbon economy is one of the CMA’s strategic objectives (set out in its annual plan for 2021/22) and the CMA is keen to ensure that competition law does not act as an obstacle to business cooperation on sustainability projects.  The Guidance sends a positive message to businesses involved in sustainability initiatives, making it clear that the CMA will engage with businesses in order to ensure they are not deterred by concerns over breaches of competition law, but the CMA will also make sure that markets remain competitive and open to innovation.

The Guidance outlines the current competition law framework for assessing compatibility of agreements with the competition rules and highlights the key points to consider in the context of sustainability agreements.

Sustainability agreements

Sustainability agreements for the purpose of the Guidance are described as “cooperation agreements between businesses (including industry-wide initiatives and decisions of trade associations) for the attainment of sustainability goals, such as tackling climate change”. For example, businesses may decide to combine expertise to make their products more energy efficient or agree to use packaging material that meets certain standards in order to facilitate package recycling and reduce waste.

Sustainable development goals can include a wide range of objectives in addition to dealing with climate change, but the CMA’s current focus is on the environmental aspects of sustainability agreements given its strategic priority related to climate change.

Guidance on standard setting agreements

Standard setting procedures in relation to sustainability (such as on environmental performance of products, production processes or resources used), must be open to all competitors in the market affected and access to the standard must be on fair, reasonable and non-discriminatory terms for all businesses that comply with it. Businesses or trade associations involved in standard setting should not disclose commercially sensitive information that goes beyond what is necessary for setting the standard.

Business cartels

Sustainability agreements should never be used as a cover for a business cartel.  The most serious restrictions of competition law (‘by object’ restrictions) such as price fixing, market or customer sharing, output restrictions, bid rigging should be avoided in sustainability agreements as they will be incompatible with the competition rules.

Sharing commercially sensitive information

Cooperation on sustainability will not justify the exchange of competitively sensitive information between current or potential competitors, in particular information on future prices and output plans. Historical information (generally older than 3 years) is less likely to be sensitive, in particular when shared in aggregated format so that individual businesses cannot be identified.  It may also be possible to share information through an independent third party in order to create aggregated market-wide statistics, but care should be taken to ensure that the individual information received is not disclosed to competing businesses.

Block exemption Regulations and individual exemptions

Businesses should also consider whether their agreements benefit from existing block exemption Regulations or meet the conditions for an individual exemption under section 9 of the Competition Act 1998.  As of 1 January 2021 existing EU block exemption Regulations have been taken over into UK legislation as Retained block exemption Regulations.

At this stage there is no guidance on whether efficiencies resulting from sustainability agreements can be taken into account if they benefit society as a whole rather than a group of consumers affected by the agreement, or how these efficiencies should be evaluated and measured.

The CMA has indicated that it will continue its close engagement with other international competition enforcers and will consider whether further guidance on these issues is required.

The Dutch competition authority was the first competition authority in the EU to issue draft guidelines on sustainability agreements in July 2020 and has recently issued a revised version, taking into account feedback obtained following a public consultation (see press release here). The Dutch guidelines are much more detailed and offer more practical guidance on what is and is not permitted. The authority has also confirmed that parties which adhere to the draft guidelines will not be fined for their cooperation agreements and it is actively encouraging engagement with the authority at an early stage of any proposed cooperation.

There is a call at Member State level for EU guidelines in this field in order to ensure a uniform application of the rules. The EU Commission recently issued a consultation on Competition Policy and the European Green Deal, focused on how the EU competition rules can better support the European Green Deal. Responses to the consultation were published on 20 January 2021 and DG Competition is hosting a Competition and Green Deal conference on 4 February 2021 (see more information here).

Contacts