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CMA’s environmental sustainability advice a ‘positive step’

Out-Law News | 25 Mar 2022 | 10:38 am | 3 min. read

The UK Competition and Market Authority’s (CMA) promise of new formal guidance on sustainability and competition law has been welcomed by one legal expert, who said it could “help provide more legal certainty for UK businesses.”

Angelique Bret, of Pinsent Masons, said the CMA’s previous advice on the issue has been “quite limited,” adding that the regulator was likely to pay close attention to the new chapter of EU draft horizonal cooperation guidelines on assessing sustainability agreements between competitors when formulating its own guidance. 

Her comments come after the regulator published its response to questions posed to it last year in a letter written by Kwasi Kwarteng, secretary of state for business, energy and industrial strategy (BEIS). Kwarteng asked whether current competition and consumer legal frameworks constrain or frustrate initiatives that might support the UK’s net zero and sustainability goals, and whether any changes to UK’s competition and consumer law could help to achieve them.

The CMA said that in future it could take a more flexible approach when assessing whether agreements between competitors that pursue sustainability goals should be exempted under the 1998 Competition Act. It said it would consider whether the ‘fair share’ of benefits to consumers of such agreements outweighed any adverse impact on competition. In the wake of Brexit, the CMA added that UK courts could depart from more rigid EU legal precedent on assessing the wider benefits to consumers in agreements that may restrict competition.

Richard Snape, of Pinsent Masons said: “The CMA has indicated that it is not minded to seek the introduction of a specific sustainability block exemption. Instead, the CMA has stated that sustainability agreements can be individually exempt on a case-by-case basis. A key factor in this assessment is whether consumers receive a ‘fair share’ of the benefits generated by the agreement to balance against any harm to competition incurred.”

“EU case law suggests that it must be those consumers that have suffered competitive harm that must receive the ‘fair share’ in order to qualify for exemption. However, the CMA sets out its view that the benefit to society as a whole could be factored in - which would potentially make the test more flexible and arguably break with EU precedent which, post-Brexit, it is now able to do,” Snape added.

The CMA said it also plans to engage with stakeholders in developing further practical guidance under the UK’s mergers and markets regimes on weighing-up ‘relevant customer benefits’ and competition concerns resulting from environmental sustainability initiatives. The CMA’s new sustainability taskforce also will engage with stakeholders who, during its call for input last year, suggested that competition law could have a “chilling effect” on sustainability agreements.

The regulator told Kwarteng that it does not believe that current competition and consumer legal frameworks pose obstacles to achieving the UK’s net zero and sustainability goals that require “immediate significant changes”. The CMA did, however, suggest changes to the various consumer protection rules, after respondents to its consultation on making environmental claims reported the need for consistent information to ensure that consumers are properly informed.

The CMA recommended the creation of statutory definitions of commonly used environmental terms, such as ‘biodegradable’, ‘compostable’ and ‘carbon neutral’. It told Kwarteng this could be achieved with amendments to the 2008 Consumer Protection from Unfair Trading Regulations (CPRs) and the 2013 Consumer Contracts Regulations (CCRs), or through other legislation. “This would enable consumers to more easily compare products and stop unscrupulous businesses deliberately misusing these terms,” the CMA said.

It also said BEIS should establish an “express positive obligation” on businesses to disclose environmental information by amending the definitions of ‘material information’ in the CPRs and CCRs to confirm explicitly that environmental information must be provided to consumers. “This would put beyond doubt the requirement to disclose such information in all circumstances. This would be particularly helpful for consumers to identify less environmentally-friendly products which might not otherwise disclose their impact,” the CMA said.

Bret said the reforms “would build on the CMA’s ongoing work involving misleading environmental claims and its recently-launched green claims code. The CMA has indicated it is already conducting research on how green claims impact consumer decision-making. Its views on whether legislative changes to consumer or competition law regimes are needed will continue to be shaped by future developments and its own learnings and experience,” she said.

In its response to Kwarteng, the CMA said it believes “more can and should be done” with competition and consumer law tools to support the UK’s net zero and sustainability goals, including through market studies and consumer investigations. The CMA plans to launch at least one new market study in a net zero-relevant market in the next financial year. It also acknowledged the need for a more joined-up approach to sustainability across the country’s various public bodies, and recommended that ministers consider whether any further policy tools - beyond the consumer and competition regimes - could “nurture greater coordination and alignment across UK sectors and regulatory regimes”.