SSRN Id1274567 PDF

Directors' Duties Under Companies Act 2006 and the
Impact of the Company's Operations on the Environment
ARAD REISBERG*
IAN HAVERCROFT+
UCL Faculty of Laws
December 2010
This paper can be downloaded without charge from the

Social Science Research Network electronic library at:
http://ssrn.com/abstract=1274567

Reader in Corporate and Financial Law and Vice-Dean for Research, Faculty of Laws, University
College London; Director, UCL Centre for Commercial Law. We are grateful to participants at the
Corporate & Financial Law Reading Group (now re-named ‘Law & Finance Workshop’) on 30
October 2008 at UCL Faculty of Laws and, in particular John Armour, John Lowry and Maria Lee, for
comments. The usual disclaimers apply.
+ Senior Research Fellow in Environmental Law, Faculty of Laws, University College London.
Electronic copy available at: http://ssrn.com/abstract=1274567

- DRAFT -
Please do not cite without permission
A. Introduction
Section (hereafter ‘section’ or ‘s’) 172(1) of the CA 2006 requires a director of

a company to act "in the way he considers, in good faith, would be most likely
to promote the success of the company for the benefit of its members as a
whole". A director is specifically required to have regard to a non-exhaustive
range of factors in accordance with s.172(1)(a)–(f).2 These include in (d) ‘the
impact of the company's operations on the community and the environment’.
Section 417 of the Companies Act 2006 sets the requirement for one of the
main components of the content of the directors' report, namely, the business
review. It is a narrative report of the company's business to accompany the
figures as shown in the annual accounts. According to section 417(2) the
purpose of the business review is to inform members of the company and
help them assess how the directors have performed their duty under section
172 (duty to promote the success of the company). However, whereas s. 172
refers to the impact of the company's operation on the community and the
environment, s. 417(2) uses a different terminology (i.e. information about (i)
environmental matters (including the impact of the company's business on the
environment)). Is this intentional? what is the significance of this?
This paper discusses how traditionally soft issues for companies have
now become hard: hard to ignore, hard to manage and hard for companies
that get them wrong. It inquires, amongst other things, into the above
questions. The paper is structured as follows. Section B will outline changes
in the corporate world, public policy and trends in public life generally with
regard to ‘the environment’. Section C will then put these new developments
into context by looking at the inclusion of the term ‘environment’ in the
Companies Act 2006 (‘CA 2006’). It will also track back how and where has it
been included, what is to be considered exactly in the context of the Directors’
report (the so-called ‘Business Review’ under section 417), and who is the
intended audience – shareholders or the wider ‘public? Previous attempts to
include/exclude environmental issues within the context of company law and
directors’ duties will also be looked at. Section D will look at traditional
interpretations and usage of the term ‘the environment’ and will raise the
question whether it is possible to include such an intangible notion within the
CA 2006? Section E will then return to the CA 2006 and discuss what does
the term ‘environment’ means for the purposes of this legislation. For
example, are there examples of analogous usage of the term within company
law more widely? The purpose of Section F is to look at recent trends in
corporate environmental disclosure and examine whether there has been a
2
This list is not exhaustive, but highlights areas of particular importance which reflect wider
expectations of responsible business behaviour (see below). The s.172 duty has effect subject to
s.172(3) which provides that in certain circumstances directors must, in obeying an enactment or rule
of law, consider or act in the interests of creditors of the company.
Electronic copy available at: http://ssrn.com/abstract=1274567

marked improvement in terms of quality and quantity. Initial indications as to
how the new requirements in relation to reporting about environmental issues
under the CA 2006 are implemented (or not) in practice will also be briefly
considered. Recent developments in the UK and on the EU front will also be
looked at. Finally, Section G will draw some conclusions as well as provide
some lessons and signposts for the future.
3
B. The ‘greening’ of the commercial world?
The purpose of this section is to briefly outline the changing attitudes in the
corporate world to public policy with regard to ‘the environment’. John
Elkington in his book, Cannibals with Forks, 3 argues that 21st century
business should have a triple bottom line. Sustainable business could not aim
exclusively at maximizing short or even medium-term profits, but would have
to set auditable social and environmental goals. Indeed, the growing
international awareness of corporate responsibility for wider social,
environmental and human rights goals is reflected in the OECD guidelines for
multinational enterprises, published as long ago as 1976. They set out a
broad range of principles for companies to follow, and are backed up in each
country by a mechanism known as the national contact point, whose task is to
consider breaches of the guidelines.4
During the passage of the CA 2006 in Parliament Lord Avebury draw

