On 25 January 2023, the new CEO of the UK Competition and Markets Authority (“CMA”), Sarah Cardell, set out one way in which the CMA will seek to ensure that the UK’s transition to a net zero economy will not be held up by competition law concerns. Significantly, Sarah Cardell again emphasised that environmental sustainability is a strategic priority for the CMA. This is an invitation for businesses to start pushing harder on the CMA’s open door, for which Mayer Brown’s ESG team is on hand to help.
Action to date
For a number of years, the CMA has had climate change as an organisational priority (as has Mayer Brown – see here): one of the themes in its annual plan for 2021/22 was “supporting the transition to a low carbon economy“. This was rolled over into 2022/23, when one of the key priorities outlined was “supporting a wider effort to make our economy cleaner and greener”. More recently, the CMA published its consultation for the 2023/24 Annual Plan in December. One of the proposed priorities for the CMA is that “the whole UK economy can grow productively and sustainably”.
- In December 2020, the CMA launched a market study into the electric vehicle charging sector in the UK. It published its final report in July 2021, at which time the CMA opened a Competition Act investigation into the supply of electric vehicle charge points on or near motorways;
- In January 2021, the CMA published guidance to help businesses looking to work together on sustainability projects to navigate competition law and understand where issues may arise;
- In September 2021, the CMA published its ‘Green Claims Code’, which offers guidance on environmental claims made by businesses in advertising, noting that it would take action against offending advertisers, and which formed part of a wider profile-raising campaign in advance of the UN Climate Change Conference (COP26) (for further information on the Green Claims Code, read our earlier blog post here). The European Commission has taken similar action in respect of ‘green washing’;
- In March 2022, the CMA published its advice to government on how competition and consumer regimes could better support the UK’s net zero and environmental sustainability goals. This stated that whilst no new rules / tools were needed, it would take a more flexible approach when assessing whether agreements between competitors that pursue sustainability goals should be exempted under the Competition Act 1998;
- In Spring 2022, the CMA held its first ‘Sustainability Week’ and established an internal taskforce to ensure that green concerns remain high on the agenda; and
- This action mirrors a general trend amongst regulators both in the UK, with, for example, the Financial Conduct Authority releasing its Sustainability Disclosure Requirements (SDR) Consultation Paper in October 2022 (for further information on the FCA’s SDR Consultation Paper, read our earlier blog post here), and further afield. With regard to the latter, the EU and US continue to engage over the US’s $369bn subsidy package for climate action, which the EU has argued risks undercutting its own market for technologies such as electric vehicles without greater focus on competition and market access. On 1 February 2023, the European Commission published details of a proposed Green Deal Industrial Plan for the Net-Zero Age, which is intended to facilitate and accelerate access to funding for the use of clean technology in manufacturing, the installation of net-zero products and energy supply in Europe, including by relaxing the application of the EU State aid rules in relation to support for green investments.
Flexible but firm
In this recent speech, whilst maintaining that no new rules are necessary, the CMA has made significant proposals as to how it might use its powers most effectively in the net zero climate:
- Ensuring that markets for sustainable products or services develop in competitive ways – a reference to the use of the CMA’s ‘markets’ tools to understand the issues in the relevant markets better, which might lead, for example, to recommendations to government or to enforcement action;
- Helping consumers make informed choices about the climate impact of the goods and services they use – such as the CMA’s misleading green claims work; and
- Ensuring that competition law is not an unnecessary barrier to companies seeking to pursue environmental sustainability initiatives.
It is on this last point that significant proposals and changes in ways of working, are now anticipated. More specifically, whilst staying within the scope of Chapter 1 of the Competition Act 1998, which prohibits agreements, decisions and concerted practices between undertakings that have as their object or effect the restriction, distortion or prevention of competition within the UK, the CMA will in future make use of the section 9 exemption, which applies when the ‘benefits’ of any co-operation outweigh the harms, and customers receive a ‘fair share of the benefits’. Traditionally, the assessment of whether consumers receive a ‘fair share of the benefits’ of the restrictive agreement has focused on the benefits flowing to consumers in the relevant product market – that is, to customers for the products or services covered by the agreement. However, the CMA appears to be flexing its post-Brexit freedom in letting “benefit to society as a whole” count for this exemption to apply. As such, companies co-operating on green initiatives potentially have a greater prospect of avoiding competition penalties for genuine sustainability partnerships. Nevertheless, the CMA has made clear that it “will not, however, tolerate spurious environmental claims being used as cover for anti-competitive practices“.
A flexibly green future?
Details of this flexibility are awaited and needed. In the meantime, the CMA has encouraged businesses and their advisors to “contact us, preferably at an early stage, and we will be happy to discuss options, concerns, risks and possible solutions“. This echoes the revised notice on informal guidance adopted by the European Commission last year, which provides an expanded mechanism for businesses to obtain enhanced comfort – through so-called ‘guidance letters’ –- on the application of the EU competition rules to novel or unresolved questions, which might arise, for example, in the context of sustainability agreements. Additional comfort for companies looking to work with others in this area might come from the European Commission’s new draft horizontal guidelines which, for the first time, look set to provide explicitly for the exemption of sustainability agreements between competing companies from the prohibition on restrictive agreements if there is a collective benefit to society – these are expected to come into force in the summer of 2023. The CMA has just released its draft guidance on horizontal agreements for consultation, with a separate consultation on sustainability guidance to follow.
In the context of sustainability agreements, therefore, it is imperative to exercise caution when discussing prospective plans with competitors – the approach of regulators is evolving and active. For the time being, whilst the CMA is not pushing for new powers in the ESG area, given the wider backdrop of reforms all aimed at giving the CMA more powerful tools, active enforcement and further developments look sure to be forthcoming. It is not a coincidence that the day after the announcement of the adoption of a more flexible approach, the CMA launched an inquiry into “Green” claims made in advertising for household basics, such as washing-up liquid, to determine whether they are misleading (for further information on this inquiry, read our earlier blog post here).