Clifford Chance

We broadly welcome the UK Competition and Markets Authority's (CMA) proposed guidance on the application of the law on anticompetitive horizontal agreements to environmental sustainability agreements (Draft Guidance). In our response to the consultation, we highlighted some additional areas that the Draft Guidance could usefully cover to provide businesses with greater certainty.

The Draft Guidance proposes a progressive approach to assessing sustainability agreements, and the Draft Guidance is clear and replete with examples that businesses are likely to find particularly helpful. We therefore consider that the Draft Guidance is very welcome, and that it will lessen the scope for businesses to be deterred from entering into agreements that are positive and permissible under UK competition law.

Overview of the Draft Guidance

The Draft Guidance covers two types of agreements: "environmental sustainability agreements" and "climate change agreements".

• Broadly speaking, environmental sustainability agreements are agreements aimed at reducing the adverse impact that business has on environmental sustainability. This includes agreements aimed at improving air or water quality, conserving biodiversity, or promoting the sustainable use of raw materials. Agreements that pursue broader societal objectives (for example, improving working conditions) are excluded.
• Climate change agreements are a sub-set of environmental sustainability agreements and are those agreements that contribute towards the UK’s climate change targets. This includes agreements aimed at reducing emissions of carbon dioxide, switching to using electric vehicles, and not to provide support such as financing or insurance to fossil fuel producers.

Widened exemptions for sustainability agreements

The core of the Draft Guidance relates to the exemption that applies to agreements that otherwise are found to be restrictive of competition. Ordinarily, this exemption is applied narrowly, and businesses are often hesitant to rely on this exemption. The Draft Guidance helpfully widens the scope of the exemption for sustainability agreements, aided by the use of relevant examples.

For environmental sustainability agreements, the Draft Guidance provide two helpful clarifications on how to assess whether consumers receive a fair share of the benefit of the sustainability agreement.

• First, it states that the CMA will look at future benefits, not just current benefits.
• Second, normally, the CMA considers that the relevant customer base against which the benefits of the agreements are to be assessed is limited to only those customers of the products or services to which the agreement relates. However, the Draft Guidance states that the CMA may consider the benefits that accrue to customers on a separate but overlapping market.

… and an even more permissive approach for climate change agreements

In recognition of the exceptional nature of the harms posed by climate change, the Draft Guidance proposes an even more permissive approach for assessing whether consumers receive a fair share of the benefits of climate change agreements. For such agreements, the "fair share" condition can be satisfied by taking into account the totality of the benefits to all UK consumers arising from the agreement. This will significantly expand the scope of the exemption.

An open door, and protections from penalties

The Draft Guidance also seeks to be practical. As part of this, the CMA is proposing to operate an open-door policy, whereby businesses can approach the CMA for informal guidance on their proposed agreements. As part of this, the CMA may indicate any options, concerns, risks, and possible solutions. Where it feels comfortable doing so, the CMA may provide comfort to businesses that their agreements comply with competition law and on how the guidance applies. In other cases, the CMA may agree adjustments with businesses to ensure compliance. With the further aim of increasing transparency and guidance in mind, the CMA will typically publish a summary of the agreements considered and an assessment of the risks and solutions identified.

Moreover, where businesses implement agreements that clearly correspond to the examples in the final guidance and are consistent with the principles in the guidance, the CMA is proposing to not take any enforcement action against those agreements. And where parties implement an agreement that was discussed with the CMA and the CMA did not raise any competition concerns, the CMA is proposing to not issue any fines against those businesses.

Our response

In our response to the CMA, we welcomed the initiative taken by the CMA, its open-door approach, and noted that the examples cited are likely to be of real help to businesses. 

We noted the following additional points.

• Given the more permissive approach proposed for climate change agreements, we called for greater clarity on the dividing line between environmental sustainability agreements and climate change agreements.
• Environmentally friendly products are often valued more highly by consumers, such that consumers are willing to pay more for them. However, the Draft Guidance is unclear whether any increase in both price and quality will fall to be assessed under the rules on exemptions, or whether the CMA is proposing that such agreements fall outside the law on anticompetitive agreements.
• Many of the examples are caveated in ways that businesses might not find helpful, for example by stating that intra-group agreements are "unlikely" to infringe competition law. We therefore suggested that the CMA should be more forthright in opining on whether the examples it cites infringe competition law.
• The rationale the CMA advances for its more permissive approach to climate change agreements applies equally to environmental sustainability agreements. We therefore suggested that the wider exemption should be extended to environmental sustainability agreements.
• We called for the CMA to advocate to the Government to clarify the CMA's interpretation of the relevant customer base under the "fair share" test. Otherwise, businesses will remain concerned of the risk of private litigation on the basis that the CMA has elsewhere indicated that the legal test for defining the relevant customer is narrower. This risk is exacerbated by the Draft Guidance's proposal to publish details of the arrangements that parties have disclosed to the CMA.
• We queried the rationale for the proposal, on the one hand, to not take enforcement action against agreements that clearly correspond to the examples in the final guidance, but, on the other hand to only offer protection against the imposition of fines (implying the CMA may still enforce against these agreements) where parties implement an agreement that was discussed with the CMA and where the CMA did not raise any competition concerns.

Next steps

The CMA is in the process of reviewing the feedback it has received. The CMA has stated that it then intends to integrate the final guidance within the final guidance on Horizontal Agreements, for which the CMA is also currently reviewing the feedback. In the meantime, please reach out if you would like to discuss the Draft Guidance in further detail.

The CMA's focus on sustainability agreements is aligned with other European competition regulators. You can read more about the Dutch proposal here, and the European Commission is currently also consulting on sustainability proposals in relation to both its revised Horizontal Guidelines and its Guidelines on the application of Article 210a of the CMO Regulation on sustainability agreements in agriculture.