The CMA issues informal guidance on WWF-UK’s proposal for grocery retailers

The UK Competition and Markets Authority (“CMA”) has recently published new informal guidance under the CMA’s ‘open door’ policy for green initiatives (see our previous post for further background). The informal guidance was issued at the request of WWF-UK in relation to a proposed environmental sustainability agreement between retailers, forming part of WWF-UK’s ‘WWF-Basket’ work with retailers to reduce greenhouse gas emissions produced by the groceries sector.

The CMA’s informal guidance regarding the WWF-Basket proposal

The WWF-UK proposal involves UK supermarkets making a joint commitment to help reduce greenhouse gas emissions in their supply chains by increasing the number of suppliers setting net zero, science-based targets within a specific timeline (the “Proposal”). The Proposal builds upon WWF-UK’s previous work involving joint commitments made by retailers regarding greenhouse gas emissions targets. The Proposal would see participating retailers requiring suppliers who account for at least 80% of their supply chain emissions to set net-zero, science-backed targets by an agreed date (an increase from the current 50% target) and introduce incentives and disincentives for fulfilling the collective commitment. 

Competition assessment

Having concluded that the Proposal did not have an anti-competitive object, the CMA conducted a high-level competitive assessment of the effects of the Proposal at both a retail and supply level, noting that:

• at the retail level, it appears unlikely that the Proposal would generate an adverse impact on competition.
• at the supply level, the Proposal could, in principle, distort competition between the retailers and between suppliers, for example:
  • as between retailers, suppliers setting and complying with the targets could have the effect of gradually limiting the range of products sold to retailers; and
  • as between suppliers, the Proposal could lead to some suppliers facing increased costs in order to implement the targets, or other suppliers may exit the market. 
• However, this risk is mitigated by the fact that some suppliers would not be required to set targets, and that the fact that retailers have an incentive to avoid taking measures that weaken competition between suppliers. 

While the CMA considered that the risk of significant harm to competition and consumers resulting from the Proposal appeared likely to be low, it could not reach a definitive conclusion on the potential effects of the Proposal given its prospective nature and the lack of necessary information (in particular, the identity of affected suppliers). 

As a result, the CMA went on to consider the potential for exemption under section 9 of the Competition Act 1998, noting that:

• Benefits: the Proposal would likely result in a relevant environmental benefit due to the likelihood of suppliers taking steps to reduce their greenhouse gas emissions;
• Fair share: there are reasonable grounds to expect that the potential relevant benefits would equal, or exceed, any adverse effects on consumers resulting from the Proposal;
• Indispensability: the Proposal is likely to satisfy the indispensability condition as WWF-UK’s experience and the mixed success of prior steps taken unilaterally by retailers supports the notion that stronger action is needed to drive change among suppliers; and
• No elimination of competition: the Proposal does not directly regulate price or costs at either the supply or retail level. In addition, it is expected that significant competition between the retailers will continue.

Ultimately, the CMA determined that it did not have sufficient information to conclude on the application of the section 9 exemption; however, it considered that the Proposal could be capable of satisfying the conditions for its application given that there were credible reasons to believe that the Proposal may generate environmental benefits for UK consumers in the form of emissions reductions and that these benefits could offset any harmful competitive effects.

The CMA noted that it does not expect to take enforcement action against the Proposal, but that it would expect feedback from suppliers to be taken into account by WWF-UK and the retailers when implementing the Proposal, and for there to be re-engagement with the CMA if such supplier feedback gives rise to significant concerns.

Comment

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 actual or potential anti-competitive effects, nor against risk of private actions for damages in such scenarios.