attention to consortium of NGOs, under the umbrella of the Trade Justice
Movement and the CORE Coalition, which between them represent more than
100 organisations and 9 million members. He argued that they believe that
British business has a positive role to play in promoting best social and
environmental practice in its overseas activities, and many of the leading
companies agree with them.5 Attention was drawn to Shell which publishes a
statement of its commitment to sustainable development in the document
People, Planet and Profits as long ago as 1999. It engages auditors to verify
its adherence to a Statement of Business Principles, the distribution of its
people survey to employees in 100 countries, and the development and
distribution of its practical guide to human rights. Similarly, Rio Tinto has
published a social and environmental report on its activities since 2000 and
has sought to engage with people in the countries in which it operates.
It is important to note that the changes in the corporate world, public

policy and trends in public life generally with regard to the environment are not
solely driven by business. The UK government department responsible for the
environment (DEFRA) states on its website that companies that measure,
manage and communicate their environmental performance are inherently
well placed.6 They understand how to improve their processes, reduce their
costs, comply with regulatory requirements and stakeholder expectations and
take advantages of new market opportunities. It is further suggested that
‘failure to plan for a future in which environmental factors are likely to be
increasingly significant may risk the long-term future of a business. Good
environmental performance makes good business sense. Environmental risks
and uncertainties impact to some extent on all companies, and affect
investment decisions, consumer behavior and Government policy.’ 7
3
Cannibals with Forks: The Triple Bottom Line of 21st Century Business (The Conscientious
Commerce Series) New Society Publishers (September 1, 1998).
4
Hansard, Grand Committee Official Report, 6/2/2006; coll GC266.
5
6
http://www.defra.gov.uk/environment/business/reporting/ (visited 12 November 2010).
7
Ibid.
4
Interestingly, there is some anecdotical evidence which suggests that
companies engaged in clean and green issues are thriving despite a
worldwide slowdown. The US Senate acknowledged its importance by
recently including clean energy tax credits in the $700 billion bail out package
to rescue the financial sector. Corporate reporting on social and
environmental issues holds the potential to reduce risk and enhance long-
term shareholder return. Social and environmental disclosure is increasingly
viewed as an element of good corporate governance by pension funds and
other large institutional investors. 8 In July 2001, an amendment to the
Pensions Act 1995 contained a new mandatory requirement for UK Pension
funds trustees to disclose how they have considered social, economic and
environmental matters. 9 This view is not restricted to socially responsible
investors. Consumers also expect companies to be ethical and responsible.10
Business leaders and managers at all levels must integrate sustainable issues
into the strategy. There are now Sustainability indices such as the Dow Jones
Sustainability Index or the FTSE4Good Index.
In 2000, the Global Reporting Initiative (GRI) produced broader

