Environmental sustainability agreements: The CMA’s new guidance

Ian Giles: Richard, really good to see you again. Now, we are talking today about something a little bit different, which is the intersection of antitrust, competition rules, with sustainability…

Richard Whish KC: Yes.

Ian Giles: …which is something that’s been talked about and looked at by a number of authorities around the world and, about a year ago, the CMA set up their sustainability taskforce. And we’ve now just seen, following up from them announcing this being a priority area for them in their annual plan, we’ve now seen their draft guidance on sustainability agreements. What are the headlines?

Richard Whish KC: Yes, well, it is an extremely topical subject, as you say, globally, including in the United Kingdom. With this guidance, draft guidance that we’ve just got, it is environmental sustainability, so just to be clear, we're not talking about, here, initiatives to prevent the exploitation of child labour or to promote animal rights. We are talking about environmental sustainability agreements. For anyone wanting to understand the UK position, the first thing I would suggest is that people might like to look at a speech given by Sarah Cardell, the new Chief Executive Officer of the CMA, who gave a speech in Edinburgh to the Scottish Competition Forum on 25 January. I think it’s a very nice panorama of where the CMA is at the moment in terms of sustainability, environmental sustainability. Specifically, then we come to the draft guidance which is dealing with one part of her speech, which is the anxiety that exists, that maybe competition law might stand in the way of genuine and desirable cooperation between companies to achieve environmentally sustainable goals, and that’s what this guidance is aimed at. Broadly speaking, it says, we want to clarify situations where cooperation could not give rise to any competition problem whatsoever, so it doesn’t even begin to engage the Chapter I prohibition. There might be other types of agreement where there could be a problem. But, of course, where there might be a problem, query, is Section 9 Competition Act (which is the equivalent of Article 101(3) of the Treaty on the Functioning of the European Union) available to provide a, kind of, efficiency defence or a sustainability defence, as it were, to an agreement that actually does restrict competition? And that’s what this document is about.

Ian Giles: Yes. And, as you say, it’s very interesting and CMA has been quite vocal in being able to be a thought leader in this space and trying to go further than the Commission has gone in its draft guidelines, which have obviously been around for a year now; we’re still waiting for the final text. And they have this concept of the environment sustainability agreement, which, as you say, is the one that doesn’t raise any concerns and is outside Chapter I, where you can set industry standards, you can talk about phasing out unsustainable products. All of which is quite interesting and more explicit, certainly, than the Commission was, or the Commission has been so far.  But that’s only if there’s no appreciable impact on price or choice, so that’s the, kind of, interesting tension there. And then the second area, which I think is the area that’s been the most controversial or the most difficult, is around Section 9 (Article 101(3)) and benefits, which we’ve talked about many times over the years…

Richard Whish KC: Yes, yes, yes.

Ian Giles: …and this real question about, where it’s recognised that sustainability is a good thing for society at large, or the world at large, how that’s incorporated into the limbs of the legal test. And what do you think about the way the CMA has taken that on?

Richard Whish KC: Well, it is a very interesting one. I mean, going back to your first comment you made there is that, obviously, the CMA in a post-Brexit world is able to forge its own identity as a competition authority, and it does have an independence, a freedom of manoeuvre, that it would never have had in the EU, that is clear. And then we move on to this question of Section 9 and Article 101(3). How does it graft on to sustainability agreements and, of course, both of those provisions require that if there is an agreement that is to be tolerated, consumers must get a fair share of the resulting benefit.  And there’s been this issue for 50 years about which consumers do we mean? Do we mean consumers within the market in which the restriction of competition takes place or could there be some agreements in which consumers, in the sense of, you know, the person in the street, even the citizens of the world, get a benefit, without that benefit being specifically related to users in the market? And there are different views on this. The European Commission in Brussels has a view.  Some of the national competition authorities of the EU, the Netherlands, Greece, Austria, take a different view and, here, the CMA is explicitly taking – what shall I call it – the wide view. I have to say, from my own point of view, looking at this in policy terms and the significance of trying to combat climate change, etc, if it benefits the planet, for the purposes of this bit of analysis, I’m happy to regard the citizens of the planet as consumers who possibly might get a fair share of the benefit.

Ian Giles: Yes. And I think that’s interesting, isn’t it, because it is in many ways, it’s a policy question and it’s…

Richard Whish KC: Total policy.

Ian Giles: …how this should be wrestled with? Because the traditional approach on benefits has been having to calculate specific benefits to the in market consumers who purchased the goods and have suffered the adverse effects, whereas the CMA is saying that an agreement to switch away from fossil fuels…  because of this concern that people don’t do these things because you don’t want the first mover disadvantage – I move first and my competitors don’t and that damages my business. But the CMA is saying that that will qualify, so it’s a significant step.

