UK CMA issues guidance on balancing sustainability and competition law

In an information sheet intended to encourage firms to take part in environmental initiatives while navigating current competition law, the CMA said competition law issues were most likely to arise where cooperation significantly restricts competition. However, in many cases, sustainability agreements may deliver benefits that outweigh the potential consequence of restricting competition, the regulator added.

Competition law expert Richard Snape of Pinsent Masons, the law firm behind Out-Law, said: “The tension between competitor cooperation, or industry-wide initiatives, to achieve sustainability objectives and ensuring competition law compliance is a key area of focus for competition authorities and has been over the last 12 months.

“It has been widely recognised that businesses have concerns about their exposure to potential breaches of competition law when considering competitor cooperation and therefore that legitimate sustainability initiatives may be constrained,” Snape said.

The CMA recommended that businesses should use a fair standard-setting process when establishing industry standards with a sustainability goal, including guaranteeing that all competitors in the markets affected by the standard can participate in the process and join the agreement. Those involved should not exchange commercially sensitive information beyond what is necessary to set the standard, or make it difficult for businesses to develop alternative standards.

Otherwise, sustainability initiatives should avoid the inclusion of restrictions such as price fixing, output limitation, the sharing of markets and customers, and bid rigging, as they are usually incompatible with competition rules. The CMA warned sustainability initiatives should never be used as cover for a business cartel.

The CMA noted that participants in a sustainability initiative should self-assess the competition law position by considering available allowances and exemptions such as market share thresholds, and use existing exemptions where applicable.

The guidance includes a flowchart aimed at helping businesses assess if their sustainability initiative breaches competition law, although the CMA added that firms should seek legal advice if they were unsure of the legality of their proposals.

Snape said a survey carried out last year by Pinsent Masons found that 72% of participants wanted more explicit guidance as to what is and is not permissible from a competition law perspective.

“Competition authorities around the world have started to respond, launching studies and publishing guidance to give businesses greater comfort. For example, the Dutch competition authority has published some particularly detailed guidance, and has indicated that companies who follow its guidance in good faith are unlikely to face fines if their initiatives unintentionally fall foul of the rules. The European Commission has undertaken a wide consultation exercise and is hosting a conference on the subject,” Snape said.

“In the UK, the CMA’s new guidance fulfils one of the objectives outlined in its draft 2021/22 Annual Plan, and will give businesses some comfort that the CMA is supportive of the principle that businesses may need to cooperate in order to achieve sustainability goals,” Snape said.

“However, the CMA has opted not to provide businesses with more granular guidance on what might be considered to be permissible or problematic, nor has the CMA proposed any automatic exemptions. Their approach has also fallen short of the Dutch authority’s approach of offering comfort that ‘good faith’ actions will not result in fines being imposed. Instead, the CMA has reminded businesses of the need to undertake their own competition law self-assessment in accordance with existing block exemptions and guidance on competitor cooperation. A detailed assessment of the legal risks in the UK will therefore remain crucial in order to avoid falling foul of the competition rules,” Snape said.