CORPORATE SOCIAL RESPONSIBILITY IN GENERAL
1. CSR values and practices, including levels of support from government, business and the general public
The UK government has been keen to promote the UK’s reputation as a leading player in CSR worldwide, and in March 2000 the UK became the first country in the world to appoint a Minister for CSR. On 1 March 2004, the Department of Trade and Industry (DTI) published ‘Corporate Social Responsibility: a Draft International Strategic Framework’, and on 4 July 2004 the Minister for CSR established a CSR Academy to act as a central source of information and training for companies and other organisations wishing to improve their CSR performance. The UK government has repeatedly rejected attempts to introduce mandatory CSR reporting requirements, preferring what the former CSR Minister, Stephen Timms, has referred to as a ‘light touch’, enabling legislation where necessary. A private bill that sought to impose mandatory CSR reporting requirements on certain UK companies was introduced into Parliament in January 2004 but was not supported by the government and was not passed.
Independently of UK governmental initiatives, interest in CSR has been significant and growing for some time. This has principally been because CSR has been championed by some major UK companies. It is not easy to identify why the UK should have become a leader in the CSR field, but it is clear that among these companies there is enlightened self-interest at work. According to a report produced by Mintel in February 2004, eight out of ten UK consumers said ethical concerns affected purchasing habits. Consistent with this, the UK is the second largest market in the world for fair trade products (behind Switzerland), with annual sales in 2003 totalling £100 million, accounting for over a quarter of the total European market.
It is also notable that of the 250 responses received by the European Commission to its green paper on CSR of July 2001 (Brussels COM (2001) 416 Final), more than 80 were from UK sources. According to the Association of British Insurers, around 80 per cent of companies quoted on the FTSE 100, the index comprising the 100 largest London-listed companies, now provide at least moderate disclosure to investors on social, ethical and environmental risk. This underlines the fact that the prime movers behind the adoption of CSR principles in the UK are the major companies headquartered here – and where major UK companies have committed themselves to CSR, the commitment extends to subsidiaries and operations overseas.
Other indicators are not so positive, however. Fewer than half of FTSE 250 companies provide even moderate disclosure on CSR issues, while one in six companies on the FTSE All-Share index, which represents 98-99 per cent of UK market capitalisation, has failed to disclose anything on CSR issues at all. Corporate charitable giving in the UK is lower than in many other nations, with the FTSE 100 companies giving less than one per cent of their total profits to charity – although donations appear to be increasing. In respect of both CSR disclosure and corporate charitable donations, it appears to be large companies that are leading the way, giving rise to concerns that CSR is a luxury only larger companies can afford. An alternative, and perhaps more disturbing conclusion from the same facts is that only companies with highly visible, and therefore vulnerable, brands feel that CSR is a necessity.
2. Laws, statutes, government publications or other significant framework documents
There is no legislation in the UK dedicated to CSR as such, but specific issues generally regarded as falling within the scope of CSR are subject to specific legislation. For example, although the government has rejected attempts to enact mandatory CSR reporting regulations, it has passed enabling legislation in the form of the 1999 amendments to the Pensions Act 1995, discussed in section 14 below. It has also introduced fiscal measures to encourage CSR, including the removal in April 2000 of the annual limitation on Payroll Giving, whereby employees donate to charity by authorising a deduction from their gross pay before tax, and the Community Investment Tax Credit, discussed below in section 11.
The government has produced a number of publications, the most significant of which is the DTI Draft International Strategic Framework. In addition, the DTI has published reports and updates on CSR since 2001, including the CSR Competency Framework published in July 2004 to support the CSR Academy. While many individual legislative initiatives in the social and environmental fields in the UK have been driven by EU directives and regulations, there is no specific EU impetus in relation to CSR as a concept. In February 2003, Council Resolution OJ 2003/C 39/02 stopped short of any legislative initiative and called upon member states to promote CSR at a national level. The EC has, however, produced a number of significant CSR documents in the course of the process begun by the Lisbon Summit in March 2000, including a 2001 Green Paper, a Communication Document on CSR in July 2002, and, in June 2004, the final results and recommendations of the multi-stakeholder forum on CSR established in October 2002. The multi-stakeholder forum took it to be part of its definition of CSR that it is entirely voluntary, and the EC, like the UK government, has indicated that it is concerned with enabling companies to introduce CSR measures, not with forcing them to do so.
There is, of course, an extensive body of statutory law in the UK in relation to many issues generally regarded as falling within the concept of CSR: for example, laws in relation to the treatment of employees, the prevention of harm to the environment and the protection of natural resources. These have developed over time on a piecemeal basis and have not been developed as part of any holistic implementation by the UK government of CSR principles.
