CMA issues first informal guidance to assist businesses in implementing sustainability agreements

On 14 December 2023, the Competition and Markets Authority (CMA) published its first response to a request for informal guidance under its new Green Agreements Guidance. The informal guidance was issued for the benefit of the Fairtrade Foundation on its proposal to enter into its 'Shared Impact Initiative' with selected UK retailers for the longer-term supply of certain Fairtrade products.

The publication of the informal guidance is the first in what the CMA has promised will be an "open door policy" to enable green collaborations to take place between competitors. It is good to see this informal guidance issued so soon after publication of the Green Agreements Guidance, which should encourage others to approach the CMA under this policy and will also result in additional guidance for those considering entering into similar sustainability agreements.

Background

The CMA's Green Agreements Guidance (Guidance) was published in October 2023. The Guidance is aimed at assisting businesses with their assessment of the application of the UK competition rules to environmental sustainability agreements entered into between competitors. The aim of the guidance is to ensure that businesses are not unnecessarily deterred from cooperating, in a competition compliant manner, in order to achieve sustainability objectives that benefit consumers, including tackling climate change. Agreements that pursue broader societal objectives, such as improving working conditions, are not included under the Guidance.

To assist companies in compliance with the new guidance, the CMA has adopted an "open door policy". This allows businesses to approach it for informal guidance on proposed agreements, either because they raise potential issues not covered by the Guidance or where it is not clear how the Guidance will apply. If the CMA concludes in future that an agreement which received informal guidance does in fact violate competition rules, the parties will be protected from fines and director disqualifications provided the parties did not withhold relevant information that would have made a material difference to the CMA's analysis.

You can read our full briefing on the publication of the Guidance here.

The Fairtrade agreement

Fairtrade Foundation (Fairtrade) submitted a request for informal guidance on its planned 'Shared Impact Initiative'. The Shared Impact Initiative concerns the sourcing of Fairtrade banana, coffee and cocoa products by participating UK grocery retailers, thereby enhancing the sustainability and resilience of food supply chains.

The Shared Impact Initiative's objective is to use longer-term supply arrangements between the retailers and participating Fairtrade producers to provide the producers with more security through long term supply arrangements, in order to allow them to invest in sustainable farming practices which reduce the environmental impact of production. The retailers agree to commit to purchase minimum additional Fairtrade volumes of banana, coffee and cocoa from a pool of Fairtrade producers, for a three- to five-year period.

The CMA concluded that the Shared Impact Initiative was unlikely to raise competition concerns given:

• The agreement as a whole was considered unlikely to affect the main parameters of competition (price, output, product quality, product variety, innovation) and was unlikely to have appreciable effects on competition given the limited scale of the initiative (relative to the overall size of the potentially affected markets);
• The CMA also concluded that the initiative would be likely to result in additional availability and choice of Fairtrade products for UK consumers; and
• To the extent that any specific provisions of the Shared Impact Initiative could have restrictive effects, these provisions were likely to be objectively necessary to implement the initiative and proportionate to achieve the overall sustainable objective of the initiative.

The CMA therefore concluded that it did not expect to take enforcement action in relation to the Shared Impact Initiative. The CMA noted that the parties should keep their agreement under review to ensure that it continues to adhere clearly to the principles in the Guidance. The CMA also clarified that its informal guidance related to the current anticipated form of the terms of the agreement, and that Fairtrade and the retailers must consider the extent to which it is appropriate to rely on the informal guidance should it amend the scope or terms of the agreement. Finally, the informal guidance and assurance that the CMA does not expect to take enforcement action in relation to the agreement is predicated on the condition that the parties did not withhold relevant information from the CMA which would have made a material difference to its assessment.

A positive development 

This informal guidance is a welcome indication of the CMA taking its open-door policy to heart. The Fairtrade informal guidance is the first in what is hoped will be many and forms part of the CMA's wider work on sustainability. Accelerating the UK’s transition to a net zero economy and promoting environmental sustainability are listed as one of the CMA’s proposed strategic priorities in its 2024/25 Annual Plan. The open-door policy is intended to support this aim by providing clarity and comfort to businesses considering entering into similar sustainability arrangements. The fact that the Guidance was issued in November and the first informal guidance was published in December shows that the CMA will engage with parties in good faith and will aim to provide clear and helpful guidance on the applicability of the new rules.

Whilst the CMA's informal guidance is helpful, businesses entering into sustainability agreements which have received a "clean bill of health" from the CMA should remain conscious that the promised protection from fines from the CMA does not necessarily preclude enforcement action from regulators in other jurisdictions or claims from private parties that the agreements violate competition law.

Over the pond, the EU Commission promised to adopt a similar approach of providing informal guidance to its own sustainability guidelines (EU Guidelines, published in June 2023 as part of the new Guidelines on horizontal co-operation agreements, see our blog post here). However, the Commission has yet to publish anything similar to what the CMA has done with the Fairtrade informal guidance. The assessment of sustainability agreements under the EU Guidelines and the CMA Guidance are pretty much aligned, however there remain differences (for example, the definition of sustainability agreements is narrower under the CMA Guidance). It would therefore be helpful to receive more concrete EU guidance to show whether the approach taken by the two enforcement agencies will differ in practice.