sustainability reporting guidelines for organisations to report on the economic,
social and environmental dimensions of their activities products and services
and also provides stakeholders with a universally-applicable, comparable
framework in which to understand disclosed information.11 As we shall see in
Section C below, the requirements of the so-called EC Modernisation
Directive12 had also contributed to the development of the narrative report
which is now contained in section 417 of the CA 2006 which requires, under
some circumstances, the use of key performance indicators relating to
environmental and employee matters.13
That said, one should bear in mind right at the outset, that although
issues such as environmental protection and health and safety are
enormously important, in the eyes of the previous Labour Government ‘We do
8
See, Enhancing Corporate Governance through Transparency, Responsibility & Sustainability Brief
to the Senate Banking, Trade and Commerce Committee on hearings into the domestic and
international financial system following the Enron collapse From the Social Investment Organization
November 2002. The UK National Association of Pension Funds (NAPF) Guidelines for Responsible
Investing includes environmental, social and governance issues (although it excludes ethical or moral
dimension which is left to individual funds and their managers to decide). See,
http://www.napf.co.uk/PressCentre/Press_releases/0002_020910_Putting_a_stronger_corporate_gover
nance_culture_into_practice_0210.aspx
9
This disclosure is found in the trustees’ Statement of Investment Principles (‘SIP’). Socially
Responsible Investing is also at the core of the Association of British Insurers Report ‘Investing in
Social Responsibility - Risks and Opportunities’, at,
http://www.abi.org.uk/Publications/Investing_in_Social_Responsibility_-
_Risks_and_Opportunities1.aspx
10 74 per cent of the British population say more information on a company’s social and ethical
behaviour would influence their purchasing decisions. See, MORI CSR Study, 2003 available at
http://www.ipsos-mori.com/researchpublications/researcharchive/poll.aspx?oItemId=849
11
See DEFRA website http://www.defra.gov.uk/environment/business/reporting/
12
Directive 2003/51/EC at [2003] OJ/L178/16. This directive amended various accounting directives
that, inter alia, set the requirement, in European legislation, for the directors’ report (eg, the EC Fourth
Company Law Directive, 78/660/EEC at [1978] OJ/L222/11, as amended).
13
See s. 417(6).
5
not think, however, that they should be addressed through company law
reform.’14 Indeed, there are admittedly stronger obligations elsewhere in the
law. A recent example is the Climate Change Act 2008 which received Royal
Assent on 26 November 2008. 15 With regard to companies' reporting of
greenhouse gas emissions, the Act does not contain specific reporting
requirements. Instead, section 85 (‘Regulations about reporting by
companies’) provides that the Secretary of State must, not later than 6th April
2012, make regulations under section 416(4) of the CA 2006 requiring the
directors’ report of a company to contain such information as may be specified
in the regulations about emissions of greenhouse gases from activities for
which the company is responsible, or lay before Parliament a report
explaining why no such regulations have been made. 16 The Government
minister at the time (Joan Ruddock MP), while introducing the Bill, observed
that the CA 2006 provides for reporting on environmental issues by listed
companies, 17 but, as will be seen below, it is too early to say how well they
are reporting and what they are reporting on.
14
15
Background information about the Act is available on the DEFRA website:
http://www.defra.gov.uk/environment/climatechange/uk/legislation/index.htm
16
It is interesting to compare the UK legislative framework with that established in Australia under the
National Greenhouse and Energy Reporting Act 2007 (the ‘NGER Act’) which came into effect on 29
September 2007. The NGER Act introduces a single national reporting framework for the reporting and
dissemination of information about the greenhouse gas emissions, greenhouse gas projects, and energy
use and production of corporations. The first annual reporting period began on 1 July 2008.
Corporations that meet an NGER threshold must report their greenhouse gas emissions, energy
production, energy consumption and other information specified under NGER legislation.
17
Hansard, House of Commns, 9/6/2008; coll 124.
6
C. The term ‘environment’ in the Companies Act 2006
The purpose of this Section is to look at the inclusion of the term
‘environment’ in the Companies Act 2006 (‘CA 2006’) tracking back how and
where has it been included, what is to be considered exactly, in the context of
the Directors’ report, and who is the intended audience – shareholders or the
wider ‘public’? Previous attempts to include/exclude environmental issues
within the context of company law and directors’ duties will also be looked at.
1. Introduction
Section 172(1) of the Companies Act 2006 (hereafter ‘CA 2006’ or the ‘Act’)
requires a director of a company to act "in the way he considers, in good faith,
would be most likely to promote the success of the company for the benefit of
its members as a whole". A director is specifically required to have regard to a
non-exhaustive range of factors in accordance with s.172(1)(a)–(f).18 These
include the interests of the company's employees, the need to foster the
company's business relationships with suppliers, customers and others, and
the impact of the company's operations on the community and the
environment. The duty is determined by examining a director’s subjective
perception of whether he considers the act in question to have benefited the
members as a whole.19 Although the test to determine a breach of s.172 is
subjective in nature, a director’s conduct may be deemed so unreasonable
that it extinguishes any realistic claim that the director held an honest belief
that the act in question would promote the success of the company.20
When introducing the Company Law Reform Bill into the House of
Commons for its second reading, the Secretary of State for Trade and
Industry, Mr Alistair Darling, described the "new approach" to directors' duties
contained in the Companies Act 2006 as being at "the heart" of the new
legislation.21 He said that the Act "enshrines in statute what the law review
called 'enlightened shareholder value'. This duty enshrines in statute a
reformed and broader concept of shareholder value, labelled by the CLR the
principle of ‘enlightened shareholder value.22’ It recognises that directors will
18
19
See e.g. Re Smith and Fawcett Ltd [1942] Ch D 304.
20
See e.g. Re W&M Roith Ltd [1967] 1 W.L.R. 432.
21
See Hansard, Grand Committee Official Report, 6/2/2006; coll GC125.
22
The CLR considered whether to retain the traditional understanding that companies should be run for
the benefit of shareholders. The CLR recognised the merits of a stakeholder approach but did not
recommend its adoption. Instead, it proposed that the duty of loyalty should promote ‘enlightened
shareholder value’. See Developing the Framework (URN 00/656, Department of Trade and Industry
(DTI), 2000), paras 2.19–2.22; Completing the Structure (URN 00/1335, DTI, 2000), para 3.5).
According to this approach, directors, whilst ultimately required to promote shareholder interests, must
take account of the factors affecting the company’s relationships and performance. The CLR proposed
to formulate the duty in such a way as to remind directors that shareholder value depends on successful
management of the company’s relationships with other stakeholders. This is now reflected in s 172.
7
be more likely to achieve long-term sustainable success for the benefit of their
shareholders if their companies pay attention to a wider range of matters",23
set out in s.172(1) of the Act. The statutory duty upon directors to promote the
success of the company contained in s.172 of the Act was one of the most
controversial aspects of the Company Law Reform Bill during its passage
through Parliament. Notwithstanding an obvious similarity between s.172 and
the common law duty it replaces, the section is materially different in the
adoption of a list of factors that a director must consider in determining
whether a course of conduct was pursued for the success of the company to
the benefit of the members as a whole.24
2. The factors listed in Section 172(1)
The factors listed in subsection (1) to be taken into account by directors in

