jessica pasteiner

On October 1st, several articles of the Companies Act 2006 came into implementation. This mammoth bill signifies a complete reworking of existing company law. Tucked away inside it is Section 417, which puts a legal obligation on directors of public companies to take into account social and environmental impacts and include them in the annual report. The reason? Activities such as damaging the environment can now be seen as a danger to profits, through the way they damage a company's reputation.

So, for example, companies might be expected to report on measures they are implementing for reducing carbon dioxide emissions, or the legitimacy of their labour practices; food manufacturers should report on the action they are taking to ensure that ingredients such as palm oil are produced ethically and sustainably; mining companies would be required to report on how their activities are infringing on human rights, and environmental destruction, and how they are engaging with local communities to address that. If they don't comply, they can, in theory, be held legally accountable.

All that, however, is very much in theory. In reality, Section 417 is plagued with gaping loopholes. Most significantly, no standards dictating exactly what activities companies should be reporting have been set. Therefore, it is entirely up to each company to chose what to report, which not only makes it impossible for company records to be compared, but also makes it easier for companies to put spin on their reports; it also brings up problems of verification. The act also only applies to those companies publicly floated on the stock market; companies which are privately owned, such as Virgin, or subsidiaries of foreign companies, such as Wal-mart owned Asda, are exempt from the regulation.

The fact that companies now have a legal, not just voluntary, obligation to report such matters can be a resource for campaigners. However, the true significance of Section 417 lies in its history. Once upon a time, Section 417 was known as the Operating and Financial Review (OFR). This was a comprehensive piece of legislation, sketched out over seven weary years of negotiations between government, campaigners, trade unions, business organisations and investors, which certified that all public companies had to document all activities which might affect their profits. Unlike Section 417, standards were set on what should be reported. This was all set to go through, until, at a CBI (Confederation of British Industry) conference in December 2005, Gordon Brown, then Chancellor of the Exchequer, announced that OFR had in fact been scrapped. This decision was made without the knowledge or consent of any of the parties involved in its creation, and was the result of intense lobbying of the Chancellor by the CBI. The Chancellor's failure to consult before making the decision was in breach of the Government's own Code of Practice on Consultation, and the Treasury was swiftly taken to court by Friends of the Earth – probably the only reason Section 417 has survived in any shape or form.

The moral of the story is obvious: as long as corporations still have the power to affect policymaking on any level, and have privileged access to decision makers and international forums tackling global issues, we have no hope of truly holding them to account for the destruction they continue to wreak, or indeed stopping it altogether.

For more information about the significance of the Companies Act for campaigners, visit
www.corporate-responsibility.org/