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The noble Baroness said: My Lords, I am grateful to the House for allowing this issue to be raised again. The substance of the amendment was put both in Committee and on Report, and I fully realise that the,

However, this had not happened because of the timing of the amendments at both stages. Amendments on this area were put close to 11 pm on the last day in Committee, and close to 10 pm of the last day on Report. The noble Lord, Lord Rooker, noted on Report that discussion in Committee had been “incredibly truncated”. Discussion on Report was somewhat more substantial but, again, truncated by the late hour. This was certainly not something on which the opinion of the House could possibly be tested at that hour with the pressure of time. I am grateful to the Minister and the House for allowing this issue to be properly examined now and I am grateful for the support of the noble Lords, Lord Dubs and Lord Whitty, and the right reverend Prelate the Bishop of Liverpool, even if several of them cannot be here; the annunciator being stuck on Amendment No. 6 is probably not helping.

The more I look at this issue, the more I see it as a litmus test of the Government’s seriousness. They are to be congratulated on bringing forward the Bill; now it must make a difference. In some ways, the amendment, limited though it is, reflects debate on many of the keys areas of the Bill. I shall explain what it is about, and why I think as I do.

A couple of years ago, we passed the Companies Act, bringing company law from the 19th and 20th centuries into the 21st. As it passed through this House, we insisted that, at the very least, quoted companies over a certain size should have a duty to report on various things, one of which needed to be their impact on the environment. Clause 417 of the Companies Act 2006 requires directors of quoted companies to include information on the impact of the company's business on the environment in their business review. A company director must also,

Amendment No. 9 states that those companies which are required to report on their environmental impact should include in that report information on their greenhouse gas emissions. Simple and non-controversial enough, you would have thought, and something which might be considered to be implicit in any environmental impact report. But we know it is not. Many companies do, or plan to do, this, but others do not. We seek to bring them up to the same standard. For companies which do not have this responsibility, we have a provision for the Secretary of State to guide on it. That is what this amendment is about. It is about being specific about something which is already supposed to be happening.

So why do I think this is a litmus test? I am spokesperson for the Liberal Democrats not on the environment but on international development. I bring forward the amendment because I recognise the impact that climate change will have, first and foremost, on developing countries. The Bill is being
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overseen by Defra, and led for us by our environment team. A cross-team, cross-party approach is surely what this issue requires. The Minister could not have been more refreshing, as we have heard, in his approach to the Bill. His heart is clearly in it. But remember those discussions earlier in the Bill about whether it should really be the Prime Minister who oversees this, because it must be implemented across government and across all departments? Of course, the Companies Act belongs to the new DBERR department, or what the noble Lord, Lord Rooker, prefers to call the DTI.

That is why the Government's reaction to our amendment is a litmus test. Will what Defra says must be done be seen through by DBERR? What does DBERR make of this Bill? Or is the problem the Treasury, given the problems of OFR and the business review of the Companies Bill? I have looked very hard at what Defra and DBERR say on this area and what the Minister said last time. There is more than a cigarette paper that could be slid in here, and that is what worries me. If, at this incredibly early stage, DBERR is apparently unwilling to countenance a spelling out of what in all honesty—and straightforwardly—ought to be included by quoted companies when they report on their impact on the environment, what possible hope have we for taking forward even more difficult decisions? The amendment does not force change on companies, though of course we hope that transparency, openness and simply working things through would indeed have that effect. It simply asks for a report.

5.45 pm

I shall remind your Lordships. The Minister said that,

He told us that he had his own Private Member's Bill in another place at another time which actually promoted company reporting of this kind. He did not prevail under the then Tory Government. He is a “goodie”, he says, and I think we would all agree. So it seems that he accepts the case, and has long done so. I note from Defra's website that, in January 2006, it issued a set of environmental reporting guidelines,

Defra argues:

reduce their costs, comply with regulatory requirements and stakeholder expectations, and take advantages of new market opportunities.
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It goes on to note responsibilities under the Companies Act. All of that would seem to indicate that the Minister should long since have agreed to this amendment. So what has happened?