3. International treaties, conventions or standards
CSR has its roots in the concept of sustainable development, and the UK is closely involved in international developments in this sphere. The UK was party to the 1992 Rio Declaration on Environment and Development, government representatives having attended the 1992 UN Conference on Environment and Development in Rio de Janeiro (the Earth Summit). Government representatives also attended the 2002 World Summit on Sustainable Development in Johannesburg. The UK is a founder-member of the UN, and has ratified a vast range of UN and other treaties and conventions. However, whilst these developments are of great importance, we do not regard them as imposing any obligations or standards within the UK in relation to CSR as it is generally understood. We see CSR as identifying a set of principles which a company may decide to adopt and follow, even if they take the company beyond what it is required to do under national laws. The UK government professes to be a strong supporter of the UN Global Compact, an agreement between the UN and business to promote core CSR values, and has incorporated the Guidelines for Multinational Enterprises published by the Organisation for Economic Cooperation and Development (OECD) at the heart of its strategy.
The DTI Draft International Strategic Framework sets out the government’s present international strategy, although it should be noted that the framework has come under considerable criticism from a number of commentators and NGOs. Most notable was the refusal of the Corporate Responsibility Coalition (CORE) of NGOs (mentioned in section 5 below) to submit a response to the draft framework before the close of the consultation period. A leaked letter from CORE to the Trade Secretary, Patricia Hewitt, described the draft framework as ‘inadequate’.
4. Non-statutory sources of liability for companies
Companies in the UK face a number of potential sources of liability at common law and adherence to CSR principles may help a company to avoid these liabilities. Such liabilities have their roots elsewhere, however, and have not been introduced as part of any CSR initiative. For example, under the law of torts, a company may be liable for negligence where it can be established that it owed a duty to exercise care and did not take reasonable care to avoid acts or omissions that could be reasonably foreseen to be likely to cause physical injury to persons or property (provided such judgement is not contrary to public policy). Indeed, companies have been successfully sued in the tort of negligence for the activities of their subsidiaries abroad, as discussed below in section 12. Although no cases have yet been brought, a company might also be liable to a claim in misrepresentation at common law and/or under the Misrepresentation Act 1967 where it makes any representation about its CSR performance that is untrue or misleading, and induces a third party to suffer loss.
In the past decade there has been an increase in the number of cases of ‘corporate manslaughter’ brought to trial in instances of death in the workplace. For a company to be convicted of a crime at common law, such as manslaughter, it must be demonstrated that the criminal act was perpetrated by a person or persons who were the ‘directing mind’ of the company for the purposes of that act, and who had the necessary intent for the crime (Tesco Supermarkets v. Nattrass [1972] AC 153). The ‘directing mind’ may be the board of directors, the managing director, the manager or any other person to whom the board has delegated the governing executive authority of the company.
5. Principal institutions, government agencies and/or major non-governmental organisations (NGOs)
The government department charged with oversight of CSR in general is the DTI. The current Minister with responsibility for CSR is Nigel Griffiths. An enormous number of NGOs exist within the UK in relation to CSR and the myriad issues that fall within its ambit, reflecting an enormous diversity of opinion. Among the oldest and largest of these is Business in the Community, which has some 700 corporate members and a further 1,600 companies participating in its programmes and campaigns. Business in the Community publishes an annual index of the UK’s most socially responsible companies, based on information volunteered by companies to it, and is one of the most visible advocates of a voluntary system of CSR participation. In contrast, a number of the UK’s most influential NGOs have combined to form the Corporate Responsibility Coalition (CORE) in support of mandatory CSR regulation, including Amnesty, Friends of the Earth, Traidcraft, Christian Aid and the New Economics Foundation. CORE sponsored the private members’ bill introduced into Parliament in January 2004.
SPECIFIC AREAS OF CORPORATE SOCIAL RESPONSIBILITY
6. Human rights
The courts and constitution of the UK have traditionally adopted the language of civil liberties ahead of that of human rights. In 1998, however, the Human Rights Act was enacted, consolidating the European Convention on Human Rights into UK law. While the Human Rights Act does not create any direct liability for companies, it does impose a requirement on public authorities that they do not act in any way that is incompatible with any rights enshrined in the European Convention. It has also increased public interest in and awareness of human rights in general.
Human rights is one of the most prominent areas of international law to have developed over the past 60 years, and as a result, the UK has ratified a great number of treaties, covenants and conventions. Direct corporate liability is, however, mainly derived from the incorporation of international law into domestic measures, many of which, such as the UN anti-discrimination covenants, are considered in section 9 on responsibility towards employees.
The protection of human rights in the UK is overseen by the Department for Constitutional Affairs. The current Minister with responsibility for Human Rights is David Lammy MP. The majority of UK NGOs with a human rights remit have a predominantly international agenda, such as Amnesty International, Oxfam International, Minority Rights International, Survival International, Anti-Slavery International and Marie Stopes International, but a number of pressure groups do focus on human rights in the UK, including Liberty, Justice, Charter88 and MagnaCartaPLUS.
