Sustainability - Exploring the possible

A speech by Sarah Cardell, CEO of the CMA, to the Scottish Competition Forum

Photograph of Sarah Cardell stood in front of a pink wall.

Thank you very much for the opportunity to join you this evening. I’m delighted that my first speech since being appointed in the permanent role as Chief Executive of the CMA is here at the Scottish Competition Forum.

Last month, the CMA launched our draft Annual Plan for consultation. With a new Chair and Chief Executive in post and a number of new responsibilities coming our way, this was a good opportunity not just to set out our plans for the coming year, but to provide a refreshed statement of our broader purpose and ambition as an organisation, and explain our medium-term priorities for the next 3 years.

The CMA is committed to helping people, businesses and the UK economy by promoting competitive markets and tackling unfair behaviour. We want to promote an environment where people can be confident they are getting great choices and fair deals, competitive and fair-dealing businesses can innovate and thrive, and the whole UK economy can grow productively and sustainably.

As part of our Annual Plan consultation, and more broadly, both Marcus Bokkerink and I are committed to active engagement with a wide range of stakeholders across and within all 4 nations of the UK. In the past 2 weeks alone, we have had discussions about our draft Annual Plan in Belfast, Cardiff, and Edinburgh and I’ll be heading to Manchester on Thursday.

But it is not only geography that means I’m pleased to be with you this evening. Through your work bringing together practitioners, businesses, academics and students, the Scottish Competition Forum stimulates important conversations about how competition law can make a real difference on issues that matter to wider society.

Those are exactly the kind of conversations we want to encourage. The CMA will only achieve our ambition to deliver impactful outcomes for people, businesses and the UK economy if we talk – and, more importantly, if we listen – to people and businesses about markets that aren’t working well. That engagement is critical to help shape our decisions about what action to prioritise. But it also helps to build understanding among businesses about what competition and consumer law means for them and how they can work with the CMA constructively.

As we have developed our medium-term strategic priorities, we have consciously focused on the role the CMA can play not only in helping to mitigate pressing and immediate concerns such as current cost of living pressures but also when considering the big, long-term challenges facing the UK economy.

There can be few, if any, bigger challenges facing our economy and our society than climate change. That’s why, in our new strategy, we have prioritised action to accelerate the UK’s transition to a net zero economy. Now, some might question whether environmental sustainability is an appropriate priority for a competition authority. I respectfully disagree.

One of the things that first drew me to competition law back when I was a student was that it sits at the intersection of law, economics and a set of real-world challenges facing people and businesses.

My argument tonight is that climate change is one of those real-world challenges in which competition and consumer authorities have an important role to play within our existing statutory duties.

And it’s particularly timely to be giving this speech in Scotland, as the Scottish Government recently published its draft Energy Strategy and Just Transition Plan: a document which clearly sets out the challenges, but also the opportunities, as we transition to net zero.

There are 3 ways in which I believe the CMA can and should contribute to promoting environmental sustainability and helping accelerate the transition to a net zero economy, as we have set out in our new strategy.

First, we can help ensure that markets for sustainable products or services develop in competitive ways. Second, we can help consumers make informed choices about the climate impact of the goods and services they use. Third, we can help ensure that competition law is not an unnecessary barrier to companies seeking to pursue environmental sustainability initiatives.

Let me take each of these in turn.

Looking first at the development of new markets for sustainable products and services: the fight against climate change is creating markets that didn’t exist a decade or 2 ago – and they are growing fast. Take electric vehicles and their chargepoints. The UK currently has around 25,000 chargepoints for electric vehicles and forecasts suggest more than 10 times this amount may be needed by 2030 given the anticipated demand. And while Scotland currently has the most public electric vehicle charging points outside of London by population, this anticipated growth is also true for Scotland where people in areas such as the Highlands and Islands will continue to rely on cars as their main means of transport.

How will this market develop? Strong competition and the right regulatory framework will be required, and that’s why we conducted a market study into EV charging, which led to a set of recommendations on how governments can enable the market to work more effectively, now and in the future. That’s not a diversion from the work of a competition authority. It’s a core part of doing our job.