discharging this duty are designed to give content to the concept of
‘enlightened shareholder value’ 25 which, in the view of the Company Law
Review Steering Group, ‘is more likely to drive long-term company
performance and maximise overall competitiveness and wealth and welfare
for all’26. It should be noted that in response to debates in the House of Lords
as well as detailed engagement with interested parties, the Government made
amendments to subsection (1) which it hopes would put beyond doubt that the
need to have regard to certain factors (including the interest of the employees
and impact on the environment) is subject to the overriding duty to act in the
way the director considers, in good faith, would be most likely to promote the
success of the company for the benefit of its members as a whole. It is also
noteworthy that the list is not exhaustive but is indicative of the importance
that the Steering Group paid to the wider expectations of responsible
business behaviour.27 The question of what will promote the success of the
company is one for the director’s good faith judgment.28 This aligns the duty
23
Ibid.
24
S Griffin, ‘The regulation of directors under the Companies Act 2006’ [2008] 224 Sweet &
Maxwell’s Company Law Newsletter (14 February 2008), 2. In a recent Court of Session decision in
Scotland Lord Glennie expressed the view that although there was no equivalent in the earlier
Companies Acts, this section does ‘little more than set out the pre-existing law on the subject’. Re West
Coast Capital (Lios) Ltd [2008] CSOH 72, at [21]. Similarly, Warren J observed recently that: ‘The
perhaps old-fashioned phrase acting ‘bona fide in the interests of the company’ is reflected in the
statutory words acting ‘in good faith in a way most likely to promote the success of the company for
the benefit of its members as a whole’. They come to the same thing with the modern formulation
giving a more readily understood definition of the scope of the duty. Cobden Investments Ltd v RWM
Langport Ltd and others [2008] EWHC 2810 (Ch) at [52]. This statement should be read in
conjunction with Warren J’s observation in the following sentence that ‘I do not intend to consider
whether, and if so how, the statutory duties differ from established common law and equitable duties in
the present case, since the matters relied on by CIL to establish breach of duty nearly all pre-date the
coming into effect of the Act’. Ibid.
25
See above, para 10.172.02, n 1.
26
White Paper, 2005, para 3.3: http://www.dti.gov.uk/bbf/co-act-2006/white-paper/page22800. html
27
The requirement for directors to take account of the interests of other stakeholders has been criticised
on the basis that it will potentially increase liability for directors, create additional bureaucracy, and
result in directors being too cautious in their decision making. See, eg, The Telegaph, 7 June 2006,
‘Investors the true arbiters of social role’.
28
This ensures that business decisions on...the strategy and tactics are for the directors, and not subject
to decision by the courts, subject to good faith’. See the Explanatory Notes to the Act available at:
8
with the position long taken by the courts that, as a general rule, their role is
not to interfere in the internal management of companies. The orthodoxy here
is that the management of companies is best left to the judgment of their
directors, subject to the good faith requirement.29 In discharging this duty and,
more particularly, in taking account of the factors listed in subsection (1),
directors are bound to exercise reasonable care, skill, and diligence (see
section 174). A director will, therefore, need to demonstrate that the interests
listed informed his or her deliberations. 30 Although under the common law
system, a director may have been expected to consider the interests of
employees,31 as well as the interests of creditors in circumstances where a
company was approaching or in a state of insolvency, 32 no other formal
considerations were required in the calculation to determine a breach of the
duty. Primarily, at common law, the duty was owed to the shareholders, and
the shareholders’ interest was related to the commercial well being of the
company.
In interpreting the statutory list of factors relevant to determine whether

