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Companies Bill [Lords]

I wish to speak to new clause 2, which completes the circle and complements new clause 1, which was moved by my hon. Friend the Member for Hemsworth (Jon Trickett). Our new clauses combined have the backing of more than 50 Labour Members and I think that I am correct in saying that they have sizeable support among Liberal Democrat and nationalist Members. More importantly, they have the support of the Trade Justice Movement and the Corporate Responsibility Coalition, which, I am told, together represent more than 130 civil society organisations. I pay great tribute to those organisations for the campaign that they held across the country. I do not wish to sound pompous, but I hope that most right-minded members of the British public support the new clauses, too. New clause 2 is rather like me and my politics: it is modest, thoughtful and rational. It is linked to this timely Bill, which is the biggest in parliamentary history—it has more than 1,200 clauses and was eight years in the making. The Bill goes a long way towards setting reasonable standards on corporate social responsibility, which the country, the environment and the world desperately need. I sincerely congratulate the Government on their efforts to produce forward-thinking legislation. Some Members, and perhaps some exhausted Clerks and Officers of the House, may question the necessity for further amendments or new clauses to a colossal Bill, so I shall explain why we introduced our new clauses. I always try to keep my contributions brief and incisive, and I shall endeavour to do so today. The right hon. Member for Witney (Mr. Cameron) and the hon. Member for Huntingdon (Mr. Djanogly), who spoke on behalf of the Opposition in Standing Committee, have both praised BP’s environmental record, so the company provides a relevant case study. BP was praised for taking corporate social responsibility very seriously, but that is qualified by the fact that the company spends a significant amount of money on selling its CSR reputation. That is part of a much wider problem. All too often, companies spend vast sums of money projecting a positive image of themselves as green or ethical organisations—it is obviously not only political parties that do so—and do not spend enough money or time on the real issues that we aim to deal with under the Bill. Those are issues of shaping, guiding and ultimately changing the behaviour of the transnational companies whose activities have an extremely serious impact on our environment, climate and communities. Hon. Members on both sides of the House regularly—and rightly—voice concerns about climate change and our environment, and several Members have already alluded to the subject. For many people, that is the central challenge of our times, and that belief is shared by the wider public. To refer to my case study, in the past financial year, only 5 per cent. of BP’s investment went into alternative energy. By comparison, 72 per cent. went into fossil fuels. That puts it only slightly ahead of competitors such as Shell. As one of Shell’s shareholders, and as a representative of a party that is going green, the hon. Member for Huntingdon may wish to raise that with BP’s directors at an appropriate time. Regrettably, BP has been associated with a range of what can only be classed as negative environmental impacts and human rights abuses, from the Baku-Ceyhan pipeline to the Alaskan oil spill. This summer in Texas, the Rev. Jesse Jackson led protests against BP over price-fixing, employment discrimination and health and safety violations, following the Texas City explosion. In fact, BP has one of the worst records for health and safety in the US oil refinery sector. Moving down the continent, in July it settled a court case with a group of Colombian farmers who were forced off their land by paramilitaries so that BP could build a pipeline. By way of comparison—I want to be even-handed—Shell’s corporate social responsibility record causes equal consternation. Shell, too, is a big spender on the generation of positive PR, but it is less energetic in making attempts to moderate the negative impact of its commercial activities in the countries and communities in which it operates. For instance, the exposure of Shell workers to toxic pesticides in Brazil has resulted in severe medical problems for the work force. Shell has been forced to take steps to protect workers, but it still will not guarantee treatment for conditions that have developed as a result of that toxic exposure. Its joint venture in Port Arthur emits massive quantities of toxins known to damage human cardiovascular and respiratory systems. Some 80 per cent. of Port Arthur’s residents suffer from heart conditions and respiratory problems, whereas the regional rate is 30 per cent. among people who do not live near an oil refinery. Those are negative examples from just two companies. They have been sourced and exposed through local legal challenges to the companies in question, and thanks to the endeavours of environmental NGOs. Of course, we cannot make meaningful, objective comparisons between companies such as BP and Shell because neither is forced to report on their activities in a manner that conforms to a level, comprehensive standard that can be easily understood by everyone. That is the crux of my argument. The examples that I have given show how irresponsible behaviour can damage the long-term interests of the company, its customers and shareholders. Companies must understand those factors if they, in turn, are to understand their position and its risks. A central plank of the Bill is that, through