Breaking new ground as the first country in the world to mandate disclosure of gross global emissions for the entire organisation in its annual report the UK government is pushing ahead with its business sustainability commitments and will, with effect from this autumn, make it obligatory for all UK quoted companies to disclose information regarding their CO2 emissions and other environmental impacts.
Designed to reform current conventions on the annual reporting practices and shareholder accountability, The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 aims to simplify and strengthen companies’ non-financial reports. In addition to standard business and financial details, the UK’s annual reports will now be required to include discussions of environmental, social and ethical policies and practices. Specifically, the regulations are aimed at helping owners and stakeholder in their “understanding of the development, performance or position of the company’s business in relation to:
(i) environmental matters (including the impact of the company’s business on the environment);
(ii) the company’s employees; and
(iii) social, community and human rights issues;
including information about any policies of the company in relation to those matters and the effectiveness of those policies.”
Put forward for consideration in October 2012, Business Minister Jo Swinson announced recently that these reforms are now confirmed. The regulations are due to come into force on 1st October 2013 and will have effect on all listed companies with financial years ending on or after 30th September 2013.
Some will be celebrating another step in the right direction, others will bemoan yet another change in report-writing practices, particularly when they co-incide with new remuneration reporting requirements. So, who is right? Do we need regulation, or should the market be allowed to evolve at its own pace?
Recent research by Manifest investigating the sustainability reporting practices of global companies has shown some stark differences in practice. In France, for example, Article 225 of Grenelle II requires the inclusion of ESG data in listed companies’ annual reports, plus third party verification. The requirements are based on globally recognised standards – notably GRI 3.1 and ISO26000 – but, in practice, the language of the reports is rigid and repetitive making it difficult for the reader to get a clear picture of the relevance of the disclosures to the business. So while France is ahead of the pack at the moment, as reporting practices respond to investor needs, there is a risk that regulations, if too rigid, can lose their relevance and become an exercise in rules-based box ticking.
In contrast to France, the UK’s proposals are very open in their nature which leaves companies with ample scope to take the initiative and disclose what they see as appropriate and to make changes as priorities develop. Being this open does still leave the opportunity for those who consider most sustainability-related issues irrelevant (notably those in the financial sector according to our analysis) to say very little (or nothing). However, this could be the necessary stimulus to make them realise the significance of considering their wider sustainability impacts. Interestingly, while the narrative reporting regulations have yet to come into force in the UK, there are many examples of disclosure excellence based on current, and evolving best practice. Our research, due to be published later this summer, shows many UK companies at the top of the sustainability disclosure leader board with the US trailing far behind its European counterparts.
Other notable issues these amendments tackle include gender diversity on the board and throughout the workforce. But, surprisingly, it seems that companies will no longer be required to disclose details regarding any donations of time or financial support to charitable organisations (see pages 5 and 6 of the proposals). We’re not sure if this an oversight or a compromise to get the regulations through Parliament. Charitable donations are not covered by any UK accounting standards and having been a disclosure requirement for so many years, it seems unusual to remove the requirement, particularly at a time when corporate social responsibility and community engagement are becoming so topical. We have made a number of enquiries but have yet to find a specific answer.
The changes will need to be monitored over time to see if the regulations have made a material difference or result in more boiler-plate. However, for company secretaries and sustainability officers, these moves should mark the end of the endless round of duplicative and time-consuming vendor questionnaires which have kept what should be public information for all shareholders essentially private, inside data.
Last Updated: 23 June 2013