a director acted to promote the success of the company, it is essential to
interpret the constituent parts of the list in the context of promoting the best
interests of shareholders.33 In the context of shareholder interests, one would
imagine, although it is not specifically alluded to in the list of factors to be
considered, that success will continue to be viewed primarily in a commercial
context, so measured by the profitability of the company and its ability to
declare healthy dividends. 34 In relation to the content of the list of
considerations, as a matter of common sense, some may be obvious in
complementing a director’s commercial consideration in the generation of a
successful company to the benefit of the shareholders as a whole. For
example, fostering good relationships between the shareholders, employees,
customers and suppliers. It may be detrimental to ignore these considerations
in terms of promoting the future success of a company, so measured by the
<http:// www.dti.gov.uk/bbf/co-act-2006/index.html> The Law Society raised a concern that this could
raise the spectre of courts reviewing business decisions taken in good faith by subjecting such decisions
to objective tests, with serious resulting implications for the management of companies by their
directors. See, the Law Society’s ‘Proposed Amendments and Briefing for Parts 10 & 11’ (issued 23
January 2006).
29
This non-interventionist policy (the internal management rule) was explained by Lord Eldon LC in
Carlen v Drury (1812) 1 Ves & B 154, who said: ‘This Court is not required on every Occasion to take
the Management of every Playhouse and Brewhouse in the Kingdom.’ Indeed, Lord Greene MR in his
formulation of the good faith duty in Re Smith & Fawcett, see above, para 10.172.03, paid particular
emphasis to the point.
30
‘The words “have regard to” mean “think about”; they are absolutely not about just ticking boxes. If
“thinking about” leads to the conclusion, as we believe it will in many cases, that the proper course is
to act positively to achieve the objectives in the clause, that will be what the director’s duty is. In other
words “have regard to” means “give proper consideration to”… Consideration of the factors will be an
integral part of the duty to promote the success of the company for the benefit of its members as a
whole. The clause makes it clear that a director is to have regard to the factors in fulfilling that duty.
The decisions taken by a director and the weight given to the factors will continue to a matter for his
good faith judgment.’ Margaret Hodge, Commons Report, 17 October 2006, column 789.
31
See the Companies Act 1985, s.309(1).
32
See e.g. Whalley (liquidator of MDA Investment Management Ltd) v Doney [2005] B.C.C. 783.
33
S Griffin, ‘The regulation of directors under the Companies Act 2006’ [2008] 224 Sweet &
Maxwell’s Company Law Newsletter (14 February 2008), 2.
34
Ibid.
9
commercial interests of shareholders. However, other parts of the statutory list
may potentially be contradictory in respect of promoting the future commercial
well being of a company. An obvious example is the impact of the company’s
operations on the community and the environment.35 For example, if a director
takes account of the interests of communities and the environment to the
detriment of generating profits, this may prejudice the commercial interests of
shareholders. 36 This potential difficulty was also highlighted during the
discussion of the CA 2006 Bill in Parliament:37
In many, if not most, cases, the success of the company is