Richard Whish KC: Well, could I just say there, Ian, yes, there have been traditional ways of thinking about these things, but let’s face it, if you read Article 101(3), Section 9, you know, the words were written in 1957. They were meant to be very broad. And then, over a certain period of time, they might be interpreted in one way. But I’m a great believer that competition policy is organic, it has to change its shape to confront the particular times. We are faced with something here which is absolutely disastrous for the planet, and the idea that one might be stuck on some legal precedent or whatever, it’s not good enough, I think.

Ian Giles: No, I think that’s… and that voice, I think, is starting to come out more clearly from a range of authorities…

Richard Whish KC: Yes, yes.

Ian Giles: …and you mentioned the Dutch and the Greeks…

Richard Whish KC: Yes, absolutely.

Ian Giles: …and others. And it’s interesting, actually, to compare with COVID because, when COVID happened, a number of authorities within a matter of days or weeks were producing guidelines saying, of course you can cooperate to do this. But, as you say, the precedent really just isn’t there on…

Richard Whish KC: No. But might I say, I mean, the COVID experience was interesting because, yes, authorities were willing to say we might tolerate certain types of cooperation, but there’s more to it than that.  One of the great problems I think with Article 101(3) over the last 20 years has been that you don’t actually get positive applications of it. You get negative applications, where there’s a cartel case and then the Commission says Article 101(3) doesn’t apply here.

Ian Giles: Yes.

Richard Whish KC: But you don’t get cases where the Commission says, oh, we like this agreement because it satisfies Article 101(3) and that’s, of course, because they abolished notification. You don’t get individual exemptions. You don’t get declarations of inapplicability. You don't get even get informal guidance, because nobody ever asks for informal guidance. So, I think there’s a, kind of, distorted view of Article 101(3), and therefore Section 9, almost that they don’t exist. And, then, you get situations in COVID where the authorities did start to give guidance in particular cases, and that’s how we all learn. And, what I like about the CMA and its draft guidance is that it says in Chapter 7 of the draft guidance, when it comes to these environmental sustainability agreements, we will have an open door. Come and talk to us and we will be willing to give informal guidance. Well, I very much welcome that. But, let me just say to your clients listening to this, you only get informal guidance if you go and ask for it. There is a, kind of, chicken and an egg here. You have to approach the authority if you’re going to get guidance.

Ian Giles: And, I think you recognise, and I’ve had this conversation with CMA and others, the challenge that companies face, particularly if you’re looking at global companies, where you have 150 plus authorities around the world that, in theory, can look at your arrangements, that you don’t want to be having to have 150 dialogues and go and…

Richard Whish KC: No, but then you can’t complain about the lack of guidance.

Ian Giles: No, it’s true, but what the CMA has done in this guidance, I think it is fair to say, is actually gone out and said, look, these types of things, we do not think will be problematic or these types of things we think will create benefits which we recognise, in the context, will qualify under the Section 9 test. So, I think that’s really very helpful. We’ll see with the open door policy. I know that there is generally a reticence to go and start a conversation with an authority if you think you’re going to get dragged into a longer and more burdensome process, and the authorities have talked a lot about people bringing test cases and things and, maybe, there are some people who are in the right position to do that. But I think, generally, it’s very positive. And just, I guess to close, is the contrast with the position in the US, which you may have seen, that there are some state level actions in the US where antitrust is being positioned as a tool to say sustainability agreements are anti-competitive and should not be allowed, and that position, even within the US, there’s obviously two sides to that debate. But how do you see this developing?  Do you think that antitrust is going to be a major factor as these – I mean, bearing in mind that governments, in large part, have signed up to net zero commitments, and that, as CMA says, where an agreement is in line with the UK’s international commitments, then that’s a factor – do you think antitrust is going to play a role in slowing down some of these initiatives?

Richard Whish KC: Well, I certainly hope not. I find it very difficult to understand precisely what’s going on in the US. It’s a very complicated set up, of course, with federal powers and state powers and so on and so forth.  One thing I would say is that I do think that there is a legitimate concern about greenwashing. And a competition authority, of course, will say we are in favour of sustainability initiatives and, frankly, companies will say that they want to do their bit for the environment and ESG and all the rest of it. It is not unimaginable that companies might have cartel like purposes, which might be capable of being disguised as an environmental initiative. And so, I think, from an authority’s point of view, it is appropriate to – I don’t know whether the word is sceptical – but, at least, to look carefully to make sure that wool isn’t being pulled over eyes. I will simply say that.

Ian Giles: Yes. And you’re right, I mean, there are already a number of significant examples of cases which have had a sustainability façade which has shown to actually…

Richard Whish KC: Precisely that.

Ian Giles: …not be the nature of the agreements in question. Thank you very much, Richard. We will continue to watch this space, but very good to talk, as always.

Richard Whish KC: Pleasure.

Ian Giles: Thanks.