And that’s why, in the coming year, we will place a priority focus on work in emerging markets for environmentally sustainable products, services and technologies, to ensure that those markets are founded on strong competitive dynamics. In some cases, as with EV charging, this may take the form of a market study. But on other occasions we may work more informally, using our advocacy function, to advise governments, regulators or industry participants to ensure that emerging markets foster competitive conditions that enable environmentally sustainable initiatives to thrive, delivering a real benefit to the competitiveness of the UK economy and UK society as a whole.

Turning to our second area of focus, we know that many consumers want to make informed choices about the impact on the climate of the goods and services that they use. Many companies make claims about how ‘green’ their products are – and, again, the market for such products is growing substantially – but how confident can consumers be about the claims they are hearing?

We’re taking action on potential ‘greenwashing’: that is, misleading claims by some firms about the environmental characteristics of products and services. We consulted with businesses before publishing the CMA’s ‘Green Claims Code’, which provides clear guidance and worked examples showing how to comply with consumer law when making environmental claims. We know that most businesses want to do the right thing here, and it’s so important that firms making genuine investments in their supply chains to reduce their overall environmental impact trumpet their successes to consumers - and gain a competitive edge when they do so. However, it’s also important that consumer law enforcers take action where firms could be making unfounded claims, or presenting products and services in a way that could mislead the public. Last year we opened an investigation to look closely at eco-friendly and sustainability claims made by a number of firms in the fashion sector. And, as we’ve said in our draft Annual Plan, we’re preparing to launch work examining green claims in other areas too.

Another area where we know that consumers want to make the right choices is home energy efficiency. Many of us are looking at ways we can make our homes more energy efficient to bring down high energy bills, and as part of that to consider more environmentally friendly heating solutions, such as heat pumps. Last September we launched a project to explore the consumer protection problems that people could be facing when deciding how to insulate their homes or invest in next generation home heating products. As part of that project, we’ll be considering carefully what steps the CMA can take to help people make informed choices, and to tackle any unfair or misleading practices that we encounter.

Our final area of focus is to ensure that competition law is not an unnecessary barrier to companies seeking to pursue environmental sustainability initiatives. We hear increasingly that firms want to tackle these issues but are worried that competition law may prevent or impede them from working together to address them.

Given the scale of the challenge to address environmental sustainability and particularly climate change concerns, and the degree of public concern about it, we think it is important that firms are not unnecessarily or erroneously put off collaborating in this space by fears about competition law compliance. This is particularly important because industry collaboration is likely to play an essential part in delivering net zero ambitions. We committed in our advice to the UK Government last year to produce guidance on this business collaboration and we intend to publish that for consultation in the coming weeks.

Ahead of that, I want to give you a flavour this evening of the direction of travel of our thinking. I’m not yet in a position to share all of the detail that will be in our guidance and of course that will still be subject to consultation. I know there is a wealth of knowledge and experience in this area, and I hope and expect that the consultation will yield lots of excellent input that will help us make our final guidance even better. So the overview I’m about to give should be understood in that context, but I think it is helpful to start to set out now the broad themes on which we expect to consult.

I have no doubt that the guidance will be of great interest to competition lawyers and academics when it is published – and your feedback will be invaluable. But what I’d really like to emphasise is the importance of this guidance being clear and easily applicable for businesses.

When it comes to environmental sustainability, we want to provide firms with clear guidance about 3 scenarios.

First, where firms can rule out any concerns about competition law compliance because the environmental sustainability agreement in question simply doesn’t affect or engage with the way those firms compete. This might apply, for example, in the case of an agreement between competitors to organise a joint campaign to raise awareness about environmental sustainability issues within the industry or among customers.

Second, where firms can be confident that although the environmental sustainability agreement in question does relate to the way that they compete, and so could in theory breach competition law, in practice there is no appreciable restriction of competition that would infringe the law. This might apply, for example, to codes of conduct promoting environmentally conscious practices, such as joint standards or certification labels about the use of production methods, provided that the participation criteria are transparent, and access is granted on the basis of reasonable and non-discriminatory criteria.

Third, and critically, we want to provide clear guidance on those environmental sustainability agreements that do restrict competition appreciably but may nonetheless be permitted because of an exemption from competition law (for the lawyers among us, those agreements which fall within the scope of the Chapter I prohibition of the Competition Act 1998 but are capable of exemption under section 9 of that Act).

