The sustainability challenges we face have been placed at the top of the political agenda – but so too has the crucial reporting aspect of corporate social responsibility
by Merlin Hyman
06 October 2006
Essentially business’s contribution to sustainable development goals, CSR is about how business takes account of its economic, social and environmental impacts in the way it operates – maximising the benefits and minimising the downsides.
In its CSR report in 2004 the government recognised its role as “providing a policy and institutional environment that encourages and rewards socially and environmentally responsible behaviour”. The report also served to highlight that the government would provide support, guidance and a flexible framework to encourage and enable organisations in the UK to behave responsibly to protect our environment.
Despite this, last year, at a CBI conference, the government announced that it would be reversing seven years of work in building a consensus for a modest increase in the requirements on large companies to be open about their impacts on the environment by scrapping the requirement to publish an Operating and Financial Review (OFR) as part of a business’s annual reports and accounts.
The removal of the OFR left in place a requirement for approximately 37,000 large and medium sized UK companies (both public and private) to produce a business review – a less extensive narrative report required by the EU Accounts Modernisation Directive. The directive, adopted in 2003, requires that firms disclose information that “should not be restricted” to the financial aspects of a company’s business.
Following the government’s announcement of the decision to remove the OFR requirements in the Companies Bill, Friends of the Earth, supported by the Environmental Industries Commission (EIC), launched a legal challenge against the decision on the basis that it had been unlawful because the chancellor failed to properly consult stakeholders prior to withdrawing it as a legal requirement. The challenge was successful and led the government to launch a fresh consultation on the future of company environmental reporting, including measures contained in the scrapped OFR.
In addition to submitting a witness statement as part of Friends of the Earth’s legal challenge, EIC’s Sustainable Development and Management Working Group, which represents more than 100 companies engaged in provision of advice on environmental management, has lobbied hard on the issue including raising the matter in a meeting with John Healey MP, Financial Secretary to the Treasury.
The EIC will continue to lobby the government to ensure that environmental reporting is at the heart of modern company law. The next step in this process will be lobbying MPs to support amendments at the Report Stage of the bill to back the retention of the OFR reporting requirements and to provide for statutory guidance on carrying this out.
Merlin Hyman is director of the Environmental Industries Commission
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