The CMA is turning up the heat on global warming and sustainability

The UN considers climate change to be the single biggest health threat facing humanity.¹ Without effective intervention its consequences will only get more severe and less reversable.

The Competition and Markets Authority (CMA) recognises this reality, with Chief Executive Sarah Cardell commenting that climate change is “one of those real-world challenges in which competition and consumer authorities have an important role to play”.² Indeed, the CMA’s latest Annual Plan identified the UK’s transition to net zero as a priority.

This article seeks to test the claim that environmental and sustainability interests are adequately promoted and protected through the CMA’s existing toolkit. We will address in turn the CMA’s approach to competition law enforcement, consumer protection, market studies and merger control.

 

Competition law enforcement

The Competition Act 1998 gives the CMA the power to investigate and enforce a prohibition on anti-competitive agreements. Anti-competitive agreements are those which by object or effect prevent, restrict or distort competition. This prohibition is applied broadly, but agreements between competitors are by their nature the most likely to raise concerns. As such they are often viewed with suspicion by competition authorities.

Of course, not all agreements between competitors are anti-competitive and it has long been recognised that agreements between competitors can be benign or pro-competitive. For example, those which foster innovation (such as joint research and development projects) owing to pooled resources and knowledge.

In light of this the CMA is keen to ensure that competition law enforcement (or uncertainty around the risk of enforcement) does not hinder collaboration to promote sustainability. In October 2023 the CMA published its Green Agreements Guidance which seeks to facilitate collaborations between businesses which aim to prevent, reduce or mitigate the adverse impact of economic activities on environmental sustainability.³ See further discussion on the Green Agreements Guidance in this firm’s earlier article, here.

Notably, the Green Agreements Guidance provides an informal “open-door policy” by which parties can seek advice and obtain greater certainty regarding the legitimacy of their environmental and sustainability agreements. This is available before implementation of those agreements.

While it may be too early to fully evaluate the effectiveness of the Green Agreements Guidance, early signs seem promising. The CMA has already published informal guidance in response to respective requests made by the Fairtrade Foundation and WWF-UK. The result is not just academic: British supermarkets are now working with the Fairtrade Foundation to create a buying coalition for ethically sourced bananas, coffee and cocoa.

These efforts are complimented by the CMA’s use of its ex-post enforcement powers. For example, in 2021 the CMA launched its investigation into various long-term exclusive arrangements for the supply of electronic vehicle charging points. In 2022, it launched an ongoing investigation into suspected anti-competitive conduct relating to the recycling of end-of-life vehicles.

These investigations bring together various key priorities from the CMA’s latest Annual Plan and involve promoting and protecting sustainable markets, focussing on the markets which affect consumers most directly (e.g. travel – see this firm’s earlier article, here).

 

Consumer protection

The CMA also has the remit to enforce and investigate consumer protection issues, although usually it will only do so where those problems are market-wide and/or affect consumer choice. In this way, the CMA’s consumer protection agenda is aimed at bolstering the CMA’s general role in promoting competitive markets for the benefit of consumers.

One consumer protection issue which has received a lot of recent media attention is the issue of “greenwashing”. This is where companies and brands make claims about the environmental and/or sustainable benefits (or reduced harms) of their products or services which may be misleading, false or unevidenced.

The reason why the CMA and many other regulators have taken an interest in greenwashing is because of misinformation among consumers. This misinformation compromises a customer’s ability to make informed choices as to what products and services to buy. As put forward in this firm’s earlier article here, these greenwashing claims may also hamper global efforts to tackle the climate crisis and achieve net zero.

To address the growing concern around misleading sustainability claims, the CMA published its Green Claims Code in 2021.⁴ The Green Claims Code is intended to educate businesses and deter them from using aspirational, vague and imprecise language. The Green Claims Code also clarifies that omitting facts altogether may be as misleading as presenting statements which cannot hold up to scrutiny.

While the Green Claims Code is not directly enforceable, it does provide the basis for the CMA to investigate businesses who are making potentially misleading environmental or sustainability claims.

The CMA has taken this further. It has undertaken investigations into greenwashing claims in the fast-moving goods sector and in the retail fashion sector. In the latter investigation, the CMA secured voluntary but legally binding commitments prescribing standards for displaying, describing and promoting green credentials going forward.

