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CMA gives green light to NGO-led supermarket collab on "scope 3" emission targets: the WWF-UK informal guidance

CMA gives green light to NGO-led supermarket collab on "scope 3" emission targets: the WWF-UK informal guidance

Overview

The CMA has issued its second piece of 'informal guidance' under the UK's Green Agreements Guidance, using the 'open door policy' by which the CMA can provide informal comfort that a specific environmental sustainability collaboration between competitors does not infringe competition law. 

The opinion concerns a proposal by WWF-UK (building on an existing 2022 scheme) whereby leading UK supermarkets will publicly commit to help reduce "scope 3" greenhouse gas (GHG) emissions across their supply chains by:

  • Setting science-based net zero targets (SBTs) for more of their suppliers - i.e. for those suppliers representing at least 80% of all GHGs produced by the retailer's total supply chain (up from 50% under the 2022 scheme); and

  • Introducing incentives and disincentives for suppliers which meet/fail to meet the relevant GHG reduction targets – including delisting the relevant supplier.

The WWF-UK proposal is notably more ambitious than the only other collaboration the CMA has opined upon under its Green Agreements Guidance (which covered a more narrowly focussed Fairtrade initiative).  As a result, this latest opinion required the CMA to assess, for the first time, whether the initiative's green benefits outweighed the potential harm to competition and, therefore, whether it could profit from exemption.  As such, it potentially acts as a valuable pathfinder for other firms considering how the CMA might approach their own proposed industry collaborations.

Key takeaways

  1. Green light for standardised climate-change targets for competitors' supply chains
  2. First 'real world' application of the "more permissive" approach to exempting climate-change agreements
  3. A pragmatic approach to the CMA's review
  4. Protection from fines, subject to ongoing monitoring
  5. Timing: room for improvement?

Now Reading

Green light for standardised climate-change targets for competitors' supply chains

  • The latest WWF-UK opinion provides insight as to how the CMA may get comfortable with standardised climate change targets agreed between competitors – even if those targets might have a negative impact on those suppliers' ability to compete (e.g. on price).

  • While the CMA could not rule out that the enhanced WWF-UK initiative could have a harmful impact on competition between the supermarkets' suppliers, there were "credible reasons to believe that the proposal would produce relevant environmental benefits that could be capable of offsetting any harmful competitive effects".  In reaching that conclusion, the CMA stays in line with its recent 'Green Agreements Guidance' which suggests that a legitimate agreement to phase-out unsustainable products or processes is "unlikely to raise competition concerns" provided that it does not result in an appreciable increase in price or diminution in quality for consumers.

  • That being said, the CMA's flexibility should not be overstated.  The WWF-UK initiative, e.g.,: (1) still leaves considerable scope regarding how each retailer adopts/enforces the standardised science-based target (SBT) (e.g. each supermarket could choose which suppliers were impacted); (2) does not require detailed information exchange between competitors; (3) does not involve other commercial cooperations which might impact downstream competition (e.g. joint investment, terms with individual suppliers, product development, etc.); and (4) concerns a groceries market which the CMA has already assessed to be very competitive, meaning that the risk of significant harm to consumers is deemed likely to be low (even if certain suppliers might be negatively impacted).

First 'real world' application of the "more permissive" approach to exempting climate-change agreements

  • The CMA assessed for the first time whether an initiative could be individually exempted from the application of competition law, using the additional legal flexibility provided for 'climate change agreements' under the 'Green Agreements Guidance' as regards the so-called consumer 'fair share' criterion required for exemption.

  • This "more permissive" approach allowed the CMA to take into account the totality of the green benefits to all UK consumers arising from WWF-UK's initiative and not just those accruing to the customers buying the products directly affected by the initiative – unlike under EU competition law guidance, whose own green guidance does not offer the same flexibility.

  • To be counted as a climate change agreement, it was sufficient that WWF-UK's initiative was designed to reduce greenhouse gases by "helping suppliers set SBTs more quickly and effectively and, as a result, make a demonstrable contribution to the UK’s binding climate change target."

A pragmatic approach to the CMA's review

  • The CMA's review is explicitly "light touch and proportionate", which is reflected in various facets of its review.
  • The CMA recognised the inherent uncertainty in calculating the green benefits of a scheme yet to be adopted and applying to complex supply chains, as well as the challenges in specifying the specific cost increases to suppliers.  To get comfortable that the initiative's green benefits will outweigh the potential harms, the CMA was willing to rely on reasonably rough calculations, sourced from third-party, non-scheme specific reports and based on a number of key assumptions.  

  • The CMA also placed weight on non-quantitative factors as part of its assessment – it helped that e.g.: (a) the relevant SBTs were already "widely used"; and (b) supermarkets' relationships with suppliers are already regulated under the Groceries Supply Code of Practice.

  • The CMA seems to have also taken a reasonably pragmatic approach as regards applying the other criteria required for individual exemption.  For example, the CMA readily accepted WWF-UK's reasoning for why the industry-wide targets and enforcement mechanisms were "indispensable" as "credible", based largely on WWF-UK's previous "experience" and the "mixed success" of the earlier 2022 scheme.  It was sufficient that, by applying consistent criteria, WWF-UK's initiative realised green benefits "more quickly and effectively".

Protection from fines, subject to ongoing monitoring

  • In line with its 'Green Agreements Guidance', the CMA promised not to fine WWF-UK or grocers involved even if it were to subsequently conclude that the initiative did in fact infringe competition law. 

  • In so doing, the CMA also noted that WWF-UK and grocers were under an obligation to monitor the impact of the initiative, including by taking into account feedback from suppliers (which the CMA did not seek, as part of its light-touch approach). 

Timing: room for improvement?

  • The CMA's pragmatism in deploying the extra flexibility afforded by the 'Green Agreements Guidance' to the WWF-UK initiative is laudable.  But the process did take time.  WWF-UK's request for informal guidance was submitted on 29 March 2023, with three subsequent requests for information and three follow-up calls with the CMA (between March and October 2023). The period between the initial request and the CMA's publication of the informal guidance therefore took just under a year.

  • However, the CMA's engagement with WWF-UK largely predates the publication (in October 2023) of the final Green Agreements Guidance and, therefore, future requests for informal guidance may well be expected to happen more swiftly. Indeed, the WWF-UK opinion itself could help streamline matters, acting as a pathfinder for future similar initiatives.

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