Business reporting rules branded weak and watered down

Updated rules designed to improve the way that businesses report on their activities have been criticised as being "watered down" by environmental campaigners.

Trade and Industry Secretary Patricia Hewitt last week announced the new Operating and Financial Review (OFR), saying that it will fulfil promises to improve the quality, usefulness and relevance of information provided by company reporting (see related story).

“The OFR will help investors make better informed decision and encourage an open dialogue between shareholders and business to stimulate long term wealth creation,” Ms Hewitt explained.

“Our approach is designed to strike the right balance between minimising regulatory burdens and ensuring there are adequate systems for ensuring transparency, compliance and enforcement.”

However, Friends of the Earth (FoE) and the Corporate Responsibility Coalition (CORE) claim that the final review has been watered down following extensive lobbying from big business, failing to require that companies report on a wide range of risks.

The two organisations told the DTI that environmental risks such as climate change should be included in any reporting as they also pose serious financial threats to shareholders. They also argued that companies should be obliged to report on social and environmental issues to their stakeholders as well, but the DTI has so far failed to respond.

Head of corporate accountability campaigning at FoE, Craig Bennet said that the OFR had been weakened so heavily that it was now of no use to anyone.

“Full and meaningful reporting is in the interests of shareholders, stakeholders and companies alike,” he said.

Further contention over the new OFR included the omission of earlier requirements to use “due and careful enquiry” while creating a report, as well as the fact that producing a negligent OFR was no longer an offence. Directors now only needed to report social and environmental impacts “to the extent necessary”, allowing companies to determine which risks they wish to declare and which to ignore.

“The Government is clearly willing to ignore public concerns and be led by the nose by the business lobby,” Mr Bennet added. “Is the Government really happy for companies to produce reports without ‘due and careful enquiry’ or even to produce a negligent report?”

But senior researcher at the Ashridge Centre for Business and Society (ACBAS) Leon Olsen said he felt the OFR regulation proposals made sense as they required directors to take care in preparing OFRs while avoiding previous legal burdens.

“The process of ‘due and careful enquiry’ that was to be reviewed by auditors risked undermining candid and valuable reporting from companies because legal experts, not the directors, would be writing OFRs,” Mr Olsen stated.

He said he believed that the new proposals would spur directors on to be open and honest about the real non-financial value drivers of corporate performance, as well as material risks and opportunities for business.

“Directors are being trusted more to prepare informative and valuable OFRs,” Mr Olsen said. “This is a double edged sword as they now have an opportunity to demonstrate that they are worthy of this trust, to avoid draconian regulatory measure in the future.”

A recent report conducted on behalf of the Environment Agency (EA) showed that only 10% of companies in the FTSE All Share used annual reports and accounts to report on issues such as waste, water and climate change, and even less provided quantitative information (see related story).

By Jane Kettle

Action inspires action. Stay ahead of the curve with sustainability and energy newsletters from edie