CMA publishes framework for business collaboration to tackle common environmental challenges

Written on 8 Feb 2021

Competition regulator gives tentative encouragement to sustainability agreements, but remains wary of companies straying into unnecessary collusion

As part of its wider strategic objective in supporting the transition to a low carbon economy, the CMA has published an information document to help businesses and trade associations looking to work together on sustainability projects to navigate competition law and understand where issues can arise.

Sustainability agreements are becoming an important tool for businesses to achieve environmental and sustainability objectives by working together, particularly where the same benefits, such as a reduced carbon footprint, could not be achieved separately or where it may not be financially viable for businesses to make certain changes independently. However, businesses may be deterred from entering into such arrangements by the risk of breaching competition law.

The CMA recognises that the collaboration between businesses is an important means of reaching climate change targets and that competition law should not become a barrier to achieving those goals. The information document is therefore intended to provide "advice for firms and trade associations on how to stay on the right side of the law when producing sustainability agreements". The guidance should help prevent businesses from abandoning sustainability initiatives that would be considered unproblematic.

Overview

The CMA sets out in the information document how competition law interplays with sustainability agreements. It explains why collaboration between businesses for the purposes of achieving sustainability goals are unlikely to infringe competition law, given that the outcome of such collaborations are beneficial and unlikely to harm competition.

It also sets out the current competition framework for self-assessment and introduces the possibility that a sustainability agreement will be permitted under competition law if it meets the requirements of an individual exemption, or if an agreement falls into an existing exemption category.

Businesses are warned of the serious consequences of breaching competition law and, thus, the importance of being aware of what they cannot do – for example, using sustainability agreements as a cover for a business cartel.

The information sheet also deals with some more technical points that should be considered by businesses, which we have summarised below.

Standard-setting

Sustainability agreements often seek to agree environment-related standards (for example, on the environmental performance of products) between businesses, in particular, through trade associations or standardisation organisations.

The CMA sets out what businesses, trade associations and standard-setting organisations should and should not do in order to comply with competition law, including the examples below.

Standard-setting do's:

  • Ensure access to the standard is on fair, reasonable and non-discriminatory terms for all businesses that comply with it.
  • Ensure that the members of a standard-setting organisation remain free to develop alternative standards (including higher standards) or products that do not comply with the agreed standard.

Standard-setting don'ts:

  • Exchange or disclose commercially sensitive information that goes beyond what is necessary for setting the standard.
  • Impose obligations (either directly or indirectly) to comply with the standard, label or code of conduct on businesses that do not wish to participate.

Anti-competitive behaviour

The restrictions and anti-competitive behaviours explicitly highlighted by the CMA that should be avoided include:

  • 'By object' restrictions, such as price fixing, output limitation, the sharing of markets and customers, and bid rigging.
  • Business cartels.
  • Sharing competitively sensitive information (although this is permitted in limited circumstances).

Examples of the anti-competitive behaviours are provided within the information sheet, along with details as to the potential consequences of engaging in such activities, including heavy fines and, in the worst case, imprisonment.

Allowances and exemptions

The information document highlights certain allowances and exemptions that are likely to be available to businesses entering into sustainability agreements. Businesses should make an assessment as to whether any of these are likely to apply to their arrangements. If they do consider an allowance or exemption applies, it is recommended that they consider seeking independent legal advice.

First, the CMA provides simplified guidance on assessing the size of market share. Depending on the particular type of sustainability agreement, the parties may be able to benefit from what is known as a 'safe harbour' if the combined market share of the businesses involved is below a certain threshold and the agreement does not contain any 'by object' restrictions (explained above). This is based on the assumption that the agreement is unlikely to create serious competition restrictions if the parties only hold a small share of the market.  Safe harbours exist for vertical agreements, as well as for horizontal agreements such as research and development and standardisation agreements.

If businesses are unlikely to benefit from a safe harbour, a sustainability agreement could be exempted on an individual basis, provided that, broadly, it can be expected to generate benefits which are outweigh any anticipated restrictions on competition.

Osborne Clarke comment

With pressure mounting across the globe to tackle climate change, the interaction between competition law and sustainability has become increasingly important. Competition regulators and legislators have to strike the right balance between allowing businesses to work collaboratively to achieve sustainability goals, and protecting competition and promoting innovation. The CMA's new guidance covers well established principles, but explaining their specific application to sustainability agreements is undoubtedly helpful.

In addition to issuing information to businesses, the CMA is also progressing other initiatives in the environmental and sustainability space, such as its market study into the electronic vehicle charging sector and through engagement with stakeholders in sustainability fields.

Alongside the information document, the authority has posted a blog outlining the ongoing international discussion on the interplay between competition law and environmental sustainability. It will consider whether to take further steps as the international discussions develop.

As we highlighted in our previous insight, the CMA is not alone in its desire to ensure that competition law is fit for supporting sustainable collaborations. The European Commission and the Netherland's ACM among others, are also taking an active interest in driving forward the sustainability policy within the regulation of competition. If you would like to discuss any of these issues further, please contact one of the experts listed below or your usual Osborne Clarke contact.