FTSE100 company reports reveal inadequacy of Companies Act
Wednesday, April 28th, 2010
The Companies Act has failed to make environmental and social reporting simpler and more effective according to a new report released today by the Corporate Responsibility (CORE) Coalition.
Although the Companies Act makes business reviews mandatory(1), initial analysis of FTSE100 company reviews shows:
- 8% have no clearly identifiable business review(2), leading to confusion for shareholders and stakeholders alike.
- 17% made no reference to environmental issues(3), despite wide acceptance that climate change is a business risk.
- 8% completely failed to include any social issues(4) in their business review; 14% failed to include any social issues other than labour.
And of the FTSE100 company accounts reviewed, AstraZeneca, Friends Provident, Hammerson, HSBC and Thomson Reuters were deemed to be the worst performers in terms of the level of non-financial information reported.
These high level findings, by report author and leading social accounts auditor Professor Adrian Henriques, of Middlesex University, show that compliance with the Companies Act is far from comprehensive, with many companies not acting in the spirit of the reporting requirement.
Professor Henriques said: “The reporting of non-financial information in business reviews was surprisingly inadequate. Not a single company mentioned adaptation to climate change. And extractive companies were silent on known areas of human rights risk, such as security around facilities.”
The results also indicate there is a significant lack of clarity in what companies are legally required to report. This is despite Lord Goldsmith’s comment that the new directors provisions were designed to “… make what is expected of directors clearer and to make the law more accessible to them and to others”.
The Companies Act (2006) requires all large, publicly-listed companies to produce a business review to help inform shareholders how directors have performed their new statutory duty to promote the success of the company, having regard to a range of environmental and social factors, as well as on their supply chain impacts.
But now, more than two years after the first annual reporting cycle of the new requirements, the Government has not put in place adequate monitoring of this legislation.
Hannah Ellis, Coordinator of CORE said: “The results of this analysis clearly indicate why the law should be reformed. Much greater clarity and consistency is needed on the way companies should report on their environmental and social impacts. The Government should ensure these requirements are fairer.
“The law should be reformed to ensure directors, whether they be of private or public companies, all report using one standard, so what they are doing is comparable – and that it is clear to all who are interested, how the company has (or hasn’t) minimised, managed and mitigated their environmental and social impacts.”
Fiona Gooch, Traidcraft senior policy advisor, added: “As one of the earliest companies producing audited social accounts Traidcraft has benefitted substantially from the insights gained as a result of preparing comprehensive social reports. Based on this experience we advocate strongly that companies produce accounts of their social, economic and environmental impacts.
Footnotes
“The responsibility to ensure business reviews meet stakeholder demands falls on both the Government to make the requirements clearer and on the companies to report comprehensively. The Government’s review of this embryonic legislation is critical and must result in changes that ensure The Companies Act ultimately does what it was intended to do.”
(1) Section 417 of The Companies Act specifies the need for large public companies to produce a Business Review and Section 172 of The Act requires directors to have regard to environmental and social issues in order to promote the success of the company.
(2) Companies without an identifiable Business Review were: Balfour Beatty, BP, Carnival, Legal & General, Randgold, Smith & Nephew, Vodafone and WPP. Vodafone and BP are anomalous: while they did not have identifiable Business Reviews, Professor Adrian Henriques gave them (and the others) the benefit of the doubt and looked at the information in their Annual Reports more widely. Judged by the information which is available throughout their Annual Reports, those companies are among the best reporters. This contradiction supports the finding that the whole area is very confusing.
(3) Companies which did not include environmental issues in their business review are: Amlin, AstraZeneca, BAE, Compass, F&C, Friends Provident, Home Retail, HSBC, Old Mutual, Petrofac, Serco, Shire, Standard Life and Thomson Reuters.
(4) Companies which did not include social issues in their business review are: 3i, AstraZeneca, Friends Provident, Hammerson, HSBC, Reed Elsevier and Thomson Reuters
Notes to editors
- “The Reporting of Non-Financial Information in Annual Reports by the FTSE100” by Professor Adrian Henriques of Middlesex University, is available for download here
- For further information contact Hannah Ellis +44 (0) 207 566 1601 (direct) +44 (0) 7952 876 929
- Available for interview: report author Professor Adrian Henriques, Traidcraft senior policy advisor Fiona Gooch, CORE co-ordinator Hannah Ellis.
- The Corporate Responsibility (CORE) Coalition works to make changes in UK company law to minimise companies negative impacts on people and the environment and to maximise companies’ contribution to sustainable societies. CORE represents over 130 civil society groups including Amnesty International UK, Traidcraft, Friends of the Earth and Action Aid.