dependent on its ability to continue damaging the environment, and
within a fairly distant time horizon, making large parts of the globe
uninhabitable. The airlines, for example, are spewing enormous
amounts of CO2 and low molecular weight hydrocarbons into the
upper atmosphere, contributing to a rise in temperature which is
likely to result in the melting of the polar icecaps and the raising of
seal levels by 18 meters. How do British Airways, for instance,
"have regard to" this undesirable side-effect of their normal
business? The engine manufacturers may continue to develop
engines with high bypass ratios and better propulsive efficiency,
and turbine inlet temperatures may be increased by surface cooling
and new alloys that retain their properties at higher temperatures,
but these technological advances serve to reduce the unit cost of
air travel—and thus, by expanding the market, paradoxically make
things worse. Friends of the Earth says that, in the UK, passenger
numbers are expected to grow from 200 million a year today to 500
million by 2030, with carbon emissions going up by 100 per cent in
consequence.
It can be seen then that, to some extent, the s.172 duty is not entirely
clear in terms of how success is to be measured in the context of
shareholders’ interests. Will a director really be adjudged in breach of the
s.172 duty if, while generating profits and a healthy dividend, matters relevant
to, for example, the community, environment or future business reputation of
the company are only afforded a negligible or indeed nil consideration?38 This
last point was tested recently in a fascinating case 39 which involved a
challenge by activists to the Government's approach to its ownership of the
Royal Bank of Scotland (RBS) given the Government's own stated policy on
issues such as climate change.40 Mr Justice Sales rejected the application for
35
Ibid.
36
Ibid.
37
Hansard, Grand Committee Official Report, 6/2/2006; coll GC266-267 (Lord Avebury).
38
Ibid.
39
R. (on the application of People & Planet) v HM Treasury [2009] EWHC 3020 (Admin).
40
In April 2008 problems emerged at the Royal Bank of Scotland (RBS), which revealed a fivefold
increase in its leveraged loans to £1.25 billion in just six weeks and its first loss in 40 years, some £692
million, after writing down £5.9 billion of investments. The Government took a 58 per cent stake in
RBS, increasing this to 70.3 per cent of its ordinary shares in April 2009. At the time of writing, the
Government's stake had risen to an astonishing “economic interest” of 84 per cent. The vehicle for the
Government's ownership of RBS was a limited company, UK Financial Investments Ltd (UKFI),
founded on October 10, 2008. See further, S Copp, ‘S. 172 of the Companies Act 2006 Fails People
10
permission to bring judicial review proceedings. He thought HM Treasury had
had regard to environmental and human rights considerations. Further, the
assessment was correct as to how such considerations could be taken into
account by RBS's directors in the context of their duties under s. 172.
Management decisions were, in his view, matters for the RBS directors'
judgment and to have decided otherwise would have given rise to a real risk
of minority shareholder litigation if share value had been detrimentally affected.
While UKFI could properly seek to influence the RBS board to have regard to
environmental and human rights considerations in accordance with their s.
172 duty, it would have been wrong for HM Treasury:
… to seek to impose its own policy in relation to combating
climate change and promoting human rights on the board of
RBS, contrary to the judgment of the Board.41
Echoing some of the language of the assessment,42 he concluded that
to go beyond this would have “cut across” the duties of the RBS board as set
out in s. 172, although he would not go so far as to say that there was an “
absolute legal bar” to the introduction of a different policy.
The case seems to raise an important point, namely, that there does
not seem to be any framework in place to ensure that directors are held
accountable for their decision-making process.43 As it is, there are likely to be
few occasions, if any, where a director is going to have to justify what he did.
Of course, very often, and especially with what might be regarded as the daily
affairs of the company, those constituencies who are mentioned in s.172(1)
will not know what the directors have done, and when they do, it will too late
to do anything that is effective.44 This raises a much wider and fundamental
question, namely, is it safe to rely on voluntary corporate social responsibility?
Lord Avebury touched briefly on this point:
We believe this is far too important and critical an area to be left

to the widely varying attitudes of the boards of 61,000
multinationals, and that the legislation should require them to
adopt minimum best practice…We would invite the Minister to
agree with the OECD that there are only a few cases where
voluntary initiatives, "have contributed to environmental
improvements significantly different from what would have
happened anyway", and also with the World Bank, that
voluntary standards, "are no substitute for a benevolent, well-
informed regulator".45
In responding to criticisms of the lack of practical effect of the duty, Lord

Goldsmith revealed how the (then) Labour Government approached this
and Planet?’ (2010) 31 Company Lawyer, 406.