7. Corruption
The UK has longstanding legislation and common law addressing corruption. Additionally, in December 1998 the UK ratified the OECD Convention on Combating the Bribery of Foreign Public Officials in International Business Transactions, which entered into force in the UK on 15 February 1999 and provided that “enterprises should not, directly or indirectly, offer, promise, give, or demand a bribe or other undue advantage to obtain or retain business”. This convention also sought to provide a framework for industrialised countries to enact legislation criminalising acts of bribery of overseas public officials. Following the convention, the UK enacted the Anti-terrorism, Crime and Security Act 2001, which came into force in February 2002; Part 12 of this Act enables UK companies and nationals to be prosecuted in the UK for acts of bribery and corruption committed in either the public or private sector wholly outside the UK, in addition to any potential breach of law in the country in which the offence occurs. It should be noted, however, that a company will only be liable under the Anti-terrorism, Crime and Security Act for the acts of overseas subsidiaries (as distinct from branches) where it can be found to have engaged in a conspiracy with that subsidiary. The maximum penalty under this Act is an unlimited fine and/or seven years’ imprisonment. Provisions on corruption similar to those found in the Act for the rest of the UK were brought into force for Scotland in June 2003 under the Criminal Justice (Scotland) Act 2003. In addition to the Act, the Proceeds of Crime Act 2002 strengthened the law on laundering proceeds obtained through criminal activities and established the Assets Recovery Agency, which became operational in 2003 and has the power to recover the proceeds of crime through confiscation, civil recovery or taxation.
Furthermore, while legislation already existed to prevent a tax deduction being available for bribes paid in the UK, prior to the Finance Act 2002 the Inland Revenue had turned a blind eye to such payments made overseas. But under section 68 of the Finance Act 2002, any payment made outside the UK which would constitute a criminal offence if it were made in the UK is no longer tax deductible when computing business profits where the business is liable to taxation in the UK.
The Council of Europe Criminal Law Convention on Corruption, adopted in January 1999, also related to the bribery of public officials but, unlike the OECD Convention, it aimed to harmonise laws. The UK is a member of the Group of States against Corruption (GRECO) set up to monitor the implementation of this Convention. The UK has also ratified the EU Corruption Convention and the Corruption Protocol to the EU Fraud Convention. The government has confirmed that whilst considering the reforms to corruption law in the UK, it took full account of its international obligations under the above agreements.
The government is conducting a further review of existing corruption legislation. The UK Department for International Development has also been instrumental in launching the Extractive Industries Transparency Initiative, which aims to increase the transparency over payments and revenues in the extractives sector in countries heavily dependent on these resources.
Transparency International is widely regarded as the leading anti-corruption NGO. The TI Corruption Perceptions Index 2004 ranked the UK as the 11th least corrupt nation in the world.
8. Corporate governance and business ethics
The UK is home to a vast range of companies legislation affecting corporate governance and behaviour, most significantly the Companies Act 1985, the Insolvency Act 1986, the Companies Act 1989, the Financial Services and Markets Act 2000 and the Enterprise Act 2002. Although such legislation has a clear bearing upon CSR, it is not the direct subject of this book.
On 1 August 2002, the Directors’ Remuneration Report Regulations 2002 (SI 2002/1986) came into force, requiring that all future annual reports of quoted companies must include details of directors’ remuneration, individual directors’ remuneration packages, company remuneration policy and information regarding the role of the board of directors and company remuneration committee. Certain parts of the Regulations carry criminal penalties, and directors in breach may be guilty of an offence and liable to a fine.
Since the early 1990s, commentators, NGOs and investor groups have been calling for increased transparency in, and greater regulation of, corporate governance. This resulted in a number of business-led initiatives, culminating in the UK Listing Authority’s Combined Code: Principles of Good Governance and Code of Best Practice, a revised version of which was published on 23 July 2003 by the Financial Reporting Council. This version was produced following the twin publications in January 2003 of Sir Derek Higgs’ Review of the Role and Effectiveness of Non-Executive Directors and Sir Robert Smith’s Audit Committees Combined Code Guidance. The Combined Code supplements the UK Listing Authority’s Listing Rules for companies listed on the London Stock Exchange (subject to the EC Prospectus Directive (Directive 2003/71/EC) and Transparency (Obligations) Directive (Directive 2003/0045/COD)).
In February 2003, the Institute of Chartered Secretaries and Administrators published Guidance Notes on the Induction of Directors, as well as updating its Guidance Notes on audit, remuneration and nomination committees. The latter were further updated, in October 2003, to reflect the new Combined Code. ICSA also publishes Guidance Notes on the principles of executive service contracts, the terms of reference of audit, remuneration and nomination committees, directors’ and officers’ insurance and voting procedures.
