Do anti-trust rules prevent firms cutting carbon?
28 Mar 2022
Driven by the need to reduce their carbon impact, and the rise of ESG metrics in their reporting, businesses are increasingly hitting competition law roadblocks when working to deliver on their sustainability promises. Who’s to blame, asks DRD Associate, Ed Bowie?
The Competition and Markets Authority (‘CMA’) has, finally, published advice on how firms can help meet the UK’s environmental goals while not falling foul of competition law.
But in the face of sustained pressure to deliver on Environmental, Social and Governance (‘ESG’) pledges, more coordinated and concrete direction is required in order to give firms the confidence they need to help deliver on the UK’s environmental ambitions.
Last year’s UK Presidency of COP26 presented the clearest possible opportunity for the Government to shift the dial. But significant doubts remain over the delivery of sustainability goals. The planet burns, say some, while governments and regulators continue to dither – or, worse, stand in the way of transition.
Enter the CMA
The regulator’s recommendation that the Government legislate for the creation of statutory definitions of commonly used terms is sensible. Claims that products are “carbon neutral” or “biodegradable” would clearly benefit from robust assurance in order for them to be of any real value to the consumer.
More importantly, the CMA’s acknowledgement that it should be possible for firms to work together to achieve sustainable aims without fearing the long reach of competition law is welcome. But the application of that principle is of dubious assistance to those firms on the ground.
For example, the CMA considers that for an agreement – such as firms working together to reduce waste or improve biodiversity – to be exempt from competition law, it is necessary for the businesses’ customers to receive a ‘fair share’ of the resulting benefits. But the environment is not always susceptible to ‘market analysis’: improving biodiversity does not immediately translate to lower prices or better-quality goods – the usual hallmarks of what constitutes a ‘consumer benefit’.
The CMA’s advice does accept that a benefit to society as a whole could be factored into its analysis; but its wider position not to seek the introduction of a block exemption for sustainability practices does not provide the confidence that firms need in order to get moving. Forcing companies that want to undertake sustainability agreements to seek an exemption on a case-by-case basis is far from flexible and indicates an inertia in the CMA’s assessment of these initiatives.
Quite how a firm can claim to be net zero, while representing fossil fuel companies (for example), remains to be seen.
Edward Bowie - DRD Associate
By continuing to see these issues through the prism of traditional competition law analysis, regulators are demonstrating a regime that is falling behind industry.
The Dutch Competition Authority’s approach is a model that could be followed. Its first Guidelines on how competition law and environmental initiatives interact were published back in July 2020 and adopted a pragmatic view. It did so by recognising that consumers are responsible for the environmental damage caused by the products they buy, and so do not have to be compensated for price increase that may flow when firms adopt more sustainable solutions.
Broadening our view of what’s in scope
One related and ambitious way that fresh thinking could be brought to the issue would be to broaden the way that we look at emissions and sustainability.
Members of The Net Zero Lawyers Alliance, which includes firms such as Hogan Lovells, DLA and Shearman & Stirling, pledge to achieve net zero emissions by 2050 and to work with clients to embed climate goals. However, quite how a firm can claim to be net zero, while representing fossil fuel companies (for example), remains to be seen.
Where some global issues can only be meaningfully acted upon in concert, our antitrust regime must be sophisticated enough to recognise the imperative to save the planet. The CMA’s belated guidance is welcome, but doesn’t take firms very far in understanding where the boundaries lie.