UK CMA Green Agreements Guidance

As in the earlier draft, the UK Green Agreements Guidance still only covers 'Environmental Sustainability Agreements' – namely those collaborations aimed at mitigating the adverse impact collaborating firms' have on the environment or to support environmental sustainability (e.g. improving air or water quality). This contrasts with the European Commission's new horizontal guidance, which provides additional guidance and flexibility for a broader range of societal or ESG arrangements (e.g., those pursuing 'fair trade' goals).

The CMA's most permissive approach is reserved for a sub-set of these agreements – namely 'Climate Change Agreements' – which specifically combat climate change by, e.g., reducing the impact of greenhouses gases produced by the firms' activities.  

New to the final guidance, the CMA does, however, confirm that agreements which pursue both specific climate change goals and broader environmental/biodiversity aims – so-called 'Mixed Agreements' – can benefit from the CMA's most permissive approach.  That permissive approach will be limited only to those aspects of the Mixed Agreement which target climate change – which may be hard to segregate in circumstances where industry-wide collaboration can have evolving, broadly-defined goals.

In another change to the draft, the CMA also confirms that – if more permissive – the CMA's Green Agreements Guidance will also take precedence if a collaboration falls under not only the Green Agreements Guidance, but also other (non-green) CMA guidelines related to, e.g., joint R&D. 

The CMA provides a range of examples of Green Agreements which are unlikely to infringe competition law and will not be prioritised for review, many of which were in the original draft.  These include:

• databases to pool the green credentials of suppliers – provided that there is no commitment to (not) purchase from certain suppliers;  
  
  
• collaborations which are designed to ensure compliance with UK law – provided participants can exceed those legal requirements; and
  
  
• industry codes of conduct and targets – provided that these are open, transparent, allow participants to decide how to meet or exceed those standards etc. (Specific guidance applies to more integrated industry standardisation.)

Helpfully, the final Guidance acknowledges that the goals pursued by the above agreements may well be long-term (e.g., aligned with meeting net zero) and confirms that these non-problematic agreements can be entered into and facilitated by a trade association or NGO. 

New examples of likely non-problematic agreements, added to the final guidance, include green collaborations (e.g., joint R&D) which firms would be unlikely to pursue on their own due to the level of risk involved or the level of investment required.  Additional detail regarding setting industry-wide standards is provided, bringing the UK position closer to that under EU guidance.

For asset managers, pension funds and other financial services firms, of particular interest will be the CMA's new confirmation that agreements between shareholders to vote in support of corporate policies that pursue green goals (or against policies that do not) will be unlikely to infringe competition law, assuming that the relevant corporate changes lobbied for are themselves in line with the CMA's green guidance.  

In circumstances where, in the US in particular, financial industry groups pursuing ESG goals (e.g., NZAM and Climate Action 100+) have been subject to allegations that their objectives and membership criteria breach antitrust laws, this extra guidance is welcome. This complements the CMA's draft which already confirmed that agreements between financial service providers "not to provide support such as financing or insurance to fossil fuel projects" would fall within the category of 'Climate Change Agreements', possibly meriting the most lenient treatment under the CMA's approach.

However, caution does still need to be exercised when signing up to industry-wide pledges which include specific commitments to withhold custom, services or investment from non-sustainable firms. The CMA confirmed that such Green Agreements are unlikely to be treated as a 'by object' offence – i.e., akin to cartel conduct and illegal by their very nature, but clarified that the anticompetitive effects of such 'collective withdrawal' agreements (and their benefits) will likely need to be assessed before getting comfortable. Further, the risk of a private challenge (in the UK or abroad) remains.

The final guidance also retains the CMA's warning that it would pursue agreements which use green objectives as cover for broader, anticompetitive information exchanges and collaborations.

The final guidance also confirms the CMA's more lenient approach to providing individual competition law exemptions to Green Agreements in a break from the European Commission's approach. 

Regarding exemptions for Environmental Sustainability Agreements, the broader category of agreement, on its face, the CMA seems to be applying the usual criteria, common to EU law and traditionally very strictly applied. For example, the CMA still requires the specific UK consumers affected by the restriction on competition (e.g. the purchasers of the relevant product) to be fairly compensated – it's not enough that the UK (or the globe) benefits in the abstract. 

Specific language and examples in the green guidance does however signal possible material extra flexibility here than normal. For example, the CMA acknowledges that: future, long-term and/or indirect environmental benefits are relevant to the assessment; collaborations which bring green products more quickly to market may be worthy of exemption; and even elimination of all competition may be exempted 'for a limited time' to foster a more sustainable, competitive market in the longer term.

The UK CMA is clearly taking a more pioneering approach to exemptions for Climate Change Agreements, following in the steps of the Dutch and Austrian authorities. In assessing the 'fair share to consumers' condition, the Guidance makes clear that the totality of the 'climate change benefits' to UK consumers is relevant. In other words, the assessment is not limited to just the UK consumers within the relevant affected market(s) (in contrast to the position on Environmental Sustainability Agreements).

Quantification of green benefits remains the challenge, even if the final guidance does address this difficulty to some extent. The CMA provides further examples of how to quantify green benefits, including by reference to cases decided by the Dutch competition authority which suggest that the quantification of green benefits need not necessarily be precise, depending on the collaboration at issue. It is hoped that the CMA shows similar pragmatism here.

The CMA has doubled-down on its 'open-door policy', stating that it is "determined to help businesses" do the right thing by providing informal comfort on their green collaborations. 

There are hurdles to getting that comfort. To get full protection from enforcement action and fines, the CMA still requires parties to: conduct an initial self-assessment; comply with any recommendations; and keep their agreements under review. Albeit, in a change, the final guidance does allow for some limited engagement with the CMA prior to submitting the parties' self-assessment to sense-check whether soft comfort from the CMA could be available in principle.

Even absent going through that process, the CMA has however indicated that it will not pursue enforcement action against agreements which comply with the principles of the green guidance – notably, with reference to also complying with the guidance's narrower examples now removed.

If the CMA does provide informal guidance indicating it will not pursue a Green Agreement as a breach of competition law, it has also noted that it may intervene in any private litigation addressing that agreement.