In 1998, the DTI launched a three year review of company law. Following the resulting Company Law Review, the government published a White Paper entitled Modernising Company Law in July 2002, together with a draft Companies Bill. Significant proposals include the codification of directors’ duties, currently governed largely at common law, the prohibition of corporate company directors and the requirement for large companies to publish an Operating and Financial Review (OFR) as part of their annual report.
An OFR is the directors’ overview of the company, and includes information such as the company’s policy towards its employees, customers and suppliers, as well as its impact on the environment, social impact and impact on the wider community, wherever such information is necessary for shareholders to form an assessment of the company. Under the Companies Act 1985 (Operating and Financial Review and Directors’ Report etc) Regulations 2005, the OFR is required to be published for financial periods beginning on or after 1 April 2005.
On 21 May 2003, the EC released for consultation an Action Plan on company law and corporate governance entitled Modernising Company Law and Enhancing Corporate Governance in the EU. Its main priorities are to strengthen shareholders’ rights and protection for employees, creditors and other parties with which the companies deal, to adapt company law and corporate governance rules appropriately for different categories of company, and to foster the efficiency and competitiveness of business, with special attention to some specific cross-border issues. Initiatives within the action plan which might further alter the UK corporate governance landscape include the development of an annual corporate governance statement (similar to an OFR), the strengthening of shareholders’ rights, and the promotion of the role of non-executive directors. Furthermore, from 1 January 2005, as a result of EU Regulation EC No 1606/2002, all companies incorporated in an EU member state and admitted to trading on a regulated market in the EU will be required to prepare consolidated accounts in accordance with International Accounting Standards.
Corporate governance in the UK is the responsibility of the DTI. It is also subject to considerable private sector pressure. On 1 December 2003, the Association of British Insurers, whose members represent over one third of investment in UK listed companies, issued an updated version of their Principles and Guidelines on Executive Remuneration. The ABI has also, in conjunction with the National Association of Pension Funds, issued a statement of best practice on settling executives’ employment contracts, dealing in particular with the controversial subject of severance terms. This latter controversy was also reflected in recent instances of shareholder rejection of company remuneration reports, such as that at GlaxoSmithKline in May 2003. In 2004, the OECD, of which the UK is a member, published a revised version of its Principles of Corporate Governance, of which there are now six.
Among NGOs with a specific corporate governance remit, particular attention should be drawn to the International Corporate Governance Network, which has published Global Corporate Governance Principles to supplement the OECD Principles, but have not been amended to reflect the revised OECD Principles, although the ICGN has commented upon the revised principles extensively.
9. Corporate responsibility to employees
As with the law relating to corporate governance, there exists a vast body of UK employment law dating back almost two centuries, much of which impinges upon CSR but is not the direct subject of this book. Relevant statutes include the Equal Pay Act 1970, the Health and Safety at Work Act 1974, the Sex Discrimination Act 1975, the Race Relations Act 1976, the Disability Discrimination Act 1995, the Employment Rights Act 1996, the National Minimum Wage Act 1998 and the Employment Act 2002, as well as a large number of Regulations and Statutory Codes of Practice. As well as the protections provided by the Health and Safety at Work Act 1974, employees have also long had potential recourse at common law for injuries sustained in the course of employment. Since the Employers’ Liability (Compulsory Insurance) Act 1969, employers have been obliged to insure against the risk of such claims. Furthermore, the UK is subject to a large volume of European employment law, mostly in the form of directives, which have driven reforms at a national level.
The Employment Act 2002 improved maternity pay and leave entitlement and for the first time included provisions for statutory rights to paternity and adoption leave and pay. This has been supported by the implementation of the Maternity and Parental Leave (Amendment) Regulations 2002 (SI 2002/2789), the Paternity and Adoption Leave Regulations 2002 (SI 2002/2788), the Statutory Paternity Pay and Statutory Adoption Pay (General) Regulations 2002 (SI 2002/2822), the Statutory Paternity Pay and Statutory Adoption Pay (Weekly Rates) Regulations 2002 (SI 2002/2818) and the Statutory Paternity Pay and Statutory Adoption Pay (Administration) Regulations 2002 (SI 2002/2820), all of which apply to parents of children born or matched after 6 April 2003. In 2001, the Maternity and Parental Leave (Amendment) Regulations (SI 2001/4010) provided for special parental leave for the parents of disabled children under the age of 18. In April 2003, the Flexible Working (Eligibility, Complaints and Remedies) Regulations 2002 (SI 2002/3236) and the Flexible Working (Procedural Requirements) Regulations 2002 (SI 2002/3207) came into force, giving employees who have children under the age of six (or disabled children under the age of 18), and who have had 26 weeks’ continuous employment, the right to apply to work flexibly and have employers consider their request seriously.