Well, this is where the litmus test comes in, and whether, indeed, the Prime Minister should have overall control here. I turn to the DBERR website. Issued in July 2007, there is a paper entitled Duties of Company Directors. Margaret Hodge, the Minister, says in the introduction:

In this she includes,

So far so good. But is there anything at all in the body of this paper on directors' duties about the environment? Not a thing.

So I undertook a pretty thorough search, as if I were a company director—which, of course, it would be nice to be—of DBERR's website to find out all my responsibilities. There is all sorts of information and all sorts of helpful distillations of the new law. Is there anything on my responsibilities to the environment? Hunt as might, I could not find it. It may well be there, but if so it is pretty effectively buried. That makes me think that DBERR seems not to be engaged in this Bill or if it is, it is saying, “Hands Off, Delay. Don’t do this now. Wait until X or Y”. I notice the Minister nodding. I should like him to tell me, hand on heart, that it is otherwise. I certainly hope he can, but I can think of no reason, other than that, for why the Government have not simply welcomed this amendment and said, “Yes, this fleshes out what we intended. We can say that in the next round of reporting, the relevant companies ought to include their carbon emissions, and most of them will have done that anyway”.

Last time, the Minister said that many companies are already doing this, and that is indeed the case. However, we know that it is patchy and not comparable. We need to level the playing field. We need to bring the tardier companies up to the level of the leaders. We have realised, not least via the Stern review, that action needs to be more urgent and sustained than we realised even as the Companies Act was passed. To delay for assessment, as the Government seem to suggest, for two, four or six years simply does not reflect the urgency of this problem. I am sure that Defra is only too well aware of that and I hope that, at the eleventh hour, the Minister will allow this change to the Bill. He and his colleagues at the other end of the building might already be becoming aware that there is a campaign building on this. Would it not be easier to be able to reply to all the postcards saying that they have listened, they agree anyway and this significant marker, this litmus test of how the UK will take this forward, has already been agreed to? I beg to move.

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Lord Whitty: My Lords, I strongly support this amendment. I am not sure whether the noble Baroness mentioned this, but in Committee I moved this amendment. It was rather later than my bedtime and that of most noble Lords, so it is reasonable that we come back to this issue. I do not want to say very much because I agree with pretty much everything that the noble Baroness said.

The fact of the matter is that the targets in the Bill are not going to be delivered by legislation, by Governments, by and large, or, essentially, by individuals acting on their own through their own ethical considerations. They are going to be delivered by the main economic movers; namely, private companies acting to meet those targets within the framework that the legislation and the Government set. For those companies to change the way in which they behave in relation to carbon and carbon equivalents, they need to ensure that they have proper, verifiable measures of what the carbon and carbon equivalent is and that they are built into their central motivation for their management, their staff and their researchers so that the success of the company relates to a large degree to the way in which it minimises its carbon and carbon equivalent emissions. For that to happen, we need a proper system of accounting, supported by guidance and the accounting profession to ensure not simply that carbon is effectively traded on a verifiable and equitable basis but also to change the way in which companies behave, research is rewarded and managers receive promotion to highlight the company’s image and its public relations. Without that dramatic behavioural change in private enterprise, we will not achieve the targets set in the Bill.

It will also have a knock-on effect, and I declare my interest as chair of the National Consumer Council. Unless those consumers who are driven by ethical and environmental considerations can see that a company is making serious efforts to drive down its carbon emissions, doing so better than competitor companies, making its contribution and changing the way it does business, there will not be a demand effect on companies to redouble their efforts so that the full leverage of competition begins to operate in a way that means that these carbon targets are most likely to be met. This amendment is therefore absolutely necessary.