reporting obligations, shareholders and investors can vote with their wallets and choose not to invest in unethical or environmentally irresponsible companies. Self-evidently, that is worth while only if companies are forced to publish things that they do not want to publish. At present, I understand that there are up to six sets of voluntary reporting guidelines that companies can consult for an indication of what non-financial information to include in their reports. That is exactly why we need a common, mandatory and auditable standard of environmental and social reporting, so that we can cut through the spin and make a judgment on the substance. To some extent, what the Bill overlooks—and what Her Majesty’s Opposition fundamentally misunderstand when they talk about CSR being a unique selling point—is that CSR is what companies do, not what they represent, report or claim to have done. It is not about what they say, but about what they do. New clause 2 would allow customers and shareholders to judge the situation objectively. If it was accepted, it would require reporting standards in business reviews to be set by a relevant body, and compliance with those standards would mean compliance with the requirements of the Bill. The lack of a reporting standard is perhaps the most glaring gap in the Bill. The original operating and financial review regulations were accompanied by such a standard, issued by the Accounting Standards Board, to provide companies with guidance on what information they should include. The standard was intended to be a clear template, setting out the types of key performance indicator that could be used by companies to ensure that they complied with the law. The new clause would introduce similar mandatory standards for the business review. That is an issue of major importance for the Corporate Responsibility Coalition, the Trade Justice Movement and the many Labour Members who believe that mandatory guidance is essential to ensure that the information in business reviews is meaningful and comparable across companies, down the years. Standards help to reduce businesses’ compliance costs, and they have been called for by a number of other stakeholders in the debate, including the Chartered Institute of Management Accountants. Without such a provision, it will be the responsibility of the directors of each company to determine the content of the business review and what indicators to use. That would make it impossible to compare one company with another, or the same company’s performance year on year. Shareholders would not be able to assess how their company is performing compared with its competitors, or whether its performance is improving over time—I would have thought that that was self-evident. Without being able to do so, it will be difficult to judge how directors have performed their duties. The absence of reporting standards thus undermines the whole concept of enlightened shareholder value as enshrined in the heart of the Bill. It would also be useful for directors to have a clear benchmark and a model to follow, so that they can be confident that they are compliant with the law rather than competing models, which can result in confusion. The new clause, tabled by me and about 50 other Members, allows reasonable latitude in framing the reporting standard, which should address concerns that too strict a reporting standard will place too heavy a burden on businesses and could deter business growth—an argument we hear a great deal. As we have seen with other European nations, such as Sweden and Denmark, that is patently not the case. Allowing complete freedom to directors to decide how they report goes too far in a direction that, in my view, is wrong, and undermines the entire concept of reporting and its role in delivering enlightened shareholder value. This is an historic opportunity to make a decent Bill better, at a time when the ramifications of its details have never been more important in Britain and, I would argue, throughout the world. I especially commend the new Government amendments on business-supplier relations, which improve the Bill—the fact that the Conservatives oppose them means that we must have got something right. I ask my right hon. Friend to re-examine how we might seize the opportunity to consider mandatory standards to the benefit of all interested parties, including the business community. Will she seriously consider, mindful of the Bill as it currently stands, how companies could be encouraged to comply with the suggested voluntary guidance? Statutory standards would, of course, present consequences to companies who fail to adhere to them. Is not a voluntary code by definition rather toothless, unless there is at least some level of supported implementation? Does she actively recommend to companies full compliance with any voluntary guidance? How robust does she expect her outstanding powers of persuasion to be? Furthermore, if, within a set period, companies were seen not to be complying with the voluntary code, would my right hon. Friend set a time frame to reconsider the option of mandatory standards if the law proves to be impotent, in consultation with business and the various NGOs? As the excellent little pamphlet from the Trade Justice Moment and Corporate Responsibility Coalition states:"““The Bill provides Parliament with an unmissable opportunity to put in place a legal framework, which ensures that UK companies are fit for the 21st century, combining successful enterprise with ethical and responsible corporate behaviour. But to achieve this, the Bill must be amended further and a bolder approach is needed.””" I wait on the words of the Minister.