Environmental and social transparency under the ... - ClientEarth

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14 | Environmental and social transparency under the Companies Act 2006Proposal 3: Regulations to consolidate and enhance the role of company AGMs | 15facing companies, and the identification of key performance indicators.However, there is no indication that the FRRP has raised any reportingissues relating specifically to environmental or social reporting. In its2008 ‘Review and Recommendations’ document, the FRRP noted that:“Boards of quoted companies should give particular attention to thebusiness review in their reports in the light of the enhanced disclosurerequirements… The review extends to a discussion of the maintrends and factors likely to affect the future development, performanceand position of the company.” 19It is necessary for the FRRP to explicitly recognise and highlight theimportance of reporting on environmental and social issues, and to beginto engage proactively with companies and industries to which these issuesare particularly relevant. It must be clear to companies that they areobliged to report on the issues in significant detail, and that if they do notfulfil their legal obligations in that regard they run the risk of regulatoryintervention.It is also vital that when the FRRP begins to undertake investigations intocompany environmental and social reporting, that it draws on expertiseand evidence from a range of sources to verify the accuracy and quality ofthe reporting of specific issues. Environmental and social issues, and theirinteraction with a company’s business, cannot be adequately understoodand verified without reference to sources outside of the company. The useof multiple and varied sources of information is essential in order to gatheran accurate picture of these issues, and an understanding of whether thecompany has reported them appropriately according to law. This mightinvolve engagement with directly involved stakeholders, external Socialand Environmental Impact Assessment experts, or other groups and individualswith direct experience of the issues ‘on the ground’.Proposal 3:Regulations to consolidate and enhance therole of company Annual General MeetingsCompany Annual General Meetings (AGMs) are a key forum for the scrutinyof company annual accounts and reports. Under UK law, the annualaccounts and reports must be laid before the AGM, and in practice therewill be the opportunity for those attending to discuss their content. Individualsand organisations also often routinely gain access to the AGMsof large companies, particularly those with high environmental or socialimpacts, to make representations regarding those impacts. This practiceis accepted by many companies. This practice and its acceptance is documentedin relation to the UK-based mining industry in Annex 7. Theinput provided by such individuals and organisations plays an essentialscrutinising role in the reporting process. This role should be formalisedand codified, along with a number of specific changes to enhance transparencyat the AGMs of public companies.The Secretary of State should make Regulations under section 468(1)(d)(iii) 20 of the Companies Act 2006, subject to Affirmative Resolution Procedure21 as set out in section 1290 Companies Act 2006, 22 to reinforceand enhance the vital role played by AGMs in providing scrutiny to theaccounting and reporting process.ClientEarth considers that the Secretary of State should make Regulationsunder these powers so as to:• explicitly require companies to provide the opportunity, as an agenda itemat the Annual General Meeting, for directors to be questioned by attendeesregarding the content of the annual accounts and reports.• explicitly provide a right of access to company Annual General Meetings for:(a)(b)(c)all members of the company;persons who have been negatively affected by company activities, ortheir representatives, where appropriate with regard to the reportingobligations of companies under section 417 of the Companies Act 2006;representatives of the media.• explicitly provide the opportunity to speak, at the company Annual GeneralMeeting, in relation to the directors’ report and any inclusions or omissionstherein for:
16 | Environmental and social transparency under the Companies Act 2006Proposal 3: Regulations to consolidate and enhance the role of company AGMs | 17(a)(b)all members of the company;persons who have been negatively affected by company activities, ortheir representatives, where appropriate with regard to the reportingobligations of companies under section 417 of the Companies Act 2006.• impose an obligation on the Secretary of State, when relevant changes arebeing made to the law, to ensure that the rights and roles established by theseRegulations are considered and so far as possible secured in relation to meetingsconducted by electronic means in the future.• create a framework for the exercise of authority over the AGM process, or todelegate this authority to such competent person or body as is appropriate,to:(a) develop guidelines to regulate access to company AGMs;(b)(c)determine access to meetings;determine and allocate appropriate support with regard to linguisticbarriers or economic restrictions, and maintain an independent fundfor such purposes;with regard to persons who have been negatively and directly affected by companyactivities, or their representatives, where appropriate in providing contextualperspective to the reporting obligations of companies under section417 of the Companies Act 2006.• require companies to publish full minutes of their Annual General Meetingon their website.ClientEarth considers that provisions such as these would greatly enhancethe scrutinty provided to and by company annual reporting on environmentaland social matters.Discussion of the annual accounts and reportsUnder the Companies Act 2006, the annual accounts and reports mustbe laid before the company at the AGM. 23 Members (shareholders) of thecompany have the right to receive notice of the AGM, 24 and in practicethey will be invited to attend. 25 There will usually be the opportunity atthe AGM for shareholders to discuss the content of the annual accountsand reports, and to put questions about them to the company directors.This provides an important opportunity for the scrutiny of accounts andreports, directly from their primary users. However, this opportunity isnot explicitly provided for by statute; Regulations should provide explicitlyfor it.Rights of attendance and representationUnder the Companies Act 2006, shareholders also have the right to appointa proxy, who may then enjoy any of their rights to attend, speak or vote,in their place. 26 Shareholders almost always have broad rights to discusscompany practices and performance.It has long been common practice in relation to industries with high environmentalor social impacts, such as mining or extractives, for individualswho have direct experience of company environmental or social impactsto use this legal mechanism to attend company AGMs and make representationsto the shareholders and directors, regarding those impacts. This isoutlined in detail in Annex 7.This practice provides essential context and scrutiny to company reportingon environmental and social matters, safeguarding the discretion thatcompany directors are allowed in the reporting process under Section 417Companies Act 2006. It provides transparency to shareholders on matterswhich underpin the long-term success of the company, directly frompeople who have relevant experience of company impacts on the ground,in a forum where they can engage with directors and elicit responses onthe issues.As a codified mechanism, it would be entirely consistent with the UKgovernment’s consistently restated preference for ‘light touch’ regulation,by creating incentives for improved company reporting practice withoutoverly expensive or interventionist measures. It is a low cost solution,requires minimal regulatory oversight, and only affects problematiccompanies rather than interfering with all. Furthermore, it providesregulatory added value, by offering a uniquely direct interaction betweencompany members and relevant stakeholders. It is fundamentally important,in order to properly understand the relationships between companiesand the environments and communities in and around which they operate,that directors and other remote company stakeholders are exposed to‘realities on the ground’. It may often be the case that the directors of largemultinational companies, and certainly shareholders, simply do not havean understanding of the impacts that their company’s practices are havingand the broader perceptions of the company, and the associated implicationsfor the business. If they do, their understanding will most likely begarnered from impersonal facts, figures or news reports. Yet they are inenormously powerful positions to affect change throughout the company.
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