As the noble Baroness said, this amendment does not prescribe exactly what the Government should do but inserts an enabling clause to deliver legislation that is already on the statute book. However, it is an essential lever that we believe ought to be in the Bill. If he is not prepared to accept the amendment today, I hope that the Minister will take it back to his colleagues and will come back during the passage of the Bill with something that does deliver the whole of Whitehall because—if I can be indiscreet for a moment as I no longer hold the office that the Minister holds—there are recalcitrant elements in Whitehall and the noble Baroness pretty accurately identified them. However, with the overall political commitment to the Bill that has been set by the Prime Minister and the Government, that opposition within Whitehall has to be overcome, and this is one way of overcoming it with the support of British industry.

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The Lord Bishop of London: My Lords, I very strongly support the amendment. I remember sharing a platform in a very supplementary capacity with the previous Prime Minister when he launched the project Accounting for Sustainability. It is a research project that is currently under way under the leadership of KPMG that intends to do exactly what the noble Lord, Lord Whitty, said, which is to put into the DNA of companies the consideration of something that, because our existing accountancy rules are retrospective and look at historical costs, has not, until comparatively recently, been part of the picture of practical management. This amendment is entirely consonant with the way in which the general picture is developing. As has already been stated, it is permissive and shows direction of travel rather than being mandatory, so it does not tie the Government’s hands in an inappropriately specific way.

My right reverend Brother the Bishop of Liverpool is a signatory to the amendment. He is characteristically abroad on his environmental crusade, but I want to sign up to this as well, particularly as I chair the Church of England’s Shrinking the Footprint campaign, which affects 18,000 of our churches and many other buildings. I know perfectly well that such measures as are described here are complex, but it is entirely possible to get compliance and make progress, even with an amazingly devolved and undisciplined organisation such as ours. This is an essential indication of whether the Bill will take advantage of an evolution in the general climate, particularly the climate that relates to how we account for our enterprises.

Lord Puttnam: My Lords, I support this amendment. I shall add an additional reason. I would not have spoken had any other noble Lord mentioned it, but it is important. The Government have tripped over themselves, sometimes to the point of going to far, to be business friendly, but I get around and talk to businesses and the businesses I talk to tend to be those that are the most responsible and the most eager to be seen to be part of the UK community. They always say the same thing to me: “For God’s sake, why do the Government not legislate and create an even playing field between we who wish to be responsible and those many other businesses that choose not to be?”. If that is not the best possible reason for pushing this amendment through, I can think of no better. It is to ensure that the actions taken by the best companies are matched by those that are at present wishing to evade and avoid them.

Lord Taylor of Holbeach: My Lords, I am pleased that we have had the opportunity of debating this subject at a reasonable hour, which has meant that the issue has been well aired. I shall speak to a particular aspect of the amendment, which is reporting on emissions. In the light of the National Audit Office report, that is a pressing issue. The NAO review of measuring and reporting greenhouse gas emissions pointed out that one of the potential pitfalls of the implementation of the Bill is how we will know what we are emitting. In its current form the Bill marries the measurement of reporting mechanisms to international reporting practice. That is right and
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proper and we see nothing wrong with that. It is indeed important to accord with international standards in the face of an international problem.

6 pm

However, the amount of carbon being emitted might not correspond to those figures. According to the NAO report, the environmental accounts compiled for the Office for National Statistics show much higher emissions than those being reported to the United Nations Framework Convention on Climate Change.

One reason for that is that the ONS emission figures include international aviation and shipping, which we are pleased will now be included in the Bill on the decision of your Lordships' House. However, that is not the only reason that the ONS statistics are higher. There are many different ways of calculating greenhouse gas emissions. What efforts are currently being made to standardise the method? To what degree can the Minister guarantee the accuracy of the figures?

If we are calculating our emissions according to international standards, but have further information that we are emitting in ways that are not required to be reported to the UNFCCC, what do the Government plan to do to address that discrepancy? Can the Minister give undertakings that the budgets will be set to take account of the fact that there are emissions that are not being included? Will the Government agree to alter their percentages in the light of the fact that there might be more emissions that need to be reduced—such that a 100 per cent reduction would really get rid of all gases?