Employee working time is governed under the Working Time Regulations 1998 (SI 1998/1833) (amended by the Working Time Regulations 1999 (SI 1999/3372)) and the Working Time (Amendment) Regulations 2001 (2001/3256); there is a minimum entitlement to 20 working days’ paid holiday per year, and this entitlement cannot be replaced by a payment in lieu except upon termination of employment. The Working Time (Amendment) Regulations 2003 (SI 2003/1684) extended the Regulations into previously excluded sectors. The UK allows an opt-out on a voluntary basis from the Working Time Regulations, but this opt-out is the subject of review at European level.
There have been a number of recent amendments to discrimination law, including a shift in the burden of proof to the employer, a significant change for an employee bringing a claim. The Employment Equality (Religion or Belief) Regulations 2003 (SI 2003/1660) and the Employment Equality (Sexual Orientation) Regulations 2003 (SI 2003/2827) have banned workplace discrimination on grounds of religious belief and sexual orientation respectively. Provisions relating to age discrimination will need to be in place by late 2006. The Race Relations Act 1976 (Amendment) Regulations 2003 (SI 2003/1626) (implementing the Race Discrimination Directive (2000/43/EC)) have altered the definition of indirect race discrimination in certain circumstances, introduced ‘harassment’ as a separate ground of action. Similarly, the Disability Discrimination Act 1995 (Amendment) Regulations 2003 (SI 2003/1673) (which partially implement the Framework Directive on Equal Treatment in Employment (2000/78/EC)) inserted a new statutory definition of ‘direct discrimination’, making it clear that this cannot be justified in any circumstances, and also introduced a new statutory definition of ‘harassment’. Additionally, they extended the provisions of the Disability Discrimination Act 1995 to employment relationships that have come to an end, removed the existing exemption for small employers, and amended the duty to make reasonable adjustments so that it relates to any ‘provision, criterion or practice’ (echoing the wording in other discrimination legislation). Finally, the Sex Discrimination Act 1975 (Amendment) Regulations 2003 (SI 2003/1657) were introduced, prohibiting discrimination which takes places after the termination of employment relations.
With regard to health and safety, in July 2001, the Health and Safety Commission published its Directors’ Health and Safety Responsibilities, which provides guidance on the health and safety responsibilities for company directors and the board members of public sector and voluntary organisations. Moreover, an Enforcement Policy released in January 2002 by the Health and Safety Executive confirmed that where directors fall short of their health and safety responsibilities, they should be held to legal account, including that enforcing authorities should where appropriate seek the disqualification of directors under the Company Directors Disqualification Act 1986.
There are, in addition, protections for employees in respect of sensitive personal data and interception and monitoring of communications (the Data Protection Act 1998 and the Regulation of Investigatory Powers Act 2000 respectively, both with additional Regulations) and express protections in place for those who ‘whistle-blow’ against their employers (the Public Interest Disclosure Act 1998).
From an international perspective, the key provisions of, for example, the UN antidiscrimination conventions have long been incorporated into UK law. The most important international measures remain those established by the International Labour Organisation (ILO), of which the UK is a member, including the 1977 Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy and the Fundamental ILO Conventions (as identified by the ILO), all of which have been ratified by the UK.
Employment relations also fall within the remit of the DTI, although there is considerable overlap with the Department for Constitutional Affairs, particularly in relation to human rights. Patricia Hewitt is the present Minister for Women and Equality. Important NGOs include the Equal Opportunities Commission and the Commission for Racial Equality, both of which are publicly funded. Regulation of health and safety is overseen by the Health and Safety Commission and Health and Safety Executive and, at a European level, by the European Agency for Health and Safety at Work.
10.Corporate responsibility towards the environment
Companies face potential liability under a wide variety of environmental laws and regulations. Key Acts include the Environmental Protection Act 1990, the Environment Act 1995, the Pollution Prevention and Control Act 1999, the Clean Air Act 1993, the Control of Pollution Act 1974 (as amended 1989), the Countryside and Rights of Way Act 2000, the Finance Act 1996 and 2000 (containing the primary law on the Landfill Tax and the Climate Change Levy respectively), the Town and Country Planning Act 1990 as amended, the Water Industry Act 1991 as amended by the Water Industry Act 1999, the Water Resources Act 1991, and the Wildlife and Countryside Act 1981, as well as the Public Health Acts.
The above laws create liability for endangering species and eco-systems, pollution, waste-related offences, land contamination and statutory nuisances, as well as including a number of procedural offences. A number of offences may also give rise to criminal liability for company directors, which, where the directors are deemed to be acting as the ‘directing mind’ of the company, may further extend to the company itself. Traditionally, UK fines and penalties have been relatively low. Following a framework decision on the protection of the environment by the European Council in January 2003, however, member states have been obliged to increase the criminal penalties for negligent environmental damage. The UK Sentencing Advisory Panel has been consulted on sentencing guidelines for environmental offences, and has advised that penalties should take into account the turnover or profits of the offending company, and should have a real economic impact upon them.
