CMA's informal opinion on ESG supply chain initiative: important lessons

On 31 March 2025, the Competition and Markets Authority (CMA) published its third informal opinion under its Green Agreements Guidance (see our October 2023 update). The Green Agreements Guidance and informal guidance on specific initiatives are intended to provide greater certainty for businesses on how competition rules apply to agreements and arrangements between competitors aimed at achieving environmental and sustainability goals.

What you need to know

• In its third informal opinion, the CMA considered the Builders Merchants Federation's (BMF) proposal to recommend that its members use a single preferred platform containing data on suppliers' ESG credentials.
• The CMA considered the proposed initiative was unlikely to appreciably affect competition and, in the alternative, was reasonably likely to satisfy the exemption criteria.
• The opinion underscores the importance of carefully evaluating any collaborative sustainability initiatives in light of the CMA's Green Agreements Guidance and the benefit of engagement with the CMA. Certain features of BMF's proposal meant that it did not fall neatly within the bucket of agreements that are unlikely to infringe competition law (e.g. standardisation agreements) and the CMA therefore individually assessed the potential impact of the proposed arrangements on competition.

CMA's approach to ESG collaboration initiatives

On 12 October 2023, the CMA published its guidance on the application of the Chapter 1 prohibition to sustainability agreements between businesses operating at the same level of the supply chain (Green Agreements Guidance) (see our October 2023 update). The Green Agreements Guidance introduced the CMA's "open door policy" through which companies can receive informal guidance on environmental and sustainability collaboration initiatives. The CMA published its first informal opinion in December 2023 on Fairtrade's Shared Impact Initiative and its second in March 2024 on WWF-UK's proposal for supermarkets to make a joint commitment to reduce greenhouse gases in their supply chain by encouraging their suppliers to adopt net-zero science based targets (see our March 2024 update).

The CMA has shown a continued interest in supporting collaboration efforts between companies in relation to environmental sustainability agreements.

It is likely that the CMA's interest in supporting such collaborative efforts will continue, in particular due to the innovation and economic benefits that can be achieved through such agreements and the focus on facilitating sustainable growth, as highlighted in its 2025-2026 annual plan.

In this context, the CMA has issued its third informal opinion on BMF's supply chain initiative (the Opinion), which provides a number of important lessons for companies considering environmental collaboration efforts in relation to their supply chains where they pool supplier information or create an industry standard.

BMF's supply chain initiative

BMF is the first trade association to receive an informal opinion. BMF has over 1,000 members, over half of which are merchants responsible for sourcing materials supplied to building companies. The manufacturing and construction sectors generate approximately 10-15% of UK greenhouse gas emissions so BMF (and in particular its merchant members) were considered well placed to improve the availability of materials with a reduced environmental impact. However, only 20 of BMF's merchant members carried out supply chain assessments that addressed the environmental impact of a business' supply chain.

To increase the adoption of supply chain assurance assessments, BMF proposed recommending a single preferred supply chain assurance provider to conduct supplier assessments, with information on those assessments being made available to merchants on a single preferred platform. To participate, suppliers would complete an ESG questionnaire (supported by evidence), following which they would receive a supply chain risk rating from the assurance provider and, where relevant, a corrective action plan. In line with the Green Agreements Guidance, BMF would not require its members to use the preferred platform and would allow merchants to develop and use alternative schemes.

BMF selected Verisio to fulfil the supply chain assurance provider role on the basis that Verisio had the necessary systems and tools and had recently been selected to perform this role for Travis Perkins following a competitive tendering process. The proposal involved the following features (which, aside from the first point, were all introduced following engagement with the CMA):

• BMF working with Verisio would develop a standard ESG questionnaire for the industry and a platform solution to process and assess suppliers' questionnaire responses. Input from both BMF's members and non-members would be sought for both aspects of the proposal, and the platform solution would also be available to non-members.
• A competitive process for the role of the preferred supply chain assurance provider would be run on an ongoing basis, with the first taking place within 24 months of the proposal's launch.
• The standard ESG questionnaire would be "open source" and accessible to the industry, including information on the methodology used to assess responses and determine the risk rating.
• Data portability would be ensured by making (i) completed supplier assessments transferrable to alternative supply chain assurance providers; and (ii) information on the platform downloadable and transferrable to an alternative provider's platform, at no extra cost.
• Safeguards on the review of competitively sensitive information would be put in place for BMF employees and members of its sustainability working group.

