Corporate Governance and Accountability

Lord Newby Excerpts

Tuesday 5th July 2011 Lords Chamber

[Lord Newby]

I thank the noble Lord, Lord Harrison, for introducing the debate. I declare an interest as an adviser to companies on issues of corporate governance and responsibility. There is no doubt that the past decade has seen a sea change in attitudes to social and environmental accountancy, with both voluntary codes such as that of the Global Reporting Initiative, which has been widely taken up across the world, and statutory provisions such as the Companies Act 2006, which has already been referred to and which has required companies in the UK for the first time to report on their social and environmental impacts.

The previous Government planned to go slightly further and introduce a full operating and financial review, before Gordon Brown got cold feet at the last minute. The principal difference between an OFR and what we have under the Companies Act is the requirement for some sort of audit. While I agree with the noble Baroness, Lady Bottomley, about wanting to avoid a pure tick-box approach, at present the quality of reporting on social and environmental issues is extremely mixed. Only 9 per cent of companies that Deloitte surveyed reported on their carbon emissions in line with Defra guidelines. Reporting by companies of community investment is both extremely difficult and patchy. Requiring an audit would improve standards. Under the Climate Change Act, the Government have the potential to make carbon reporting by companies mandatory. Does the Minister think that the time has come for that provision to be brought into effect?

Of course, reporting by companies is only part of accountability. The other part, referred to by a number of noble Lords, is the accountability of those who invest in companies. For many years, investors have been remarkably uninterested in social and environmental performance. This is beginning to change because people can see, not least in relation to climate change, that how companies relate to the environment will have a material effect on their long-term sustainability, particularly in some of the extractive industries. It will also be logical for pension funds, because of the long-term implication of companies’ environmental and social impacts, to take account of those factors in their investment decisions. However, as we have already heard, there are serious concerns about whether they can do that legally, given their fiduciary duties. Do the Government believe that a review of that issue is now appropriate?