CMA sends clear signal it has an important role to play in tackling climate change

• United Kingdom
• Europe

• Competition, EU and Trade
• ESG

26-01-2023

The CMA yesterday released the text of a speech given on 25 January by the newly appointed Chief Executive of the CMA, Sarah Cardell, and published its much awaited consultation on its Draft Guidance on Horizontal Agreements.

It is significant that Ms. Cardell has chosen to focus her first speech following her permanent appointment as CEO on the CMA’s commitment to tackling climate change, putting down a clear market that under her leadership the CMA will have an active and important role to play in the UK’s transition to becoming a net zero economy, noting that “climate change is one of those real-world challenges in which competition and consumer authorities have an important role to play within our existing statutory duties” and “there can be few, if any, bigger challenges facing our economy and our society than climate change. That’s why, in our new strategy, we have prioritized action to accelerate the UK’s transition to a net zero economy. Now, some might question whether environmental sustainability is an appropriate priority for a competition authority. I respectfully disagree.”

In the speech, Ms. Cardell sets out a position for the CMA which clearly indicates that it proposes to take advantage of its post-Brexit freedom and to depart from the position on this issue taken by the European Commission as set out in its Draft Guidance on Horizontal Agreements, and to take a more radical and permissive approach to the role competition law has to play in supporting environmental sustainability initiatives. The approach proposed will be set out in a consultation to follow next month: “we think it is important that firms are not unnecessarily or erroneously put off collaborating in this space by fears about competition law compliance. This is particularly important because industry collaboration is likely to play an essential part in delivering the net zero ambitions”. This guidance will ultimately be integrated into the broader guidance on horizontal agreements.

The focus on ensuring competition law does not stand in the way of environmental sustainability initiatives is the third of 3 ways in which Ms. Cardell identifies how the CMA can and should contribute to promoting environmental sustainability and helping accelerate this transition:

• first, the CMA should help ensure markets for sustainable products or services develop in competitive ways – in the coming year the CMA will prioritise work on emerging markets for these types of products and services using tools such as market studies or through advocacy, advising governments, regulators or industry to foster competitive market conditions to enable environmental sustainable initiatives to thrive and benefit the UK economy and society as a whole;

• second, the CMA can help consumers make informed choices about the climate impact of the goods and services they use by tackling “greenwashing” and unfair or misleading practices; and

• third, the CMA will ensure competition law is not an unnecessary barrier to companies pursuing environmental sustainability initiatives.

With respect to the third area, the CMA will set out in its draft guidance what appears to be a more relaxed and permissive approach as to how to assess the benefits that flow from agreements between companies that restrict competition. Traditionally the assessment of whether consumers receive a fair share of the benefits from a restrictive agreement has focused on the benefits flowing to consumers in the relevant product market i.e. customers of the products or services covered by the agreement. However, the CMA is proposing to take a different approach to climate change agreements. In these cases, the CMA acknowledges that the benefits are not always confined to any particular market, but may accrue to a larger group of beneficiaries or to UK society as a whole, including to consumers outside of the relevant market. For example an agreement between delivery companies to switch to electric vehicles would benefit wider society through a reduction in CO2 emissions: “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. That is provided that those benefits are substantial and demonstrable and in line with well-established national or international goals.”

The CMA’s guidance is promised to provide clarity on what kind of analysis and evidence of benefits the CMA is likely to consider acceptable and persuasive. Furthermore, the CMA has committed that where climate change agreements meet these requirements, the CMA does not intend to take enforcement action and that its door is open to discuss with firms any questions or concerns they may have that are not covered by the guidance and that it is prepared to provide advice directly to those firms.

The approach proposed has yet to be seen and we await the details in the consultation to follow. However, in the meantime, businesses should take comfort from the fact that the CMA has clearly indicated a step change in the way it is willing to support industry in coming together to collaborate on arrangements that will tackle climate change and deliver benefits to society as a whole. The devil will be in the detail, but if the guidance delivers what appears to be promised, firms should have greater confidence to pursue environmentally sustainable initiatives, at least in the UK, that up until now they may have abandoned for fear of competition law.