CMA's review of the proposal

In general, agreements to provide ratings on suppliers' environmental sustainability credentials are unlikely to be anti-competitive, provided parties independently determine their purchasing decisions and do not exchange competitively sensitive information.

Similarly, collaborations between competitors to develop environmental sustainability standards with the aim of improving the sustainability of products or processes are unlikely to be anti-competitive, provided that the safeguards included in the Green Agreements Guidance are incorporated into the initiative, including:

• ensuring the process is transparent and any businesses in markets affected by the standard are able to participate in the development of the standard;
• the standard is not mandatory;
• businesses can implement the standard on reasonable and non-discriminatory terms;
• businesses are free to go beyond the minimum environmental sustainability requirements set by the standard and to develop higher standards;
• the standard is unlikely to result in an appreciable reduction in the availability of suitable products available for consumers to purchase (e.g. where participating businesses are free to sell alternative competing products or the combined market share of participating businesses is sufficiently small (e.g. below 20% on any relevant market)).

The CMA noted that BMF had departed from the Green Agreements Guidance by selecting Verisio as the preferred supply chain assurance provider without running a new competitive process. The CMA's primary concerns were twofold: (i) other supply chain assessment providers may be foreclosed from providing their services to the market, and (ii) selection of the supply chain assessment provider at the launch of the scheme could provide it with market power, which could be exploited for example by implementing unreasonable terms or worsening the quality of the platform.

Notwithstanding these concerns, the CMA generally considered that the risk of significant harm resulting from the proposal was likely to be low. The risk of foreclosure was reduced by the additional features proposed by the CMA that would assist parties to switch, in particular the open source nature of the questionnaire and reduced costs resulting from data portability, as well as by BMF's commitment to run a competitive process for the role of the provider at regular periods.

In respect of the terms and quality offered by the preferred provider, the CMA also noted BMF's ability to reassign its recommendation in the event Verisio's terms to its members worsened, as it is in BMF's interest to ensure Verisio does not exploit its market power. The CMA also expressed the importance of equal terms being applied to BMF members and non-members, including if the single preferred platform/provider changed.

The CMA also considered whether the proposal could satisfy the individual exemption criteria set out in section 9 of the Competition Act 1998 on the basis that the additional features may not be fully effective in practice and so a risk of a negative effect on competition arising remained. To benefit from the exemption, the benefits of the agreement must outweigh the competitive harm. This is assessed by reference to four cumulative conditions:

• the agreement must contribute to certain benefits, namely improving production or distribution or contribute to promoting technical or economic progress;
• the agreement and any restrictions of competition within the agreement must be indispensable to the achievement of those benefits;
• consumers must receive a fair share of the benefits; and
• the agreement must not eliminate competition in respect of a substantial part of the products concerned.

The CMA's preliminary assessment concluded that there were good reasons to believe that the proposal would satisfy the exemption criteria.

Benefits: BMF submitted that selecting a single preferred platform would generate cost savings (including administrative costs) that would otherwise occur when registering with multiple supply chain assurance providers. BMF provided the CMA with a calculation framework demonstrating the cost reduction benefits. The CMA also considered the benefits generated by the proposal in increasing the speed and uptake by suppliers and merchants of supply chain assurance services. This would in turn increase the ability for comparison of suppliers' ESG credentials thereby assisting merchants with the delivery of greenhouse gas emission reductions at a greater pace and in line with government and industry targets.

Compared with the CMA's other two informal opinions, the BMF opinion provides more detailed insights into the methodology used by the CMA to assess the expected environmental benefits generated by the proposal (which in this case focused on upstream emissions in manufacturing and construction):

• Step 1: verifying BMF's estimates of the emissions baseline against industry data and national statistics.
• Step 2: determining whether the abatement of the emissions was feasible and cost-effective in the near term.
• Step 3: assessing the practical effect of the proposal on greenhouse gas emissions in the context of government and industry targets.
• Step 4: assessing the net benefit from each unit of emissions reduction in relation to reduced or avoided costs, which in the context of the proposal concerned the increased use of emission reduction technology.
• Step 5: calculating the net benefits of the proposal by combining the emission reductions at step 3 and the unit values at step 4. At this stage, the CMA identified that the proposal could have annual benefits of £10 million and that cautious assumptions of both industry costs and emissions would be necessary to eliminate the total net benefit to end-consumers. The benefits of the proposal were therefore considered likely to be substantial.