I was dismayed to see the context of the NAO report. It implies that the Government have not been effective at all in reducing emissions, although they had led us to believe that they had been. What mechanisms will be put in place to ensure that ministerial reporting on emissions takes into account the entire spectrum of our emissions? Does the Minister not think that it is vital to be open and accurate in reporting emissions data?

The NAO report notes that new reporting budget mechanisms in the Climate Change Bill might,

What is being done to ensure that that does not happen? Is there any way to ensure that that is not the case? Will the National Audit Office review the new framework?

Finally, and importantly, will the Minister confirm that he has held consultations following the report to avoid the traps that it outlines? In order to implement a proper system as proposed under the amendment, we need to have a proper measurement system.

Lord Dubs: My Lords, I very much support the amendment and was delighted to put my name to it. I am aware that my noble friend has a very difficult case to answer—probably as difficult a case as any Minister has had to answer on any issue for a long, long time. Does he agree that if such reporting takes place, it would have a salutary effect on the way that
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companies behave? Is there any other way in which the same end could be achieved, other than that suggested in the amendment? If there is, we would all be happy to hear whether the Government will propose it. I believe that there is no better way to achieve this end; I cannot think of any other way to approach it. I therefore very much hope that the Minister will be sympathetic to the arguments put forward.

As my noble friend Lord Whitty said, if this were on the statute book and given effect, the culture of companies would inevitably change. In tackling climate change, we are seeking to alter the culture of individuals and of businesses and companies. This is one obvious way to make enormous progress on that. Of course it is a competitive world. This is a case where competition can only be a good thing. I would like to see reporting on Tesco, on Sainsbury, on Asda. Then we would begin to see what is actually happening. If we had reporting on the different airlines, would that not be interesting and salutary? It might influence our behaviour as between Tesco and Sainsbury and between airlines—I had better not say British Airways these days. That would enable us as consumers to make informed choices. If any of us were shareholders—I am not, except through an ISA, a PEP—we could exert pressure on companies.

If companies had that pressure brought on them, I believe that they would respond, because that is the nature of the marketplace and of competition. While that information does not exist, companies are under no pressure. Even well meaning people within companies—trade unions, sympathetic directors and sympathetic workers—are in difficulty because they do not have the ammunition with which to make the argument. Goodness me, if I were working for a company and could see that down the road they had a much better record, I would want to know why they were doing it and we were not and what we could do to change our behaviour.

I find the argument absolutely compelling. I look forward to my noble friend’s positive response.

Baroness Young of Old Scone: My Lords, I also support the amendment. It is true that there have been moral homilies to companies to report and, under the Companies Act, some requirement to report for some time, but work done jointly between the Environment Agency and some City institutions shows that reporting is very inconsistent, very difficult to track between companies and very difficult to track over time.

Recent research during the past three years has shown that you sometimes need to be a bit of a detective to find company reporting on environmental parameters generally and on climate change and carbon emissions in particular. Some of them tuck it away in corporate social responsibility reports separate from their annual reports and read, one assumes, only by sad human beings such as me and, perhaps the Minister. Others cite it in their annual reports but in ways that vary from year to year, so that one cannot even track the progress of the same company on a consistent basis year on year.

The Companies Act talked about the responsibility being laid on companies for reporting according to their degree of risk and the assessment that the company
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would make about what were the significant risks. During the passage of the Bill, we have heard just how significant climate change is as a risk not only to companies but to us as a country, to our economy, to social considerations and, indeed, to the whole globe.

It is instructive that most of the work that the Environment Agency has done on company reporting has been done jointly with the insurance industry and with the investment management community within the City, which is very interested in being able to track what it now realises is a key risk that will influence how it feels about insuring companies and advising on investment in companies. There is a big community out there, all coming at this from different angles, which would like consistent, comparable, clear reporting. It would be useful if that helped us to avoid too many fights in future about the basis on which we are going to keep the books on carbon emissions.