Guiding environmental sustainability initiatives

In-House Perspective assesses the significance of the first set of informal guidance issued by the UK’s Competition and Markets Authority under its new Green Agreements Guidance, which should assist counsel with competition law compliance and enforcement risk in relation to environmental sustainability agreements.

An environmental sustainability initiative has been publicly greenlit for the first time by the UK’s Competition and Markets Authority (CMA) under its new Green Agreements Guidance (the 'Guidance').

The Guidance, published in October, marked the start of an open-door policy that allows organisations to seek informal guidance from the CMA on proposed environmental sustainability agreements between businesses operating on similar tiers of the supply chain.

The informal guidance in question has been given by the CMA to Fairtrade Foundation UK and relates to the Fairtrade Shared Impact Initiative (FSII), which aims to provide producers of bananas, coffee and cocoa with longer-term contractual security and ultimately allow them to engage in more environmentally sustainable farming practices.

To work effectively, the scheme requires participating UK grocery retailers to agree to buy minimum quantities of products from a group of Fairtrade producers on long-term contracts. The CMA’s informal guidance confirmed that the FSII was unlikely to breach competition rules.

The informal guidance is highly significant, says Samantha Mobley, Co-Chair of the IBA Antitrust Section and a senior partner in Baker McKenzie’s competition, trade and foreign investment practice, based in London. ‘It is useful for advisers to see precisely how the CMA approached matters, ie, the CMA probed the parties’ self-assessment thoroughly and agreed that the impact on competition between the retailers and competition between the producers would not affect the main parameters of competition and would be unlikely to have an appreciable effect on competition in view of the limited scale of the pilot’, she explains.

Given the small-scale and eminently noble aims of the FSII initiative, it’s unsurprising that the CMA’s informal guidance gave its blessing, says Michael Reiss, a partner at Euclid Law. ‘What is more significant is that it is a marker of the CMA’s willingness to give informal guidance – something it has rarely done in the recent past – which provides comfort not only to the parties involved in this particular initiative, but also to those contemplating similar initiatives. It is also significant in proclaiming that the CMA will not enforce against the parties involved, provided their initiative remains within the parameters of those disclosed to the CMA.’

The CMA has also pledged not to disqualify business directors who are party to an agreement that has been the subject of positive informal guidance. And it even states that if an agreement that has been given informal guidance later faces private litigation, the CMA may intervene, which offers another layer of protection.

The Guidance, says Mobley, is concise and reflects deep thinking on some challenging issues. ‘It provides a good degree of legal certainty and furthers the mission to ensure that competition law does not stand in the way of legitimate industry collaboration on environmental initiatives’, she says. ‘It also sends a positive signal to business – and perhaps other competition authorities – that competition law policy can play an effective and pragmatic role in tackling climate change, without compromising its aims’.

There may be possible downsides of approaching the CMA for guidance though, she warns. ‘In the event of a negative reaction, it will not be an option to proceed with the original plan and take the risk’, explains Mobley. ‘There is also the cost and limited reassurance for agreements whose effects extend beyond the UK’.

There’s a high likelihood that some businesses are holding back from pursuing projects over fears that potential competition law issues may not be outweighed by sustainability benefits, says Rhiannon Pugh, a senior associate at CMS in London. ‘Hopefully, the Guidance and the corresponding open-door policy could positively influence businesses who were not engaging in sustainability projects to do so, in light of the comfort which is now available in terms of competition law infringements’.

The Guidance isn’t exhaustive, and certain businesses or sectors might have preferred it to include additional worked examples or further clarity on points most relevant to them, says Tadeusz Gielas, a senior practice development lawyer at Pinsent Masons in London. ‘Here, the CMA’s open-door policy can help business get more clarity regarding a joint environmental; sustainability initiative that is not sufficiently covered by the guidance’. 

However, Gielas says, some businesses could consider that the process of seeking CMA informal guidance, via the open-door policy, is too time-consuming or insufficiently transparent. ‘As the impact and effectiveness of the new Guidance becomes clearer over time, the CMA intends to update and refine it to capture new developments and better support businesses/organisations in pursuing green initiatives while remaining competition law compliant’, he explains.

The Guidance and informal guidance are helpful additional tools for businesses and advisers considering green collaborations, says Elizabeth Coleman, a partner at Eversheds Sutherland. ‘However, as the CMA makes clear in the informal guidance, the purpose of informal guidance given to parties is not to provide a definitive statement on the legality of an agreement’. The onus, then, remains on the parties – and their advisers – to carry out a self-assessment of the proposed measures, in light of the Guidance’. 

The Guidance will assist counsel in more confidently advising businesses on their UK competition law compliance and enforcement risk in relation to the environmental sustainability agreements they’re contemplating, says Gielas. ‘It also provides a clear path for direct CMA engagement in case further informal guidance may be required in specific cases. This may also give counsel an opportunity to help influence the CMA’s evolving thinking and approach in this area,’ he adds.

In issuing the Guidance, the CMA joins a growing number of regulators who have issued similar documents, including the European Commission, the Dutch Competition Authority, the Japanese FairTrade Commission and the Competition and Consumer Commission of Singapore.

However, says Coleman, in some respects the scope of the Guidance is narrower than that adopted by other authorities. For example, unlike the position adopted by the European Commission, agreements that pursue broader societal objectives –such as improving working conditions – aren’t covered by the Guidance. The absence of a one-stop-shop, alongside notable absentees such as the US, which hasn’t issued guidance and where a number of private actions have been launched challenging sustainability initiatives, means that international businesses will face ongoing uncertainty as to the legality of their green collaboration initiatives under competition law, she explains.

To truly promote and facilitate environmental sustainability agreements, particularly for businesses operating at an international level, there must be convergence between the approaches of the different competition authorities, agrees Graeme Young, a partner at CMS in London. ‘There is a risk that divergence may result in businesses either taking a “lowest common denominator” approach or refraining from entering into environmental sustainability agreements at all, due to fears of breaching divergent competition laws’, he says.

Lucy Trevelyan is a freelance journalist and can be contacted at lucy@bluemoon-media.com