Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The UK competition regulator has given a green light to companies that team up to tackle climate change, assuaging concerns they could fall foul of rules designed to protect their customers from the potential collusion.
Competition authorities globally have been contending with the issue of how to spur corporate activity that would address greenhouse gas emissions or protect biodiversity but do not directly benefit a business’s own customers.
The UK Competition and Markets Authority’s new guidance is aimed at eliminating the “first mover disadvantage” companies can face in the form of higher costs if they clean up their supply chains before their competitors do.
Deals that limit competition between rival companies generally must demonstrate that customers will receive a fair share of the benefits the companies reap, for example by delivering higher quality or cheaper goods, and that these benefits will outweigh any harm to the market.
But the CMA said it “does not expect to take enforcement action” against environmental sustainability agreements that meet certain public interest tests, according to the guidelines. Agreements that have a tangible impact on climate change will be especially protected from enforcement action, given the benefit to UK consumers as a whole.
Examples of permissible collaborations include homebuilders agreeing to only install products that meet a minimum energy efficiency standard, financial institutions deciding not to finance or insure fossil fuel projects, or fashion groups no longer using fabrics that contribute to plastic pollution.
Shareholders can also agree on a common voting position in support of a business pursuing climate or environmental policies.
Five big global insurers and Lloyd’s of London, the insurance market, quit a net zero coalition earlier this year citing the threat of antitrust action. In the US, a group of Republican politicians have targeted collective climate action groups and questioned their compliance with competition law.
The CMA guidance issued on Thursday would help companies tackle the “huge test” of climate change, said Alex Veitch, director of policy at the British Chambers of Commerce.
“A clear definition of where the boundaries lie will be incredibly useful,” he said, and would clear up anxiety about how far companies can collaborate to help the UK reach its target of net zero emissions by 2050.
Sarah Cardell, chief executive of the CMA, said earlier this year that there was “pent-up demand” from businesses including insurers and asset managers to collaborate on limiting climate change.
“This means business has got the green light to go ahead to tackle the existential threat of climate change without worrying about enforcement action,” said Simon Holmes, a member of the UK Competition Appeal Tribunal and visiting law professor at the University of Oxford.
He said the move made the CMA a “leader of the pack” among competition authorities globally. The European Commission relaxed its antitrust guidelines for green collaborations in June, but fell short by failing to specifically exempt deals that bring climate benefits to the public at large.