Fair share: the CMA also assessed the proposal as a "mixed" agreement (generating both climate change and other environmental benefits) allowing it to take into account benefits of the proposal for all UK consumers (rather than just those directly affected by the proposal). Aside from the cost reduction benefits afforded to merchants and suppliers, increased uptake of supply chain assurance services and greater availability of assured products, the CMA also noted that the proposal would have environmental benefits for all UK consumers through mitigating the impact of climate change and reducing connected costs. Reference to the targeted emission reductions in the proposal being in line with the pathways to meet the Government's carbon budgets suggests alignment with the pathways may be a relevant consideration for businesses collaborating on climate change initiatives.

Indispensability: in light of the analysis performed by supply chain assurance providers in producing a risk-rating for parties and preparing corrective action plans, the CMA considered it was necessary to have a single preferred platform (rather than multiple approved providers) to provide a uniform, consistent approach to assessments. Moreover, recommending Verisio would allow the benefits to be realised more quickly and effectively as it already had the relevant systems in place.

No elimination of competition: the additional features outlined above were considered sufficient to ensure that there would not be a substantial elimination of competition between the providers of supply chain assurance services, in particular given there would be an ongoing competitive process for the role of the recommended supply chain assurance service provider and that other providers could compete due to the industry-wide availability of the questionnaire and data portability.

As the proposal has been reviewed under the open door policy, the CMA would not expect to take any enforcement action in relation to the proposal.

Comment

The Opinion provides further clarification of the CMA's application of its Green Agreements Guidance. In particular, notwithstanding that the purpose of BMF's proposal generally aligned with examples of agreements contained in the Green Agreements Guidance that are not expected to negatively affect competition (i.e. pooling supplier information and creating an industry standard), the proposal was considered to potentially affect competition due to the pre-selection of the supply chain assurance service provider and the potential resulting impact on rival assurance service providers. When following the Green Agreements Guidance, businesses should therefore be sure to fully evaluate any aspects of their initiative that depart from the guidance and consider approaching the CMA where this occurs. This applies even in the context of small adaptions; for example, based on the Opinion it is not clear that the proposal would have satisfied the section 9 exemption criteria if the supply chain assessment related only to a pass or fail of the criteria (rather than the formulation of risk ratings and corrective action plans).

The Opinion also provides helpful insight into the CMA's methodology in assessing the emissions benefits generated by an initiative. In addition, insight into the CMA's assessment of mixed agreements and consideration of benefits generated for all UK consumers in mitigating the impact of climate change serves as a further example of its willingness to support sustainability collaboration agreements, particularly where the parties are willing to engage with the CMA on implementing improvements in order to receive its blessing.

Finally, the Opinion explicitly notes that the CMA did not consider the merit of Verisio's selection as the supply chain assurance provider or the quality of its services. The CMA emphasised the need for the businesses to consider whether any environmental claims comply with the CMA's Green Claims Code and certification schemes provide sufficient substantiation for environmental claims. This provides another clear reminder that the CMA expects compliance with its Green Claims Code, including where relevant to initiatives under its Green Agreements Guidance, in advance of its direct enforcement powers coming into effect on 6 April (see our March 2025 update).

The Opinion also illustrates both the positive features and potential downside of the CMA's open door policy. Whilst it is clear that engagement with the CMA and changes to the proposal following feedback from the CMA were important to the eventual analysis, the process to secure the CMA's opinion took over a year.

Want to know more?

• CMA publishes informal guidance under Green Agreements Guidance, 25 March 2024 (https://www.ashurst.com/en/insights/cma-publishes-informal-guidance-under-green-agreements-guidance/). The CMA published informal opinions to Fairtrade Foundation UK and WWF-UK under the 'Open Door Policy' introduced by its Green Agreements Guidance.
• New UK Green Agreements Guidance published, 17 October 2023 (https://www.ashurst.com/en/insights/new-uk-green-agreements-guidance-published/). On 12 October 2023, the CMA published guidance on the application of the Chapter 1 prohibition to sustainability agreements between businesses operating at the same level of the supply chain.