Environmental reporting proposals hailed as step towards greater corporate transparency

Mark Goyder, director of The Centre for Tomorrow’s Company has described proposals for reform of company law published this week as “a real handle to engage companies in dialogue on the core business approach to their environmental and social impact.”

The proposals were published this week in a consultation document, Modern Company Law for a Competitive Economy: Developing the Framework.

The document, which is the second consultation document published since the Governmnent’s announcement of the Company Law Review in March 1998, sets out how the current legal framework could be modernised for both large and small companies.

As well as calling for simplification of the law for small companies, the document recommends the inclusion of mandatory environmental and social reporting in the Annual Reports of large companies. The document says public and very large private companies should be required to publish a broad operating and financial review which explains the company’s performance, strategy and relationships (for example with employees, customer and suppliers as well as the wider community).

The document also calls for the creation of an ‘inclusive’ statement of directors’ duties requiring directors to address all the relationships on which the company depends and the long term implications of their actions.

“For the first time, companies will have to say something about their environmental and social responsibilities,” Goyder told edie. “If they say they don’t have environmental policies, they will be challenged by NGOs. If they say they do, then they will be expected to quantify those policies into targets and then will either have to achieve those targets or come under further pressure.

“I believe this now gives the stakeholder community a real handle to engage companies in dialogue on the core business approach to their environmental and social impact. I think this is stronger than requiring them to sideline it all into a separate environmental and social report because this brings the issue into the mainstream- the Finance Director must now start losing sleep over it, not just the Public Affairs director.”

The Centre for Tomorrow’s Company promotes the concept of an ‘inclusive’ approach to business, recognising that in order to be sustainable, business has to start factoring social and environmental considerations into every aspect of its operations.

“In terms of the duties of directors, the consultation document has done what we recommended,” said Goyder. “We have found that nobody has come up with more workable proposals – there was too much risk of litigation. But the review contains a real clarification of the duty of directors. Their duty is to the company not to the shareholders. The document makes it clear that sometimes directors have to defend steps taken to address environmental or social issues to shareholders knowing that this is the best for the company in the long run.”

Environmentalists were less enthusiastic. While welcoming the reporting requirements for listed companies, and the proposal that directors should have to pay some regard to all stakeholders’ interests, Friends of the Earth (FoE) described the proposals as “a missed opportunity to put stakeholder interests at the very heart of corporate activities, and to place British companies at the forefront of a worldwide drive for sustainable development”.

FoE accused the proposals of leaving too great a proportion of the reporting requirements to the discretion of directors and said the statement on director’s duties was too weak to prevent companies taking short-term profits at the expense of public health, the environment or employees.

The Institute of Directors (IoD) told edie that it recognises the need for the modernisation of company law and a clarification of the duties of directors, but said it could not comment on the question of incorporating environmental reporting into Annual Reports or on the role of directors until its members had been fully consulted.

Comments are invited on the proposals concerning small private companies by 15 June 2000; and on the remainder of the document by 28 July 2000. The Company Law Review Steering Group will make its recommendations to Government in Spring 2001.