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.
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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