Corporate Governance and Accountability

Baroness Sherlock Excerpts

Tuesday 5th July 2011 Lords Chamber

[Baroness Sherlock]

My Lords, the Minister may struggle to make us all equally happy, but I hope to find some common ground at least. I add my voice to those who look at the reasons why environmental and social reporting should be something that we promote. For a start, it would help to increase public trust in business and in those who regulate it, which we could do with as much of as possible. Nevertheless, reporting requirements are mainly there to make sure that stakeholders can make informed judgments about companies. If we overly limit that to too narrow financial information, we fail to take seriously the indirect, unintended or non-financial costs—or indeed benefits—of corporate activity. The consequences are very serious. In economic terms, it fails to account for externalities and in practice can distort a market. In social terms, it fails to take account of the full range of stakeholders who have a legitimate interest in the company's activities because they—we—are affected by them.

Is the noble Lord, Lord Patten, right in saying that no more regulation is needed? I fear not. If we look at the environment, it seems very clear that voluntary reporting simply cannot deliver results on the scale and at the pace that is necessary to meet the reduction in emissions that British law already requires. In my view, carbon reporting should therefore be mandatory, at least for large companies. In terms of social accounting, we have heard ample evidence that current narrative reporting requirements are not being followed. A recent report from the Corporate Responsibility Coalition summarised the problems pretty well as follows:

“vague corporate obligations … insufficient auditor involvement and … weak enforcement”.

Apart from that, it is going swimmingly.

There is good practice out there. I discovered recently that the first plc in Britain to produce an audited social report was not a corporate giant but Traidcraft, a medium-sized company founded in Durham in 1979 to fight poverty through trade. I am sure that my noble friend Lord Haskel has enjoyed some of its chocolate bars and tea. In 1993, Traidcraft published an audited social report, and I hope that the Minister has had the opportunity to look at its social accounts. I found them fascinating. They told me more about the impact of that company not just on its customers, members and supporters but on its supply chain right the way through to its staff and the lives of the very farmers out in developing countries. That is a true social report. I encourage the Minister to comment on it and to share some of the methodology with larger companies. There is so much more that companies could do. If they will not, they must be required to, I regret. At the very least, we should see full monitoring and compliance with the current requirements. However, we also need some guidance on what should be reported on, and we need an audit standard and, crucially, a timetable for when disclosure of social data will be verified. If data cannot be verified, it simply undermines their legitimacy at all. We may, in fact, discourage people from doing this rather than encourage them.