The CMA also followed up with an open letter to the fashion sector advising businesses to review their relevant practices. The letter reiterated the six principles set out in the Green Claims Code, ensuring environmental claims: are truthful and accurate; are clear and unambiguous; do not omit or hide important information; compare goods or services in a fair and meaningful way; consider the full life cycle of the product or service; and are substantiated.

 

Market studies

In addition to the consumer protection market investigations mentioned above, the CMA also conducted a market study into electronic vehicle charging in the UK. This led to a competition law investigation into the supply of electronic vehicle charge-points on or near motorways.

In a 2020 press release the CMA recognised electric vehicles as a necessary, emerging market given the Government’s long-term goal for a net zero economy. The themes recognised in the market study match those later formulated in the CMA’s latest Annual Plan: encouraging the competitive nature of emerging markets for sustainable products and services; and ensuring people have confidence they are getting the best services.

As an undoubtedly useful tool for the CMA to understand the competitive structure of markets, we are keen to see how the CMA will continue to use this tool in relation to markets for environmentally friendly and sustainable products and services.

 

Merger control

The CMA’s merger control workstream may not on its surface seem as obvious a tool to promote sustainable markets however the CMA maintains that merger control “goes to the core of [its] ambitions” for ensuring that the UK economy can grow productively and sustainably.⁵

Most notably, the CMA updated its Merger Assessment Guidelines in 2021 to include environmental sustainability and supporting the transition to net zero as a consumer benefit capable of leading to merger efficiencies.⁶ For example, in a situation where a merger leads to “lower energy costs and some benefits that customers may value (such as a lower carbon footprint of the firm’s products)”.

However, the recognition of sustainability as a potential consumer benefit may be of limited use in practice. In 2022 the CMA published advice to the Government on the topic, which included a consultation process that asked respondents to consider the revised Merger Assessment Guidelines. In particular, the consultation asked whether more guidance should be published on how environmental claims are taken into account in relation to merger assessments. The CMA reported that some stakeholders requested further guidance so as to provide greater certainty for businesses.

That said, despite the call for further guidance, we are not aware that any such guidance is forthcoming. A possible reason for this could be that the CMA considers that additional substantive guidance could change the merger regime in a way which should come from the Government.

The appropriateness of Government intervention was also a theme which was drawn out through some of the stakeholders’ responses. These respondents proposed that sustainability interests should be considered during the merger process, however should be reviewed under the Government’s public interest grounds assessment and not by the CMA in the ordinary course.

This is because a trade-off between the effects of reduced competition on the relevant consumer groups versus the overall benefit to society is ultimately a matter of policy and could have wider consequences which the Government is best placed to review. The Government currently has the power to intervene in mergers on public interest grounds, however it would require a statutory instrument for environmental sustainability to be allocated as such.

The European Commission has also recognised that environmental sustainability considerations have a place within merger control, publishing a Merger Brief in 2023 which explains how sustainability can be taken into account at two different stages of the merger control process: market definition; and competitive assessment.

While the incorporation of these concepts into the Merger Assessment Guidelines is a positive development, we question whether it is really that impactful. Upon our review, there is yet to be any case law following the Merger Assessment Guidelines in which sustainability as a consumer benefit is discussed. This may indicate that merging parties and their advisors are still on the fence as to whether such benefits would receive sufficient weight during a review.

 

Conclusion

The CMA has articulated its sustainability strategy as comprising three goals, namely that:

• markets for environmentally sustainable products or services develop in ways favourable to competition and consumers;
• consumers are able to make informed choices about the environmental impact of the goods and services they use; and
• competition law is not an unnecessary barrier to companies pursuing environment sustainability initiatives”⁷

The CMA seems to be heading in the right general direction on each count, attempting a holistic approach to protecting and promoting environmental and sustainability interests via the various tools in its toolkit.

However, we are very much still in the early stages. As has been explained, while progress has been made across the CMA’s various workstreams, it is not always easy to judge how useful or successful they have been in practice given the limited precedents at this stage.

We expect this to continue to be a big focus for the CMA, not least because of the emphasis on the UK’s transition to net zero in its latest Annual Plan. There is also a great opportunity for market participants who can align themselves with this framework and objectives.