Richard Howitt MEP: With big business comes big responsibilities – Corporate Reporting

At the Rio+20 talks last week, the UK Government announced plans to implement Labour's framework on carbon reporting. In the latest of our Rio+20 essays from our new pamphlet, Richard Howitt MEP considers the responsibilities of business in sustainable development.

 If all human behaviour has to change to prevent a headlong rush towards catastrophic climate change for our planet, then for our companies and our economy it cannot continue with “business as usual.” The list of corporate scandals is long – big-name companies, accused of grievous human rights abuses and environmental desecration in developing countries. Allowing rivers to run with acid, indigenous people to be forcibly displaced from their land and children to work in toxic mines beyond our borders. But the tone of the debate has changed in recent years, away from the headline-grabbing abuses of a few companies, towards the need for every company to chart its course towards operating in a low-carbon economy.

It is why more than 6,000 companies worldwide are currently producing annual sustainability reports according to an evolving methodology known as the Global Reporting Initiative (GRI), which emerged from a marriage between companies themselves, environmental NGOs and the United Nations Environment Programme. Such reports are produced by every one of the FTSE100 top companies in Britain, and are thus acknowledged as a key mechanism to translate good environmental intent in to necessary climate action.

However, Britain is not the leader we should be in getting more business buy-in to such internationally accredited environmental reporting, lagging in Europe behind Spain, Sweden, Germany and the Netherlands.

Meanwhile a Bloomberg survey of 68,000 large companies showed that only a quarter provided Environment, Social or Governance (ESG) information and – of these – only a quarter again were said to be “of good quality.”

Like everything else in the climate change debate, there is a growing recognition of the scale of the problem, but a woefully inadequate pace of change in action to match it.

Transparency on its own doesn’t guarantee better environmental stewardship, but the accountability it enables for stakeholders inside and outside the company does.

From the ballot box to the occupy movement, fair-trade meetings in church halls to shareholder revolts, people are demanding transparency and accountability.

Which is where Labour’s groundbreaking Climate Change Act comes back in to the picture again, with its requirement to bring in mandatory company reporting of Greenhouse Gas Emissions and with a deadline for implementation set for earlier this year.

Sadly the new Conservative-led Government not only failed to meet the deadline of April 6 this year, but did so off the back of a consultation which suggests they may renege on the promise and restrict their aspiration to one of “enhanced voluntary reporting” alone.

The nonsense of this position is that it is business itself which at the front of the queue clamouring for the change.

Two-thirds of the British companies that responded to the Defra consultation itself last year say they are in support of mandatory reporting. Aviva, BSkyB, Cable & Wireless, Cisco, the Co-operative Group and M&S, have all written to the Deputy Prime Minister Nick Clegg, to advocate maintaining to the commitment for the introduction of mandatory carbon reporting.

May 2012 saw the CBI’s Head of Energy and Climate Change demand mandatory green reporting for companies from the Minister, saying: “The CBI has long supported the introduction of mandatory carbon reporting under the Climate Change Act – a sensible, flexible solution that will create a level playing field without forcing the comparison of apples with oranges.”

It is this “apples and oranges” argument which is key to why voluntary action isn’t sufficient, with the current growth in reporting not simply too slow, but leading to findings which risk lack of coherence between companies, fatally undermining the collective impact of the changes being made and even allowing for the biggest risks to be ignored altogether.

Labour has to seize the pro-business case for mandatory sustainability reporting.

It can add to the more than one million people in Britain who are already employed in the low-carbon and environmental goods market. It can help British business win a greater share of a global market now valued at £3 trillion.

According to the Carbon Disclosure Project, monitoring 500 top companies, those companies with good climate change disclosure achieve a financial outcome around twice-better again compared with their competitors who do not.

Consumers are now demanding it. A Populus opinion poll found more than three-in-four support company reporting of carbon emissions.

Not only is the cost of acting now much less than that of delaying action further in to the future, as the Stern Commission found.

