Archived press release

Friends of the Earth forces Chancellor to cave in on environmental reporting

2 February 2006

The Government has been forced into a dramatic climb down over its plans to abolish the Operating and Financial Review (OFR) following an imminent legal challenge by Friends of the Earth. The environmental campaign group had applied for a judicial review of the Chancellor of the Exchequer's decision to abolish the OFR, after he appeared to reverse government policy following lobbying by the CBI.

The Government is expected to issue a Ministerial written statement this morning setting out a fresh consultation on the future of company environmental reporting, including measures contained in the scrapped Operating and Financial Review. The Treasury has also agreed to pay Friends of the Earth's legal costs in order to avoid the group taking the judicial review to Court.

The new consultation will ask whether to include OFR provisions in the draft Company Law Reform Bill which is currently having its first reading in the House of Lords. The Government will also consult on whether to introduce new OFR measures into law in the interim.

Friends of the Earth Executive Director Tony Juniper said:

"This reversal by the Chancellor is a major victory for the environment, democracy and those companies who genuinely want to reduce their impacts on people and the planet. It is a defeat for lobby groups like the CBI which have become far too used to dictating government policy regardless of the wider impacts on society. Gordon Brown's decision to abolish the OFR was also unlawful, and that is why the Government has backed down."

"We hope that this experience will help the Chancellor understand that big business is not the only stakeholder he has to represent. He cannot continue to sideline the environment just because the CBI has told him to."

Friends of the Earth launched the judicial review earlier this month after the Chancellor announced that he was abolishing the OFR at the CBI annual conference on 28 November. The OFR contained the first significant legal requirements for quoted companies to report on their social, community and environmental impacts [2].

The judicial review application, which included witness evidence from other NGOs, industry groups, businesses and investment bodies [3], claimed that the Chancellor's decision to abolish the OFR had been unlawful because he failed to properly consult before it was abolished. The OFR had been introduced just nine months earlier by the Department of Trade and Industry (DTI) following a six-year consultation.

The campaign group also said that the decision was irrational and argued that the Chancellor had been seeking to prove his pro-business credentials and had rushed through a radical policy reversal without following proper procedures or the Government's own consultation policy. Friends of the Earth claimed the decision was made as a tokenistic gesture to big business. One government official described the idea as a "radical symbolic stripping down" of the OFR.

The DTI had previously described the OFR as "vital to improving corporate regulation" and the measures had been widely welcomed.

Friends of the Earth's lawyer, Phil Michaels said:

"This was a flagrant case of the Chancellor breaching the Government's own consultation policies and of carrying out an entirely one-sided, informal and unfair consultation. Issues around environmental and social reporting affect more than the business community - and the Chancellor has now recognised the valid rights of other stakeholders. This is an important victory - but one that we should never have had to fight."

"This is an important step towards greater transparency and ensuring companies can be held accountable for their environmental impacts. It is vital that MPs and the Government look very carefully at the issue of accountability under the Company Law Reform Bill, and to include a duty on directors to minimise the damage to the environment caused by their company's activities"

Notes

[1] The Judicial Review was the formally filed against the Chancellor of the Exchequer and the Secretary of State for Trade and Industry.

[2] The Operating and Financial Review (OFR) required the top 1,300 companies to produce an annual statement on their prospects including in relation to social and environmental issues. Companies were due to start publishing the first Operating and Financial Reviews in April 2006.

[3] Evidence was filed from Amnesty UK, Traidcraft plc, ActionAid, Environmental Industries Commission and two financial institutions.

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Published by Friends of the Earth Trust