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Yes, I was coming to the size of the market. Ethical investment has probably got much further than ethical consumption, but even ethical investment is still not fully developed. Last year, ethical investment went through the £10 billion barrier for the first time. That sounds like a lot of money, especially compared with gross household savings, which are about
£40 billion. However, a lot of the funds moving into ethical investment are moving from existing investment funds, so the percentage of new investmentnew saving going into ethical investmentis rather less than the quarter it appears to be.
On the ethical consumption side, matters are far less well developed than that. A report by Co-operative Financial Services found that a third of UK consumers claim to be concerned about ethical consumption, yet only about 3 per cent. of the UK market for goods and services is clearly ethical in its production methods and aims.
We believe that ethical investment and ethical consumption have great power. They have the potential to change the world. The hon. Member for Hemsworth (Jon Trickett) talked about ending capitalism. We on the Liberal Democrat Benches take the traditional Keynesian view that our job is to make capitalism work for better ends. As Keynes said, eventually he knew which side of the barricades he would be on, but nevertheless capitalism has to be reformed if it is to be worth continuing.
One problem, as we see it, is ethical consumers and ethical investors finding out whether the information out there about the behaviour of particular companies is believable, accurate and true. We believe that an expanded business review, especially with an audit requirement, would help those customers and investors to find out where their ethical pounds would be best placed. In that process, audit is crucial. That, again, is where we differ very strongly from the hon. Member for Putney.
Our view is that, without proper audit, the business review will turn into a marketing tool. Already, a large number of companies give the impression that they are environmentally and socially responsible, but not all their claims can be taken absolutely at face value. All too often, companies already do precisely what the hon. Lady said they would do if the audit requirement was introduced. They highlight isolated examples of good practice, but fail to mention the full picture.
Our view is that there is a threat in current unaudited practice to the whole ethical investment and consumption market. It would be a great shameeven a disasterif corporate attempts to greenwash operations led to public distrust and cynicism about the process of ethical investment and consumption. The auditing of claims made in business review reports would help to concentrate the minds of those who write them and increase the trustworthiness of the information that they give.
As the right hon. Member for Oldham, West and Royton said, the better companies would welcome that, because they would then receive the advantage they deserve over the companies that are interested merely in public relations, not in thoroughgoing ethical behaviour.
If the opportunity arises, we would like to press new clause 75 to a vote. It is independent of the success of new clauses 1 and 2. Even if those new clauses are not accepted today, although we hope they are, it will remain true that the audit requirement in the original OFR should be put back in place in the business review that the Government, at this stage, want to establish.
Colin Burgon: 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 conducted 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 historyit 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 BPs 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 organisationsit is obviously not only political parties that do soand 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 regularlyand rightlyvoice 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 BPs 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 Shells shareholders, and as a representative of a party that is going green, the hon. Member for Huntingdon may wish to raise that with BPs 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 comparisonI want to be even-handedShells 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 Arthurs 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 overlooksand what Her Majestys Opposition fundamentally misunderstand when they talk about CSR being a unique selling pointis 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 companys 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 timeI 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 growthan 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 Billthe 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?
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.
Adam Price: It is a privilege to follow my hon. Friendfor the purposes of this debatethe Member for Elmet (Colin Burgon) and to support new clauses 1 and 2. I pay tribute to him and his hon. Friend the Member for Hemsworth (Jon Trickett) for giving voice in the House to the hundreds of thousands of citizens who have led one of the biggest letter-writing campaigns that I have seen while I have been in the House.
Given that enormous campaign, it seems clear that the introduction of statutory standards for environmental and social reporting is an idea whose time has come. When we consider that the joint stock corporation, as it used to be called, or limited liability company has been around for 200 years, this Bill and these amendments make a small, modest step towards restoring the balance of power with regard to the rights and responsibilitiesto use the well-worn new Labour phraseof corporations. For too long, companies have operated in a privileged twilight world beyond the reach of accountability. We have heard a lot of debate about veils recently. This Bill and the amendments are about lifting the corporate veil and providing not just shareholders, but for society as a wholeemployees, communities and campaign groupswith reliable, up-to-date, accessible information about corporate responsibility and the impact of companies on society.
