The UK’s Competition and Markets Authority (CMA) has said that current competition rules do not prohibit peers from withdrawing from “non-sustainable products or processes” as a result of collaborations, as long as such agreements do not push prices up too much for consumers.

The government department published draft guidance yesterday on “the application of the competition rules to agreements between competitors or potential competitors in relation to environmental sustainability”.

The guidance, aimed primarily at non-financial businesses, outlined the kind of green agreements that are acceptable under current competition law, those which are not, and those which may require updates to the rules to be accommodated.

Under the section ‘environmental sustainability agreements which are unlikely to infringe the prohibition’, the CMA wrote: “Where competitors agree to phase out particular non-environmentally sustainable processes or cease supplying certain non-environmentally sustainable products and agree to replace them with more sustainable alternatives, this is unlikely to have an appreciable negative impact on competition where it does not involve an appreciable increase in price for consumers or an appreciable reduction in product choice.”

Further on, the guidance discussed the implications of “an environmental sustainability agreement that involves a group of competing purchasers agreeing only to purchase from suppliers that sell sustainable products”.

Competition and Markets Authority

The CMA says current competition rules do not prohibit peers from withdrawing from “non-sustainable products or processes” as a result of collaborations

The CMA said this “would be unlikely to restrict competition by object despite it involving conduct that could be regarded as a form of collective boycott” because it seeks to eliminate unsustainable products from the supply chain, not harm a competitor.

Last year, the Glasgow Financial Alliance for Net Zero (GFANZ) found itself in hot water after the UN’s official net zero body, Race to Zero, updated its principles to acknowledge that the development of any new fossil fuel projects was incompatible with reaching net zero by 2050.

The decision heavily implicated GFANZ, which pulls together various net-zero initiatives in the finance sector. But it faced backlash from some of those initiatives’ most prominent members, who argued that following the new guidelines would essentially force an oil & gas boycott – something which was assumed to break competition rules.

As a result, GFANZ changed its governance so that the finance industry didn’t have to follow the principles.

Collaborative engagement network Climate Action 100+ has also faced accusations of anti-competitive actions in pursuit of climate goals, because it convenes shareholders to pressure companies to decarbonise. In the US, this has been seen by some as a form of ‘acting in concert’ – an allegation Climate Action 100+ has strongly refuted.

Given this growing tension between traditional understandings of competition law and the pressure for financial actors to pursue net zero goals, CMA’s clarification on the legality of “withdrawing” from polluting activities in the UK is likely to be welcomed by green finance initiatives. However, it never refers directly to investors or capital allocation.

The guidelines are out for public consultation until 11 April. The EU is expected to issue a similar clarification on its competition rules before the summer.

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