Historically, UK statutes have not addressed the wider issues of environmental responsibility raised by CSR. However, EU directives now govern some of the most publicised environmental concerns, such as global warming and recycling and waste. The aims of the original EEC were set out in the Treaty of Rome, Article 2, and, although these focused on the convergence and promotion of member states’ trade, betterment of living standards and economic growth, environmental protection has increasingly been seen as an underlying prerequisite for the harmonious development of economic activities. One example where the onus is on industrial corporations rather than government is the forthcoming EU greenhouse gas emissions trading scheme. This is an international obligation with its roots in the Kyoto Protocol, which has been implemented in the EU through Directive 2003/87/EC. All installations carrying out carbon intensive activities such as combustion, the production or processing of ferrous metals, or cement or glass production, must account for their emissions of greenhouse gases by surrendering an equivalent number of allowances (one tonne of CO2 emissions is one allowance). The number of allowances held by any one installation is capped, and therefore, in theory, this should generate a market for buying and selling allowances, as well as promoting greater efficiency and technological advancement by heavy carbon users. The ultimate aim of course is to reduce the volume of greenhouse gases emitted to the atmosphere by industry.
However, it must be borne in mind that EU environmental policy is implemented by directives binding on the governments of member states; it does not directly bind corporate entities operating within the EU. This is achieved by member states implementing regulations that will in turn bind corporate entities operating within their jurisdiction. Depending on the structure of a particular directive, member states may have some policy discretion via the implementation process as to where the burden for achieving a directive’s aim should lie. Recent examples illustrating this include:
Directive 96/61/EC concerning integrated pollution prevention and control
This Directive aims to prevent, reduce and eliminate pollution at source with the burden squarely on corporate entities. Installations carrying out various industrial activities, such as energy industries, chemical industry and waste management, must operate under a permit, which will have conditions attached to it, eg as to emissions, to comply with the Directive. Permitted installations must take preventive measures against pollution, ensure that no significant pollution is caused, avoid waste production, use energy efficiently, prevent accidents, and protect and clean up sites once activity has ceased.
Directive 99/31/EC on the landfill of waste
This Directive has the ultimate aim of reducing as far as possible the negative effects of landfilling on all environmental media by the regulation of the entire lifecycle of landfill sites, from design to post-closure monitoring. The financial burden falls on the landfill operator, who must pass on the total operational costs, including after-care, to consumers in the fee for accepting waste. This reflects the ‘polluter pays’ principle of EU regulation. In the UK, a second financial disincentive to landfilling has been introduced by the government in the form of landfill tax. Paid by landfill operators on any disposals of waste to landfill, the cost is passed on to corporate entities who use the landfills as a depository of waste. These costs are then in turn passed on to consumers. The burden is therefore shared across the section of society utilising landfill facilities.
Directive 2002/96/EC on waste electrical and electronic equipment
This Directive is aimed at preventing waste electrical and electronic equipment (WEEE) – for example, household appliances and IT equipment. Its objectives are to prevent waste arising and increase the level of recycling and recovery of WEEE. Traditionally this burden has been placed on either the environment (eg landfilling) or the taxpayer (eg paying for recycling via taxation). The Directive shifts the primary burden onto the corporate producers of WEEE from the initial product design phase ensuring that the goods are capable of recycling and recovery to the responsibility for the return of WEEE from private households (for example, by offering a take-back service).
Many companies are also reporting more extensively on their environmental performance, as discussed in section 14 below. UK industry has come under considerable governmental pressure (including threats of mandatory reporting requirements) to improve its environmental performance and reporting, including a ‘name and shame’ campaign by the UK Environment Agency, the Making a Corporate Commitment (MACC2) scheme, promotion of the European Ecolabel, and a set of guidelines on environmental management and reporting issued by the Department for Environment, Food and Rural Affairs. In spite of this pressure, however, and contrary to established environmental best practice, only five of the FTSE 100 companies currently report on their carbon dioxide emissions.
In terms of sustainable development, the government has commissioned a report by the Royal Institute for International Development exploring the options that have emerged following the World Summit on Sustainable Development held in Johannesburg in September 2002. The DTI has also given its backing to the Sustainability: Integrated Guidelines for Management (SIGMA) Project launched by the British Standards Institution (the leading standards organisation); Forum for the Future, a leading sustainability charity and think-tank; and AccountAbility, the international professional body for accountability. The government’s sustainable development obligations are derived from the commitments made at the Earth Summit in Rio in 1992. The strategy published in 1994 as a result of that summit was revised in 1999 and has four key aims: social inclusion; environmental protection; prudent use of natural resources; and maintaining high levels of stable economic growth and employment. The vast range of UN and other international environmental treaties, conventions and protocols which the UK has ratified includes the 1997 Kyoto Protocol to the United Nations Framework Convention on Climate Change, the 1992 Convention on Biodiversity and the 2000 Cartagena Protocol on Biosafety, which governs the handling and movement of genetically modified organisms across national borders.
