U.K. Competition Regulator Leads Environmental Agenda by Publishing Draft Environmental Suitability Agreements Guidance

March 8, 2023 Advisory

On 28 February 2023, the U.K. competition regulator, the Competition and Markets Authority (CMA), sought to promote itself as a leading advocate of the ‘Green Agenda’ by publishing for consultation draft guidance on the application of the Chapter I prohibition of the Competition Act 1998 to environmental sustainability agreements (Draft Guidance). This move makes it one of the first competition regulators to publish specific competition guidance to assist business in interpreting what is and is not acceptable in pro-environmental agreements.

It is hoped this new guidance will give business greater confidence to enter into environmentally friendly agreements and act as a spur to the green agenda. The CMA’s consultation on the draft guidance is open until 11 April 2023. The CMA will then prepare the final version. This guidance will ultimately be included in the new CMA Horizontal Agreements Guidelines (Horizontal Guidelines) which the CMA began to consult on in January this year and will sit alongside the new U.K. horizontal block exemption orders which came into force on 1 January 2023 (The Competition Act 1998 (Specialisation Agreements Block Exemption) Order 2022 and Competition Act 1998 (Research and Development Agreements Block Exemption) Order 2022.

CMA Harnesses Competition Law to Encourage Pro-Environmental Agreements

Environmental Sustainability Agreements are agreements or concerted practices between competitors and potential competitors which are aimed at preventing, reducing or mitigating the adverse effects economic activities have on environmental sustainability such as pollution, reducing biodiversity or contributing to climate change from greenhouse gas emissions. Examples include agreements aimed at improving air or water quality, conserving biodiversity or promoting the sustainable use of raw materials. 

The U.K. Government is one of the leaders in seeking to accommodate a flexible interpretation of competition law to encourage sustainability agreements, but not the first. The emphasis on the green agenda has seen other competition regulators provide guidance on the application of competition law to sustainability agreements. The EU Commission in its updated draft Horizontal Agreements Guidelines sought to give further guidance on when agreements with a pro-environmental purpose could fall outside the EU competition rules (Article 101TFEU) or merit an individual exemption under Article 101(3) TFEU but stopped short of producing standalone guidance. The Dutch competition regulator, however, was the first in Europe to specifically set out draft guidelines on sustainability agreements in 2021.

The U.K. Government saw the chance to make its mark on the environmental agenda when it consulted on its proposals for reforming competition and consumer policy in July 2021. At that time the Secretary of State published a letter asking the CMA to provide advice on how the U.K. can better use the tools available under competition and consumer law to achieve the government's Net Zero and environmental sustainability goals. In March 2022, the CMA responded to the Secretary of State. It stated that it intended to produce guidance on these issues to improve legal certainty for businesses. It has now published those draft guidelines for consultation.

The CMA’s Draft Guidance on Environmental Sustainability Agreements

The Draft Guidance applies to environmental sustainability agreements, including climate change agreements, and provides guidance as to their treatment under U.K. competition law. The Draft Guidance is intended to supplement but not replace the other parts of the Horizontal Guidance. Its purpose is to provide the business community with confidence and clarity when entering into environmental sustainability agreements. The CMA does not want business unnecessarily or mistakenly deterred from lawfully co-operating or collaborating to promote environmental sustainability, out of fear of breaching competition rules.

In some cases, collaboration between competitors may be needed to deliver environmental benefits. The Draft Guidance gives an example. If a firm acted unilaterally to protect environmental sustainability, such as by switching to a more sustainable but costlier input (which its competitors would not), it is likely it would sustain a competitive disadvantage compared with its rivals. The result is that no other firms would have the incentive to switch without some form of collaboration. The Draft Guidance, therefore, explains the circumstances in which collaboration to protect or enhance environmental sustainability may or may not be permitted under competition law.

Competition Law Treatment of Environmental Agreements

The Draft Guidance sets out the types of environmental sustainability agreements that are likely and unlikely to infringe competition law and how certain types of restrictive behaviour may be exemptible under Section 9 of Competition Act 1998. Each of the four conditions for an agreement to claim exemption under in Section 9 of the Competition Act1998 must be met. The Draft Guidance gives specific guidance on what types of environmentally friendly objectives are likely to meet those criteria. The four conditions include:

  • Benefiting production, distribution or technical or economic progress. The parties need to have evidence of objective substantiated benefits arising from the agreement, such as reducing greenhouse gas emissions, creating new or improved products which have a reduced impact on the environment, combining resources to create economies of scale in relation to a new, more environmentally sustainable input, introduction of new cleaner technologies, or developing new, more energy-efficient processes.
  • Ensuring the restriction must be indispensable. There must be no less restrictive, but equally effective, alternative of putting the arrangement into effect. An agreement or restriction is likely to be considered indispensable, or reasonably necessary, to the relevant benefits if the parties can demonstrate that, in the absence of the agreement, they would not otherwise be able to achieve the level of benefits which the agreement seeks to achieve
  • Passing on benefits to U.K. consumers. The parties need to be able to show that the benefits that result from the agreement are passed on to U.K. consumers and that those benefits outweigh the harm that U.K. consumers would suffer as a result of the agreement. Benefits can include future as well as current benefits that accrue to direct as well as indirect users. In the context of climate change agreements, this condition can be satisfied taking into account the totality of the benefits to all U.K. consumers arising from the agreement, rather than apportioning those benefits between consumers within the market affected by the agreement and those in other markets.
  • Not eliminating competition. The agreement must not eliminate all competition on the market(s). Where the agreement covers the entire market, this condition may still be satisfied if there is still scope for the parties to compete on key conditions (such as price or quality), even if they align other aspects of their competitive behaviour.

