The UK Competition and Markets Authority (CMA) has recently published its first ever response to a request for informal guidance under the CMA’s new ‘open door’ policy for green initiatives. The informal guidance, which was issued at the request of the Fairtrade Foundation, was given by the CMA following the authority’s recent guidance on sustainability agreements.
In October, the CMA published its long-awaited guidance on the application of competition rules to agreements relating to environmental sustainability between competitors (the Green Guidance). The Green Guidance aims to provide greater legal certainty around the circumstances in which legitimate industry collaboration to address environmental sustainability issues, including climate change, can take place.
The Green Guidance considers the application of UK competition law to environmental sustainability agreements, in particular the prohibition on anti-competitive agreements under Chapter I of the Competition Act 1998 (the Chapter I Prohibition). Helpfully, the CMA has adopted an ‘open-door’ policy whereby businesses considering entering into an environmental sustainability agreement can approach the CMA for informal guidance on their proposed agreement. Under this approach, if the CMA were to conclude in the future that an agreement discussed under the open door-policy did in fact infringe the Chapter I Prohibition, there would be protection from fines and director disqualifications provided that the parties did not withhold relevant information that would have made a material difference to the CMA’s assessment.
We covered the CMA’s Green Guidance in a previous client briefing, available here.
The CMA’s informal guidance regarding the Fairtrade Shared Impact Initiative
In this case, the Fairtrade Foundation had submitted a request for informal guidance in relation to its new ‘Shared Impact Initiative’, which aims to enhance sustainability and resilience in food supply chains.
The Shared Impact Initiative would involve participating retailers agreeing to commit to purchase minimum additional Fairtrade volumes of banana, coffee and cocoa products, from a pool of Fairtrade producers, for a three to five year period. According to the Fairtrade Foundation, the objective of this initiative is to use longer-term supply arrangements to provide Fairtrade producers with the security they need to invest in sustainable practices, including farming practices which reduce the environmental impact of production.
Having considered the Fairtrade Foundation’s request for informal guidance, the CMA has concluded that the Shared Impact Initiative is unlikely to raise competition concerns because:
- the agreement as a whole is unlikely to affect the main parameters of competition on the potentially affected markets and is unlikely to have appreciable effects on competition given the limited scale of the pilot. The CMA also noted that the agreement is likely to increase the availability of and choice in Fairtrade products for UK consumers; and
- to the extent that any specific provisions within the Shared Impact Initiative may have some restrictive effects, such provisions are likely to be objectively necessary to implement, and proportionate to achieve the overall environmental objective of, the agreement.
As a result, the CMA has concluded that it does not expect to take enforcement action in relation to the Shared Impact Initiative - a form of ‘clean bill of health’.
The release of this informal guidance, a first for the CMA, forms part of the CMA’s wider work on environmental sustainability. We expect that this will remain a key area of focus for the CMA in the year ahead.
The CMA has stated that it is publishing this informal guidance “as doing so may provide more clarity or comfort to other businesses considering entering into similar environmental sustainability agreements”. Sarah Cardell, CMA Chief Executive, has more generally signalled that businesses in any sector are encouraged to make use of the CMA’s open door policy if they are considering entering into an environmental sustainability agreement but are uncertain on how the CMA’s Green Guidance would apply.
While the CMA’s willingness to issue informal guidance is helpful, businesses should stay alive to the reality that any such “protection from fines” afforded by the CMA does not preclude against the possibility of fines from regulators in other jurisdictions where the relevant agreement has potential effects nor against private actions for damages.