41
R. (on the application of People & Planet) v HM Treasury [2009] EWHC 3020 (Admin), para [34].
42
HM Treasury, Green Book, 2009, para 13(e).
43
A Keay, ‘Section 172(1) of the Companies Act: An Interpretation and Assessment’ (2007) 28
Company Lawyer 106, 110.
44
Ibid.
45
Hansard, Grand Committee Official Report, 6/2/2006; coll GC267 (Lord Avebury).
11
46
issue:
…company law reform is not a suitable vehicle for our wider

agenda on corporate social responsibility. Issues such as
environmental protection and health and safety are enormously
important, and the Government takes them seriously. We do not
think, however, that they should be addressed through company
law reform.
…we believe that the best way to promote responsible business

behaviour is to show how such behaviour leads to business
success. We hope that people will see that, in some of these
areas, business success ties in and chimes well with having full
regard to some of these considerations.
These clarifications highlighted the absence of rules and regulations

which could serve as benchmarks for the quality and quantity of required
disclosure. The omission of such standards reflected the (then) Government’s
concern not to impose costly reporting obligations on companies, and to leave
much of the nature of reporting to directors’ discretion.47 But as Lord Razzall
commented, in the final Consideration of Commons Amendments in the
House of Lords on November 2006:
we support the NGOs in believing that the Government…ought

to give some indication of what the standard reporting practice
should be, which they have the power to do by regulation. The
whole purpose of this is not only to obtain the disclosure of
information itself, but also to provide a measure by which a
number of ethical investors, or those who wish to invest within
an ethical framework, can obtain comparisons between different
companies. It would be difficult for those ethical comparisons to
be made without some element of standard reporting practice
which I feel can come only from the Government”.48
It was not just the NGOs but also members within the business
community who were concerned about the lack of a clear reporting
standard.49 The Secretary of State was thus keen to draw attention to the
requirement that directors produce an annual report for each financial year
46
47
LC Gordon L. and ERW Knight, ‘Institutional Investors, the Political Economy of Corporate
Disclosure, and the Market for Corporate Environmental and Social Responsibility: Implications from
the UK Companies Act (2006)’ 2008 Industry Studies Conference Paper. Available at SSRN:
48
xxx. This echoed the principal purpose of the EU Modernisation Directive which was to generate a
common reporting standard so as to allow comparison between European traded companies on
financial and non-financial measures. See below xxx
49
LC Gordon L. and ERW Knight, ‘Institutional Investors, the Political Economy of Corporate
Disclosure, and the Market for Corporate Environmental and Social Responsibility: Implications from
the UK Companies Act (2006)’ 2008 Industry Studies Conference Paper. Available at SSRN:
http://ssrn.com/abstract=1123550 , 20
12
that would be available to the public. 50 The obligation to produce such a
report is contained in s.417 of the Act; the report is required to inform
members of the company and help them assess how the directors have
performed their duty to promote the success of the company. The information
that a quoted company must state includes information about environmental
matters, the company's employees and social and community issues.51 This
report would therefore, in theory, enable both shareholders and consumers to
be enlightened as to the company's activities and to make informed choices
thereon. It is probably in taking into account the choice open to investors that
one recognises the objections to the expression "enlightened shareholder
value". Ultimately, it is the consumer and the investor who make choices often
once they are ‘enlightened’ as to a company's activities. If consumers and
investors favour those companies with a greater degree of corporate social
responsibility than others then this is likely to lead to an increase in the value
of shares in those companies. However, there are those who believe that it is
difficult to see how a shareholder can be ‘enlightened’ merely by the
broadening of factors that a director is required to take into account.52
3. The Business Review- background
The CA 2006 links the directors’ duties in part 10 to a company’s reporting