In addition to the international conventions imposing direct liability on companies considered above in section 3, the UK has also ratified various International Maritime Organisation conventions on liability for oil pollution, and the 1993 Lugano Convention on Civil Liability for Damage Resulting from Activities Dangerous to the Environment, and has signed but not ratified the 1963 Vienna Convention on Civil Liability for Nuclear Damage.
The European Environmental Liability Directive (2004/35/EC) provides that anyone adversely affected by environmental damage may request the competent authority to take action. Moreover, recognising that “environmental protection is […] a diffuse interest on behalf of which individuals will not always act or will not be in a position to act”, it suggests that NGOs promoting environmental protection “should therefore also be given the opportunity to properly contribute to the effective implementation of this Directive”.
The government department with responsibility for the environment is the Department for Environment, Food and Rural Affairs. The current Secretary of State is Margaret Beckett MP and the Minister for the Environment is Elliot Morley MP. An enormous number of NGOs exist in support of environmental causes, including Greenpeace, Friends of the Earth International and the Green Alliance.
11.Corporate responsibility to communities
The UK government has introduced a number of measures to encourage corporate responsibility towards communities within the UK, with a particular emphasis on revitalising areas of economic deprivation. Initiatives with governmental backing include City Growth Strategies, Local Strategic Partnerships and the Under-served Market Project led by Business in the Community, as well as Social Inclusion Partnerships in Scotland and the Private Sector Advisory Panel on Neighbourhood Renewal launched by the Deputy Prime Minister, John Prescott, in 2003. The majority of these schemes are administered by the Office of the Deputy Prime Minister. This is, however, an area of CSR in which a number of government departments are involved.
The Treasury has implemented one of the few ‘hard law’ measures in relation to corporate responsibility towards communities, in the form of the Community Investment Tax Credit. This is a tax relief, introduced by the Finance Act 2002, available to individuals and corporate bodies investing in accredited Community Development Finance Institutions. These provide finance to profit-distributing enterprises, social enterprises and community projects. The tax relief available to the investor is five per cent per annum of the amount invested in the Community Development Finance Institution and may be claimed in the tax year in which the investment is made and in each of the four subsequent years.
The Community Investment Tax Credit was introduced in response to a report, ‘Enterprising Communities’, made to the Chancellor of the Exchequer in October 2000 by the Social Investment Task Force, an initiative of the UK Social Investment Forum. The same report also proposed the establishment of a Community Development Venture Fund to create a venture capital fund for small businesses in disadvantaged areas. This suggestion has been adopted by the DTI, which has made funds available within its Phoenix Fund, an initiative launched in November 1999 which provides funding for a number of different initiatives aimed at supporting and regenerating deprived regions. There are also a wide variety of private voluntary schemes, a hub for which exists in the Employees in the Community Network. Governmental support is provided by the Voluntary and Community Unit of the Department for Social Development.
12.Corporate responsibility for overseas activities
The underlying principle of CSR is that companies will adopt principles which apply at home and overseas irrespective of whether there are legal liability risks in the relevant jurisdiction. The legal position is that the courts retain the discretion to refuse to try any case on the principle of forum non conveniens (inappropriate jurisdiction). In the two-part test established in Spiliada Maritime Corporation v. Cansulex Limited [1987] 1 AC 460, the court will order a stay of proceedings where it is proved that another jurisdiction exists which, taking all appropriate factors into account, is a more appropriate forum for the case to be heard, and that such stay is not contrary to the interests of justice. Within the constraints of this doctrine, however, a number of recent cases have seen companies sued in the UK for the negligent acts of their subsidiaries, notably Connelly v. Rio Tinto Plc (1997) 3 WLR 373, Sithole and others v. Thor Chemical Holdings Limited, The Times 15 February 1999, and the House of Lords case Lubbe and Others v. Cape Industries Plc [2000] 1 WLR 1545. In all three cases forum non conveniens was raised as an issue at trial and narrowly overcome – (it became academic in the Thor Chemical case when the defendants were held to have submitted to the jurisdiction by filing a defence). In the Cape Industries case, the unavailability of legal aid in South Africa was held to be a legitimate reason for proceeding with the case in the UK, although the unavailability of legal aid in the relevant overseas jurisdiction will not automatically prevent a stay.
In Cape Industries, liability was alleged on the basis of the knowledge of the UK-based directors of the parent company of the conditions and risk of harm endured by the employees of their subsidiary. This is therefore an example where direct liability of the parent was alleged, rather than there being any suggestion that the parent should be responsible for the liabilities of its subsidiary, which is an argument which the English courts have always been reluctant to entertain. Should these issues come to trial, one effect of the widespread adoption of CSR principles is that courts may be more likely to hold that companies should not be able to practise a ‘double standard’ in respect of health and safety requirements. The principles of negligence (fundamentally the foreseeability of risk of harm) are operative irrespective of local regulation.
