CMA publishes informal guidance on WWF-UK climate change agreement

On 19 March 2024 the CMA published informal guidance under its Green Agreements Guidance, following a request from WWF-UK (World Wildlife Fund UK) for guidance on a Proposal involving competing leading supermarkets making a joint commitment to increase the number of suppliers setting net zero targets by an agreed date, in order to help them to reduce greenhouse gas emissions resulting from their supply chains.

The CMA concludes that it does not expect to take enforcement action in respect of the Proposal, but that participating retailers should take into account feedback from suppliers and reengage with the CMA if they receive credible evidence that gives rise to significant concerns about the potential impact of the Proposal.

This is the second time the CMA has adopted informal guidance under the Green Agreements Guidance.  In December 2023 the CMA published its first response to a request for informal guidance made by the Fairtrade Foundation on its proposal to enter into a ‘Shared Impact Initiative’ with selected UK retailers for the longer-term supply of certain Fairtrade products (see our briefing here).

The informal guidance is part of the CMA’s ‘open door policy’ under its Green Agreements Guidance, under which businesses can approach the CMA for informal guidance on proposed agreements, either because they raise potential issues not covered by the Green Agreements Guidance or where it is not clear how the Guidance will apply. The CMA will not take enforcement action in relation to an agreement discussed under the policy and where the CMA did not raise concerns, provided the parties did not withhold relevant information that would have made a material difference to the CMA’s assessment.

The CMA will typically expect to publish its informal guidance in order to provide more clarity or comfort for other businesses who may be considering entering into similar environmental sustainability agreements.

It is encouraging to see the CMA is taking its open-door policy to heart, with the adoption of informal guidance in two cases only months after the adoption of its Green Agreements Guidance.  This is in contrast with the EU Commission, which has promised to take the same approach under its sustainability guidance, but is yet to publish similar informal guidance.

The Proposal

According to WWF-UK the food system accounts for 30% of global greenhouse gas (GHG) emissions, and indirect emissions in the supply chain account for 97% of the total GHG footprint of retailers.  WWF-UK submits that reducing these indirect emissions in the supply chain is a priority in order to meet the UK government’s binding climate change targets.

As part of this work five UK supermarkets made a joint commitment with WWF-UK in November 2022 to support their suppliers to reduce their GHG emissions against a set timeline.

Given the scale and pace of change needed to reduce indirect submissions in the supply chain, WWF-UK is now considering building on this joint commitment with the Proposal, under which the retailers jointly commit:

• To require suppliers who account for at least 80% of each retailer’s supply chain emissions to set net-zero targets by an agreed date; and
• To introduce incentives (eg preferred payment terms) for those suppliers who achieve the net-zero milestones and disincentives (eg penalties such as delisting) for those that do not.

The CMA’s assessment

WWF-UK explains that the Proposal is designed to reduce GHG emissions from grocery supply chains by helping suppliers to set net zero targets more quickly and effectively.  The CMA considers that the Proposal qualifies as a climate change agreement as defined in the Green Agreements Guidance and qualifies for informal guidance under its open-door policy.

The CMA concludes that the Proposal does not have the object of restricting competition.  It does not appear, by its very nature, to eliminate or harm competition between retailers or lead to market sharing, fixing trading conditions or limiting production or investment.

The CMA considers the Proposal to be akin to a ‘phasing out agreement’, that involves the phasing out over time of non-sustainable products or processes.  Under the Green Agreements Guidance such agreements are unlikely to raise competition concerns where they do not involve an appreciable increase in price or reduction in product quality or choice for consumers, and provided the agreement does not have the object of eliminating or harming the parties’ competitors or of market sharing.

Because of the lack of information available at this stage, in particular around the specific costs and benefits of the agreement, the CMA is not able to exclude the possibility that some harm to competition or consumers could result from the Proposal.  The CMA does however consider the risk of significant harm to competition or consumers likely to be low.

In addition, the CMA considers that the conditions for exemption under Section 9 of the Competition Act 1998 (the equivalent of Article 101(3) TFEU) are likely to be satisfied.  On the basis of the information available the CMA believes that the Proposal is likely to generate environmental benefits for UK consumers as a result of a reduction in GHG emissions, which should be capable of offsetting any harmful competitive effects that may result from the Proposal.

Based on this high-level assessment and on the CMA’s understanding of the information submitted in the application for informal guidance, the CMA does not expect to take enforcement action against the Proposal.

Further comments from the CMA

The CMA is aware that the Proposal is likely to have an impact on suppliers.  However, in line with its intent to conduct a light touch and proportionate review under its informal guidance policy, the CMA has not sought feedback from suppliers on the Proposal.

In light of this, the CMA expects WWF-UK and the retailers involved in the Proposal to take into account any feedback from suppliers when implementing the Proposal and to reengage with the CMA if suppliers provide credible evidence that may raise significant concerns about the potential impact of the Proposal.