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Very few large companies in the U.K. are meeting requirements to disclose information on their strategies, employment diversity, and their effects on the environment, according to the accounting regulator and complaints from an environmental litigation organization.
Sustainability campaigners ClientEarth complained Sept. 19 to accounting regulator Financial Reporting Council (FRC) about four companies it said breach their duty to report to shareholders about climate change: easyJet Plc; Balfour Beatty Plc; EnQuest Plc; and Bodycote Plc.
The FRC says that companies are failing to give more details on non-financial areas such as diversity, company strategy, and corporate culture. Changes to the U.K.’s corporate governance code announced in July require companies to give more information on these non-financial areas beginning in 2019.
The companies acknowledged their reporting responsibility, but denied they are failing to fulfill it.
The FRC announced Sept. 17 the results of a study of diversity reporting it conducted with the University of Exeter. It found that 85 percent of FTSE 100 companies failed to comply with diversity reporting requirements.
“Many organizations appear to still have a minimalist ‘tick box’ approach and need clearer strategies to drive greater diversity at senior management levels,” Ruth Sealey, associate professor of management at Exeter University, told Bloomberg Tax.
“Some of the findings of this report are disappointing,” Tracy Vegro, FRC executive director of strategy and resources, told Bloomberg Tax. “We are writing to companies to challenge them to take a more strategic approach to diversity and inclusion, and to consider their approach to reporting on it.”
ClientEarth lawyer Daniel Wiseman told BloombergTax by phone that the failure violated the companies’ legal duty to report material—financially significant—risks to shareholders. “For companies in exposed sectors, environmental issues are clearly material,” he said. “Investors expect them to be discussed just like any other risk to their capital.”
Wiseman said that the four companies reported on climate-change issues but in nothing like sufficient detail.
EasyJet spokeswoman Holly Mitchell told Bloomberg Tax by email that the budget airline had a strong commitment to sustainability. “EasyJet takes its reporting obligations seriously and continues to evolve its disclosures on this matter to reflect developing legal and regulatory requirements and increased stakeholder interest,” she said.
Antonia Walton, spokeswoman for Balfour Beatty, said that the infrastructure group is “fully committed to addressing climate change risk.” She added that “our overall environmental performance and metrics are publicly available through our Annual Report and on our website.”
Heat treatment specialist Bodycote said that ClientEarth’s complaint missed the point—climate-change problems don’t threaten the company’s viability; rather, they helped its business.
“In their complaint to the FRC, ClientEarth correctly quoted from the Bodycote annual report the section discussing the beneficial nature (from an environmental standpoint) of companies subcontracting their energy intensive work to Bodycote and the overall reduction in energy consumption and carbon emissions that results,” Stephen Harris, Bodycote’s group chief executive, told Bloomberg Tax by email. “It seems that they either didn’t understand the subject matter or didn’t actually read the material.”
Oil company EnQuest didn’t reply to a request for comment.
Another study, released by Ernst & Young LLP Sept. 19, found that FTSE-listed companies are similarly behind on other aspects of non-financial reporting.
EY looked at the accounts of 100 FTSE 350 companies and found that 47 percent articulated their company’s purpose.
Thirty-nine percent of the companies gave a detailed description of their culture, and 30 percent listed their corporate values.
Thirty-seven percent of the companies explained how their culture is embedded in their company.
Such areas are important to companies meeting their obligations under U.K. law to report on the long-term impact of their business decisions, and the interests of wider stakeholders including employees and the community, Ken Williamson, EY’s U.K. head of corporate governance, told Bloomberg Tax by phone.
Just 11 percent of the companies, however, explained how this requirement is met, as required by the FRC’s revised corporate governance code, he said.
“Companies should not see this as a compliance exercise,” Williamson said. “In the end, they must get better at reporting things of long-term significance.”
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