RegulationAccounting StandardsDon’t botch the future

Don’t botch the future

In early May the government has tabled amendments to the company law reform bill in response to the public consultation on scrapping the operating and financial review

It was a rushed consultation, which followed Friends of the Earth’s legal
challenge to the chancellor’s decision. Hidden among the clauses were a handful
of important measures, originally in the operating and financial review (OFR)
but not in the much weaker business review, which made reference to social and
community issues.

Under the amendments, quoted companies will have to report on their policies
to address the social and environmental impact of their business and – crucially
– the effectiveness of those policies. Welcome news. We don’t just want to know
what impact BP is having on the environment, we also want to know what the
company is doing about it.

More importantly, the new clauses bring purpose to corporate social
responsibility reporting, allowing an assessment of how well a company’s
directors have performed their new duties to ‘have regard’ to community and
environmental matters.

Anyone who has the most basic understanding of the social and environmental
challenges we face this century will see these as welcome, commonsense measures.
But they are, unfortunately, mainly limited to the 1,300 companies listed on the
UK stock market.

Private companies will still be able to get away with bland platitudes that
tell us little. Yet private companies are responsible for some of the worst
social and environmental abuses around the world.

Even more serious is the lack of any mandatory reporting standard in the
amendments. The OFR regulations were accompanied by the Accounting Standards
Board’s reporting standard 1 of May 2005, issued to set out what was required.
This gave companies, accountants and auditors clarity on how to produce an OFR,
but also enabled comparability between companies, which the current arrangements
do not.

Why has the government seemingly caved in to the most regressive of industry
lobbyists and gone for a voluntary reporting standard? Doesn’t it want us to be
able to compare BP’s performance on climate change with that of Shell’s?

Apparently not. While most people want to make UK plc (and UK Ltd) fit for
the 21st century, the government is still some way behind.

Craig Bennett is head of the corporate accountability campaign at Friends
of the Earth

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