It is also part of the concept of the “triple bottom line” – environmental and social performance being inextricably linked to the financial success of the business. Labour should say support for it must be a “red line” at Rio, from a Government which is only too happy to talk in such language at other international summits.

Labour ourselves in Government did much to champion this approach. The Pension Act was amended in July 2000 so that trustees of occupational pension funds were required to state the “extent to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments.” These “Statements of Investment Principles” have been copied in legislation around the world.

Then the 2006 Companies Act was brought in, including the requirement to report on information about environmental, employee, social and community issues. Implementing amendments to the EU Accountancy Modernisation Directives which I had been proud to champion in the European Parliament, the British legislation had already been preceded by similar laws in France and Belgium.

Nevertheless Labour’s requirement for Company Directors to consider social and environmental impact of the business, and for reporting to include the supply chain of the company, were both genuine innovations which have enabled Britain to make a distinctive contribution to the European and global debate.

Labour also got to grips with the leading international standard for responsible business – the OECD Guidelines on Multinational Enterprise – by reforming the Government’s “national contact point” under the guidelines, which allows specific complaints of social or environmental abuse by British business overseas to be investigated and determined. The reforms were acknowledged as the leading example of implementation along with the Netherlands, amongst the 42 countries who have signed.

This is the framework in which the recent Trafigura case was dealt with, concerning the dumping of lethal chemical waste in the Ivory Coast, which had led to the poisoning of thousands of people.

Meanwhile in the European Parliament, I have helped drive European Union support for mandatory social, environmental and human rights reporting by business, starting from an initial resolution as long ago as 1999, and in the context of three successive reports on what has become widely known in business circles as the concept of Corporate Social Responsibility (CSR).

Already there is an EU proposal on the table to require transparency from the biggest extractive industries, now being taken forward by my Labour colleague Arlene McCarthy. Next it is expected that a new proposal on non-financial disclosure for businesses in all sectors will be published before the end of the year and, at the time of writing, I am in detailed discussions with the European Commission and other stakeholders on the detail of what the proposal will encompass.

So the Labour Party has much to be proud in driving this agenda, and now is the time to make this a priority for Rio+20 too.

The Secretary of State who is dragging her feet on mandatory environmental reporting here in the UK, has signalled the same lack of courage with respect to the Earth Summit. “We agree with the British businesses who want the Rio summit to make corporate sustainability reporting the norm,” she said but then restricted her promise to one which “will call for more businesses to commit to improving their sustainability.” Once again refuge is being taken in voluntary encouragement alone.

In direct contrast, a coalition of businesses has been formed, led by the UK’s Aviva, asking Earth Summit delegates to commit to a global policy framework requiring public and private companies to publish sustainability reports.

Negotiations currently taking place on the precise wording on this issue in paragraph 24 of the draft outcome document are intense. But I am again proud to be working alongside Aviva and the GRI to help deliver this goal in Rio.

We have to have a vision that this is not simply about businesses reporting carbon emissions – voluntarily or otherwise – but part of a global movement in which companies are changing the way they do business, as part of the transformation in the global economy that the disciples of climate change have long demanded from us.

Today, not simply the Aviva-led coalition, but all the major accountancy standard-setting bodies, sustainability interests and 60 global businesses have set the target for “integrated reporting” – sustainability and financial accounts together – to be that global norm by the end of the decade.

Britain has again played a major role in instigating this, through the work of His Royal Highness the Prince of Wales Accounting for Sustainability Project over the last decade.

I hope the UN Earth Summit will provide a crucial international endorsement for the integrated sustainability reporting, which can then be realised not just in Britain and Europe, but for the whole world.

Because we won’t simply be doing it for all the countries of the world, but for the planet itself.

Richard Howitt MEP is Labour Member of the European Parliament for the East of England, and European Parliament Rapporteur on Corporate Social Responsibility. He holds voluntary advisory roles as an Ambassador for the International Integrated Reporting Council (IIRC), as a member of the Government Advisory Group of the Global Reporting Initiative, and as a Friend of the OECD Guidelines on Multinational Enterprise.

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