During the 200 years in which corporations have existed, their power has waxed and, unfortunately, democratic power has waned. In terms of the broader context of the Bill and these amendments, it is therefore essential that we hold companies that have such an impact on our society and the world as a whole to account for their actions. After all, many of the ills faced by society today, whether environmental degradation or social injustice and inequality, do not stem from governmental action or inaction but from corporate
irresponsibility. Therefore, the Bill and these amendmentsI welcome the Governments concessionsrepresent an important step in the right direction.
I would go much further. The whole issue of limited liability is problematical. I am in good company here, because Adam Smith was against the whole notion of providing shareholders with a get-out clause. In this case, therefore, the hon. Member for Hemsworth is, unfortunately, to the right of Adam Smith, for the time being. The problem was captured famously by Edward Thurlow, a Lord Chancellor in the 18th century, who said that the problem with the corporation was that it had
no soul to be damned and no body to be kicked.
In that phrase, he captured the problem of holding companies to account through the courts and legal system, and the problem of the human beings who own and run companies. Even where companies are found guilty of environmental degradation, it is difficult to hold individual directors or executives to account, unless one can demonstrate that they were directing minds.
Michael Fabricant (Lichfield) (Con): I have been following the hon. Gentlemans points with considerable interest, and I also regard him as my hon. Friend. Things have moved on a great deal since the 19th century. It is ironic that tomorrow morning, at 9 am, a Standing Committee will sit on the Corporate Manslaughter and Corporate Homicide Bill. Therefore, there is accountability now, and there will be even greater accountability once that Bill becomes law.
Adam Price: And all the angels in heaven rejoice when one sinner repenteth. The fact is that that Bill demonstrates the emerging consensus in society, which is more important than the consensus in this place. That consensus is for greater accountability with regard to corporate power, which, whether we like it or not, is central to the way we organise ourselvesit is the governing social form.
On the issue of voluntary codes on corporate social responsibility, the hon. Members for Elmet and for Hemsworth made the point strongly that companies will often give a very good story on CSR. Some consultants are making a very good living out of CSR. But beware the veiland in some cases, unfortunately, the maskof corporate social responsibility. As Andrew Pendleton, senior policy officer of Christian Aid, said:
Some of those shouting the loudest about their corporate virtues are also among those inflicting continuing damage on communities where they work.
The concession is welcome because, clearly, there is a problem in the complex world of corporate power, where there are joint venture companies, subsidiary companies and all kinds of complicated relationships. It was therefore important to get the amendment on suppliers and subsidiary companies. We have had particular problems with asbestos-related cases in the past, where companies have tried to avoid accountability through Russian doll-like subsidiary companies across the globe. The underlying message in the amendments is that society predated the joint stock corporation. Those
companieswhich were time-limited back thenwere given a licence to operate by society, and we create the conditionsthe legal framework and the transport infrastructurein which they can make their profit.
It is entirely acceptable to demand what the new clauses demandstatutory minimum environmental and social reporting standards. Companies must be accountable not just to their shareholders and employees, but to the wider society in which they operate.
Alun Michael (Cardiff, South and Penarth) (Lab/Co-op): I congratulate my hon. Friend the Member for Hemsworth (Jon Trickett) on the sensible and coherent way in which he introduced a very important debate. I also congratulate the hon. Member for Putney (Justine Greening) on the style of her maiden Dispatch Box speech. Unfortunately, it demonstrated the essence of the new Conservatives policy, which is to agree with Labour proposals, attack the Labour Government, and have no ideas of their own. It is also clear that the hon. Lady has no conception of the iterative process over the past eight years that has engaged business and, indeed, all other stakeholders, in a creative and constructive process. As I know from the comparatively short period during which I have been involved, it has been far more than consultation; it has been very full engagement.
The speech of my hon. Friend the Member for Hemsworth touched on issues in which I have taken a passionate interest for many years. The only public meeting that I held at the time of the last general election was on the theme Poverty is political, linked to the need to tackle poverty worldwide. I have been involved in fair trade issues for many years, and ministerial experience has taught me a great deal about how to make sustainable development a reality.
Freedom from ministerial responsibilities allows me to take part in the debate, and to say frankly and openly what I think about the issues. I want a business environment in which the long-term interests of a company include consideration of its responsibility to people and to the environment, but I cannot support new clause 1 because I do not believe that it will have the desired effect. I agree with my hon. Friend about the ends, but great care must be taken with the means.
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