UK anti-trust & Climate Change - The CMA sets out its stall

Most stakeholders recognise that the scale and pace of emission reductions needed to arrest climate change cannot be achieved only by unilateral actions: cooperation is required to mitigate activities that contribute to climate change. But this need for industry-wide (and indeed cross-sector) cooperation cuts across the core principles of antitrust laws, which are designed to ensure that competing businesses act unilaterally and independently from each other – not only as regards their commercial conduct but also the sensitive information they share with each other.

As explained in our earlier briefing, regulators across the world are alive to the risk that antitrust laws could have a chilling effect on green initiatives, and have been revising their approach accordingly – including the European Commission which published draft ESG guidelines in March 2022.

In the UK, the CMA has been clear in its ambition to support the UK Government's 'Net Zero' strategy and in a speech given by the head of the CMA, Sarah Cardell, last week, the CMA sketched out its planned programme of work to help tackle climate change.

While light on details, the speech gave a good steer regarding how the CMA might set out its stall on environmental sustainability.  The CMA intends to give firms more certainty and flexibility regarding agreements intended to mitigate the effects of climate change, which may otherwise fall foul of antitrust laws. However, it will also use its consumer powers to punish misleading sustainability product claims (so-called 'greenwashing') as well as its far-reaching market study powers, by which it can review the competitiveness of an industry in the aggregate. (Having already looked into the market for EV charging, the CMA has previously promised at least one more sustainability motivated market study this year.) Interestingly, the CMA has also indicated that it will use informal advocacy with industry participants to encourage environmentally sustainable competition. Quite what form that advocacy will take remains to be seen.

As well as encouraging competition in nascent green markets, the CMA also wants to ensure that antitrust laws do not become an "unnecessary barrier to…environmental sustainability initiatives". CMA will seek to achieve this when it publishes guidance in the coming weeks detailing how it will take into account wider environmental benefits when assessing potentially anti-competitive agreements across three broad categories (seemingly similar to the European Commission's own draft taxonomy). Of particular interest will be the extent to which the CMA is willing to show extra flexibility as regards the final category flagged in its speech, dealing with when it might exempt an individual climate change agreement from antitrust laws, despite it potentially having an appreciable anti-competitive effect.

Historically at least, it has been difficult to obtain an individual antitrust exemption under UK (and EU) antitrust law. To profit from an exemption under existing law, end-consumers need to get a "fair share" of the benefits produced from the anticompetitive arrangement. When it comes to sustainability collaboration the policy debate centres on whether it is fair for some groups of consumers to be harmed by collaboration between competitors (say by paying higher prices for 'green' products) just because wider society benefits from that collaboration, or whether traditional antitrust principles need to remain firm.

The European Commission's guidance suggests that while the wider ecological benefits of an agreement can be considered, the group of consumers affected by the competition restriction in the agreement, and benefitting from the efficiency, must be "substantially the same" and the disadvantaged consumers must be "fully compensated" by the environmental gains produced. In other words, for an agreement to be exempted, it is not enough for a business to claim large benefits to society as a whole.

The CMA may take a slightly more permissive approach. It seems that parties will still need to demonstrate the arrangement's substantial contribution to tackling climate change. However, the wider consideration (i.e. the "full benefits to UK society which derive from the agreement") are to also be relevant to that assessment.  Further, it seems that it will be enough for the disadvantaged consumers to merely "form part of the wider group of consumers who benefit from the agreement".

However, the CMA's nod to more flexibility is only one part of ongoing global changes to antitrust enforcement in the ESG sphere. Even within the EU, regulators are taking divergent approaches, with the Dutch, Austrian and Greek authorities being the boldest in their efforts to avoid antitrust becoming a barrier to climate change cooperation. The US position is particularly important: not only do US antitrust authorities currently seem to be taking a more conservative, orthodox approach to analysing climate change cooperation, but firms also face the risk of private antitrust litigation, with the possibility of having to pay treble damages. This is not just a theoretical concern – a number of US federal and state elected officials, and individuals at the enforcers have already raised antitrust concerns with certain ESG initiatives, including those involving asset managers.

In any cross-border initiative, firms therefore need to be mindful of the developing patchwork of guidance and enforcement practices, calibrating their levels of cooperation by reference to the most restrictive regime.

The CMA's announcement is a promising indication that the regulator wants to work with business to give them the certainty they need to unlock climate change cooperation and investment, with the CMA specifically citing the role of asset managers in this respect.

The CMA has promised detailed guidance on what evidence parties need to produce to profit from an environmental antitrust exemption. In a break from its current practice (parties almost always need to self-assess antitrust compliance), the CMA has also indicated that it is willing to provide further certainty to collaborating firms by providing advice "at an early stage" regarding the possible antitrust concerns raised by environmental sustainability initiatives. Climate change cooperation requires buy-ins from multiple stakeholders, whose commercial priorities and attitudes to legal risk may not be wholly aligned. To ensure antitrust laws do not break an initiative's momentum, any further certainty that the CMA can provide firms at an early stage would be welcome – even if its guidance is likely to be non-binding.  Such guidance would also not preclude private antitrust litigation being brought.

As ever the devil will be in the detail. Firms should look out for the CMA's draft sustainability guidelines when they are published in the next few weeks to get a closer read on how permissive and pragmatic the CMA will be in practice. The CMA has been clear that it will be alive to firms using environmental concerns as a cover for other anticompetitive conduct or to avoid competing on green innovation. Striking the balance between flexibility and clarity on the one hand and appropriate safeguards against unnecessary anticompetitive coordination on the other, will not be straightforward for either the CMA in its guidelines or in-house counsel trying to apply them.

It also remains to be seen what role private antitrust litigation may play in the UK and EU in influencing firms' sustainability initiatives and how the CMA's approach to sustainability antitrust enforcement may shape what/how claims are brought in UK courts. Certainly, we are already seeing private (often funded) litigants bringing antitrust litigation in the Competition Appeals Tribunal ("CAT") without prior CMA intervention, including claims taking advantage of the CAT's 'opt out' class action regime which gives litigants greater scope to pursue larger damages pay-outs. (For example, see our earlier briefing on what has been touted as the UK's first environmentally based class action, brought as an antitrust claim.) While the antitrust litigation risk in the UK may be lower compared to that of the US, this is still an issue that firms will need to consider closely if they want to embark on a cooperative sustainability initiative.