Professor Simon Holmes, Co-chair of the ICC’s Sustainability and Competition Taskforce [1]
You may wonder what competition law has got to do with action to fight climate change or, indeed, to build, sustainable value chains. Perhaps surprisingly the answer is, quite a lot!
Competition to produce more sustainable products and services is obviously good. However, competition can also drive companies (often against their best intentions) to use less sustainable inputs and have less sustainable production processes – simply because they have to do things as cheaply as possible in order to compete and stay in business. It is therefore important that competition policy helps, rather than hinders, companies to take steps to make their businesses more sustainable.
Of course, in many instances, regulation is the answer (minimum environmental standards, etc). Unfortunately, regulation is often lacking, is too slow in coming, is limited to particular jurisdictions, or frankly, it is hopelessly limited in scope and ambition. If the world could agree a realistic carbon price, carbon taxes, or a proper phase out of fossil fuels, the discussion of competition policy would probably not arise. However, in the real world, this is not going to happen any time soon (you only need to look at the recent COPs).
Of course, companies can, and should where they can, compete to produce more sustainable products. However, more sustainable production processes, or more sustainable inputs, may be more expensive (at least in the short term) giving rise to a competitive disadvantage. Furthermore, even if some goods can be produced both profitably and sustainability, this is often limited to niche sectors of the market and we need to put whole sectors of our economy on a sustainable footing-and as quickly as possible.
Companies therefore need to work together to transform their industries at the necessary scale and pace. This is where competition law comes in. Companies have (quite rightly) learnt they should compete rather than collaborate with their competitors, and this instinct is inhibiting the sort of cooperation between businesses which we need if we are to fight climate change at scale and pace. I have experience of this in industries ranging from fishing to fast fashion, and from deforestation in Amazonia to efforts to reduce plastic use and increase recycling in UK supply chains.
However, in most cases projects such as these can go ahead without infringing competition law. Until recently, the position was uncertain but writers such as myself (and others) have explained how a modern competition policy can take into account sustainability considerations, and thus help, rather than hinder, efforts to fight climate change. The competition authorities have listened and responded accordingly.
For example, in June 2023, the European Commission published guidelines for “sustainability cooperation agreements”, and in October 2023, the U.K.’s competition authority, the CMA, published guidance on “green agreements”-which is probably the most advanced in the world at the moment. This sort of guidance helps businesses, understand:
* which agreements are unlikely to be caught by competition law; (eg falling within a “safe harbour for standards”); and
* which agreements might benefit from an exemption from competition law;
Several of the guidelines produced also:
* invite companies to speak to the competition authority informally about potential projects (an “open door” policy); and
* provide considerable protection from enforcement action/fines, if the principles of guidance are adhered to or the parties have discussed the matter with the authority.
The UK also has a “more permissive approach” for “climate change agreements”.
More work remains to be done. In particular, we need to iron out some of the technical issues arising from the guidelines (e.g. in relation to precise scope of the exemption conditions); greater progress needs to be made in other parts of the world (notably the US); and the authorities need to gain more practical experience of the sort of projects which business wants and needs to do.
However, the position has improved considerably in the last two or three years and businesses generally have a “green light“ to work together to clean up their supply chains, fight climate change and put their industries on a more sustainable basis.
To take this to the next level the ICC’s Sustainability and Competition Taskforce (which I co-chair) calls on business to take real life examples to the competition authorities. This will this help those authorities understand industries’ needs better and remove the remaining competition law barriers to climate action. Above all it will enable those businesses to receive the comfort they need to work together to put their industries on a more sustainable footing.
Competition law need not be a barrier to climate action-and you can play your part in making this a reality.
Footnote
[1] Simon is a Visiting Professor of law at Oxford University, a judge at the UK’s Competition Appeal Tribunal, and a legal adviser to the NGO ClientEarth.
[1] Simon is a Visiting Professor of law at Oxford University, a judge at the UK’s Competition Appeal Tribunal, and a legal adviser to the NGO ClientEarth.
