Company Law: New Environmental Reporting Provisions

In the white paper, "Modernising Company Law", the DTI announced that in future the most economically significant companies would be required to prepare and publish an Operating and Financial Review (OFR).

Directors preparing an OFR will need to consider many factors including, as a first among equals, their company's impact on the environment.

In welcoming the White Paper, Environment Minister Michael Meacher, said:

"I have long been an advocate of greater business transparency on environmental issues and I welcome the White Paper as a very important step towards this. The OFR provisions will ensure that these largest businesses are required to consider environmental issues in their reporting."

In deciding what other issues they need to report on, directors will need to consider a whole range of factors within and outside the company including employee and business relationships and regard for the company's impact on communities. However, the White Paper also makes clear that Government believes every director needs to consider environmental issues as one, if not the most, important factor.

Competition and Markets Minister Melanie Johnson, said:

"For the top 1000 companies directors will now have to consider for the first time whether environmental information must be included in the OFR for others to make an informed assessment of the company.

The White Paper emphasises that it will be for directors to decide in good faith precisely what information is relevant and material to the particular business. However, the OFR will make companies statutorily accountable for how these factors are covered in their narrative report. Any company that fails to report on relevant issues will risk adverse comparison and questions from shareholders and others. Ultimately, a company may need to defend the process behind its reporting before the courts.

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