By way of recap, section 9 of the Competition Act allows exemption from the Chapter I prohibition if the agreement contributes to improving production or distribution, or promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, subject to specified conditions.

We will provide guidance on how environmental sustainability agreements can meet each of the section 9 conditions, including guidance on what sort of benefits are likely to be relevant and how businesses can demonstrate that consumers will receive a fair share of those benefits.

Importantly, we plan in our guidance to adopt a specific approach for the application of the ‘fair share’ criterion under section 9 to climate change agreements. Traditionally, the assessment of whether consumers receive a fair share of the benefits from the restrictive agreement has focused on the benefits flowing to consumers in the relevant product market – that is, to customers of the products or services covered by the agreement.

However, the CMA is proposing to take a different approach for climate change agreements. This reflects the fact that climate change represents a special category of threat: the sheer magnitude of the risk that climate change represents, the degree of public concern about it, and the binding national and international commitments that successive UK governments have entered into, set it apart. Indeed, in 2019 the UK became the first major economy to pass a net zero emissions law – the UK Government legislated to end the UK contribution to global warming by bringing all greenhouse gas emissions to net zero by 2050. And I’m conscious here in Scotland, there’s an ambition to reach net zero even sooner, by 2045.

This is why, in relation specifically to agreements that make a substantial and demonstrable contribution to tackling climate change, in line with well-established national or international goals, the CMA intends to depart from the more traditional approach to the ‘fair share’ assessment.

In the case of such agreements, the benefits are not always confined to any particular market, but may accrue to a larger group of beneficiaries or to UK society as a whole, including to consumers outside the relevant market. For example, an agreement between delivery companies to switch to electric vehicles would benefit wider society through a reduction in CO2 emissions.

Provided that consumers in the relevant market form part of the wider group of consumers who benefit from the agreement, we consider it appropriate, when assessing whether a climate change agreement may be exempt, to take into account the full benefits to UK society which derive from the agreement. That is provided that those benefits are substantial and demonstrable and in line with well-established national or international goals.

We expect that firms should be able to demonstrate (and where appropriate quantify) the relevance and weight of those benefits. Our guidance will make clear what kind of analysis and evidence of benefits we are likely to consider acceptable and persuasive.

What I have outlined so far sets out the legal and analytical framework we expect to apply in our guidance to climate change agreements. Where climate change agreements meet these requirements, the CMA does not intend to take enforcement action. We will not, however, tolerate spurious environmental claims being used as cover for anti-competitive practices.

Finally, we are conscious that the guidance won’t answer all questions that stakeholders may have in this important area. For that reason, we’re keen to hear from firms with questions or concerns that are not covered by any aspect of our guidance – as well as those seeking clarity or comfort on how the guidance will be applied. We want to understand and help navigate the challenges businesses are facing. That is why the CMA is open to providing advice directly to firms considering environmental sustainability agreements. We encourage them to contact us, preferably at an early stage, and we will be happy to discuss options, concerns, risks and possible solutions. This includes providing comfort, where appropriate, in areas where we do not think that competition law is engaged, or (based on the information we have seen) how we believe our guidance applies. This will also help us build a fuller appreciation of the issues that businesses are seeking to address in practice and further refine our approach in the process.

To summarise then, I believe there is an opportunity for UK businesses to lead the way in tackling climate change and where we can, we should help them do that.

We know there is pent up demand among businesses, including insurers and asset managers who form such an important part of the Edinburgh economy, to work together on initiatives that would combat or mitigate climate change.

Brexit has allowed us to take a fresh look at the guidance we give firms. This has given us the opportunity to go further than we have before in providing reassurance and clarity on our approach – including spelling out where we won’t take enforcement action against business collaboration to tackle climate change. We will be consulting next month on a proposal that will ease the requirements on firms and provide more clarity on what businesses can do.

And if firms have doubts or questions, we want them to speak to us so we can work together to see what’s possible.

I hope that many of you here this evening will assist us by contributing to our consultation and, in the meantime, I look forward to discussing these important issues further.

Thank you.

Published 25 January 2023