CMA Guidance and Enforcement

The CMA states that it will not take enforcement action against environmental sustainability agreements, including climate change agreements, that clearly correspond to examples used in the Draft Guidance and are consistent with the principles set out in the guidance. Where parties are unsure about the applicability of the Draft Guidance, they should consider contacting the CMA.

The Draft Guidance positively encourages businesses entering into an environmental sustainability agreement to approach the CMA for informal guidance on their proposed initiative. Subject to the requirements of confidentiality, the CMA proposes to publish a summary of its informal guidance in relation to certain types of agreements to assist others entering into similar types of agreement.


The Draft Guidance represents a very important step in harnessing flexibility within the competition law framework to support the green agenda both domestically and internationally. However, it is to be seen how enthusiastically businesses embrace this latest initiative as concerns over a possible recession continue to intensify.


What EPA's Interim PFAS Standards Mean For Water Suppliers

On June 15, the U.S. Environmental Protection Agency announced its decision to establish significantly lower interim health advisory levels, or HALs, for four per- and polyfluoroalkyl substances — a family of chemicals referred to...

U.K. Digital Markets Competition and Consumer Bill Sets Out New Regime to Regulate Big Tech

Introduction The U.K. Government’s much-awaited Digital Markets, Competition and Consumer Bill (DMCC Bill) published on 25 April 2023 and sets out far-reaching proposals to establish a new ex ante regulatory regime for digital markets...

U.K. Quarterly Corporate Update, September 2022

First Prohibition Orders under U.K. NSI Act 2021 Target Acquisition of Technology In July 2022, the U.K. Government used its powers under the National Security and Investment Act 2021 (NSI Act) – which is, in...

EU Digital Markets Act and the Designation of Six Gatekeepers: Implications for the Technology Sector


U.K. Government Proposes New Merger Control Powers in its Digital Markets, Competition & Consumer Bill


U.K. Competition Watchdog Fines Foreign Undertaking for Failure to Comply with Information Request

In a ruling which could have widespread implications for foreign companies doing business in the U.K., the U.K. competition watchdog, the Competition and Markets Authority ( CMA ), hit Bayerische Motoren Werke AG...

Alleged Abuse of Patent System the Focus of EU Commission’s Latest Pharma Sector Enforcement Action

On 10 October 2022, the European Commission commenced formal competition law enforcement proceedings under Article 102 of the Treaty for the Functioning of the European Union (Article 102 TFEU) against global pharmaceutical company Teva...

A Summary of the Screening of Third Country Transactions Bill 2022

Yvonne Costello, Robert Bell and Malgorzata Janiec
Contact Us
  • Worldwide
  • Boston, MA
  • Chicago, IL
  • Denver, CO
  • Dublin, Ireland
  • Edwardsville, IL
  • Jefferson City, MO
  • Kansas City, MO
  • Las Vegas, NV
  • London, England
  • Miami, FL
  • New York, NY
  • Orange County, CA
  • Philadelphia, PA
  • Princeton, NJ
  • Salt Lake City, UT
  • St. Louis, MO
  • Washington, D.C.
  • Wilmington, DE
abstract image of world map
Boston, MA
800 Boylston St.
30th Floor
Boston, MA 02199
Google Maps
Boston, Massachusetts
Chicago, IL
100 North Riverside Plaza
Suite 1500
Chicago, IL 60606-1520
Google Maps
Chicago, Illinois
Denver, CO
4643 S. Ulster St.
Suite 800
Denver, CO 80237
Google Maps
Denver, Colorado
Dublin, Ireland
Fitzwilliam Hall, Fitzwilliam Place
Dublin 2, Ireland
Google Maps
Edwardsville, IL
115 N. Second St.
Edwardsville, IL 62025
Google Maps
Edwardsville, Illinois
Jefferson City, MO
101 E. High St.
First Floor
Jefferson City, MO 65101
Google Maps
Jefferson City, Missouri
Kansas City, MO
2345 Grand Blvd.
Suite 1500
Kansas City, MO 64108
Google Maps
Kansas City, Missouri
Las Vegas, NV
7160 Rafael Rivera Way
Suite 320
Las Vegas, NV 89113
Google Maps
Las Vegas, Nevada
London, England
Royal College of Surgeons of England
38-43 Lincoln’s Inn Fields
London, WC2A 3PE
Google Maps
Miami, FL
355 Alhambra Circle
Suite 1250
Coral Gables, FL 33134
Google Maps
Photo of Miami, Florida
New York, NY
7 Times Square, 44th Floor
New York, NY 10036
Google Maps
New York City skyline
Orange County, CA
19800 MacArthur Boulevard
Suite 300
Irvine, CA 92612
Google Maps
Philadelphia, PA
2005 Market Street
29th Floor, One Commerce Square
Philadelphia, PA 19103
Google Maps
Philadelphia, Pennsylvania
Princeton, NJ
100 Overlook Center
Second Floor
Princeton, NJ 08540
Google Maps
Princeton, New Jersey
Salt Lake City, UT
222 South Main St.
Suite 1830
Salt Lake City, UT 84101
Google Maps
Salt Lake City, Utah
St. Louis, MO
7700 Forsyth Blvd.
Suite 1800
St. Louis, MO 63105
Google Maps
St. Louis, Missouri
Washington, D.C.
1717 Pennsylvania Avenue NW
Suite 400
Washington, DC 20006
Google Maps
Photo of Washington, D.C. with the Capitol in the foreground and Washington Monument in the background.
Wilmington, DE
1007 North Market Street
Wilmington, DE 19801
Google Maps
Wilmington, Delaware