It is widely recognised that companies’ responsibility to stakeholders overseas extends far beyond direct liability for subsidiaries. Consortia such as the Ethical Trading Initiative, established in 1998 as an alliance between companies, NGOs and trade unions, and whose current UK corporate membership have a combined annual turnover of over £100 billion, work to improve labour conditions in the supply chains of their members. In 2000, the Department for International Development, currently headed by Hilary Benn MP, published a White Paper outlining its plans to combat world poverty, including encouraging, or even requiring, greater disclosure by companies of their CSR performance and greater stability in global financial markets.
13. Procurement
Government procurement is supervised by the Office of Government Commerce, which has issued guidance to the other government departments concerning both ethical and green considerations in government procurement. These have been supplemented by the green procurement guidelines issued by the Department for Environment, Food and Rural Affairs. All such guidelines must operate within the legislative framework for government procurement, which is dominated by the extensive EC law on public procurement and corresponding UK statutory instruments.
14. CSR reporting and socially responsible investing
Reporting on CSR performance remains a voluntary activity for companies, and they have adopted a multiplicity of approaches to (and levels of) disclosure of social and environmental performance. CSR reporting is, however, one of the few areas on which the government has passed legislation with specific reference to the CSR concept. The Occupational Pension Schemes (Investment, and Assignment, Forfeiture, Bankruptcy etc) Amendment Regulations 1999 (SI 1999/1849) amended the Pensions Act 1995, inserting a provision that the statement of investment principles that the Act requires investment trusts to produce must now include a statement of the extent to which their investment principles take account of social, environmental or ethical considerations.
A number of reporting initiatives have been considered elsewhere in this chapter, for example the OFRs discussed above in section 8, and Environmental Management Systems such as ISO 14001, EMAS and BS 8555, all of which encourage greater corporate reporting of CSR performance. Other measures that seek to promote CSR reporting and, crucially, to help standardise it, include the Global Reporting Initiative, an independent body founded by the Coalition for Environmentally Responsible Economies, which creates a common framework for voluntary reporting and is supported by almost 200 UK companies and NGOs. Additionally, a number of financial services institutions, in conjunction with the ABI and the British Bankers’ Association, have developed the Forge Guidelines on CSR reporting and management for the financial services sector, while AccountAbility has created the AA 1000 Framework and AA 1000 Series modules for establishing CSR performance and reporting processes within companies.
In terms of socially responsible investing, the FTSE4Good series of share indexes has a sophisticated selection process that reflects social and environmental performance, with more stringent benchmarks for inclusion applying to companies in sectors of the economy with a higher social and environmental impact. There are currently eight indexes, four benchmark and four tradable. From an investor’s perspective, in October 2001 the ABI issued Guidelines on Socially Responsible Investing for its members.
SOURCES
The UK government’s Draft International Strategic Framework is available at www.dti.gov.uk/sustainability/weee/corp_soc_resp.pdf or can be obtained from the DTI.
Additional government publications relating to CSR can be found at www.csr.gov.uk
A wide variety of publications are available on or pertaining to CSR, looking at the subject from many different perspectives. ‘Cannibals with Forks: The Triple Bottom Line of 21st Century Business’ (1997, Oxford) by John Elkington, the Chairman of the NGO SustainAbility, is a significant foundation work, as is Matthew Hopkins’ ‘The Planetary Bargain: Corporate Social Responsibility Comes of Age’ (1998, London), most recently updated in 2003.
The growth of academic studies in CSR has resulted in a number of student textbooks, of which ‘Business Ethics: A European Perspective’ (2004, Oxford) by Andy Crane and Dirk Matten provides a good starting point.
More critical works on CSR include Dr Elaine Sternberg’s ‘Just Business: Business Ethics in Action’ (2000, Oxford) and ‘A Poverty of Reason: Sustainable Development and Economic Growth’ (2002, Oxford) by Wilfred Beckerman.
Several more exhaustive lists of sources on CSR are available on-line. Particular mention should be made of the list prepared by Renato Alva Pino as part of the UN Non-Governmental Liaison Service Development Dossier, which can be found at www.unngls.org/developmentdossier.htm and which also contains website addresses for many of the most active NGOs.
Publications produced by NGOs include the Corporate Responsibility Index published by Business in the Community, available at www.bitc.org.uk, and the highly publicised criticism of current CSR practice contained in the Christian Aid report, ‘Behind the mask: the real face of corporate social responsibility’, available at www.christian-aid.org.uk. The website for the CORE Coalition can be found at www.corporate-responsibility.org.