obligations, and the need for directors to consider the company’s impacts in
their decision making. These are found in sections 415 to 419 53 , which
collectively concern the duty to prepare a directors’ report, its content,
approval and signature. Section 416(4) gives the Secretary of State power to
make provisions by regulations as to other matters that must be disclosed in
the directors’ report. Section 417, described as ‘the core of the directors’
report’,54 provides for what must be contained in the business review element
of the directors’ report. More specifically, it requires all companies, other than
small companies, to produce a business review.55 Subsection (2) sets out the
purpose of the review, that is, to inform members of the company and help
them assess how the directors have performed their duty under section 172.
On the face of the matter, this is a declaration rather than a requirement
falling upon the directors. However, this declaration may colour the way in
which the requirements of the remainder of the section need to be met,
perhaps in particular those of subsections (5) and (6).56 Subsections (3) to (11)
then articulate the requirement for the business review but do not do so in any
highly detailed fashion.57 Subsections (3), (4), (6) and (8) specify the content
50
See, e.g., Grand Committee Official Report, 6/2/2006; coll GC126-129.
51
See s.417(5) of the Act.
52
L Linklater, ‘Promoting Successes: The Companies Act 2006’ (2007) Company Lawyer 109.
53
In addition to regulations made under section 416(2) and in section 236.
54
See, Annotated Companies Acts (Oxford University Press, loose-leaf) under 15.415.03.
55
As required by the EU Accounts Modernisation Directive (2003/51/EEC).
56
57
In other words, they are not a checklist of specific matters that should or should not be included.
Given that the requirements apply to a wide range of companies, from owner-managed business to
quoted multi-nationals, and carrying on business across a wide range of commercial activities, it is
entirely understandable that the legislation does not aim at detailed prescription—such an object would
13
of the review. Subsection (5) specifies information that quoted companies in
particular must include in their review where necessary for an understanding
of the company’s business. Where directors of quoted companies have
nothing to report on environmental, employee, social and community matters
or essential contractual or other arrangements, their review must say so.
Subsection (7) exempts medium-sized companies from reporting non-financial
exempts medium-sized companies from reporting non-financial key
performance indicators, an exemption allowed by the EU directive.58
Some believe these duties have been introduced in recognition that

violating social and environmental standards can present a financial risk to the
company. It is argued that this provides some protection for directors who
want to be more proactive in their social and environmental management,
even if there is a potential cost to the company.59 As with all new laws, it will
be mostly up to the courts to determine how this new duty is applied over
time. Generally speaking, directors of companies will be required to be more
conscious of how they manage their social and environmental impacts. In
practice many directors’ reports go beyond the content required by the Act.
For example, certain listed companies are required by the Listing Rules to
disclose in their annual financial report how they have applied the principles of
the Combined Code; 60 whether they complied with the provisions of that code
with any departures explained; and that the company is a going concern with
assumptions or qualifications as necessary.61 Many listed companies include
these disclosures in their directors’ reports.62
4. Section 417 and the business review
As noted above, section 417 of CA 2006 requires certain publicly listed

companies to produce an annual report called a ‘business review’ that
includes information on their social and environmental impacts. The
requirement for companies to produce a Business Review came into force on
1 October 2007.63 The CA 2006 specifically refers to the need to report on the
have been unattainable. See, Annotated Companies Acts (Oxford University Press, loose-leaf) under
15.417.05.
58
Explanatory Notes on the Companies Act 2006, para. 670.
59
A Campaigner’s Guide to the Companies Act, published by The Corporate Responsibility (CORE)
Coalition and the Trade Justice Movement (September 2007), 7.
60
Combined Code on Corporate Governance (Financial Reporting Council, 2006).
61
See Listing Rules LR 9.8.6 (3), (5) and (6).
62
To take another example, auditing standards require the auditor to explain in his report the
responsibilities of directors with respect to the accounts unless the directors have themselves explained
this; most companies (subject to audit) choose to explain this themselves and some choose to put the
explanation in the directors’ report. See, Annotated Companies Acts (Oxford University Press, loose-
leaf) under. 15.415.05.
63
Not all companies will have to report on their social and environmental impacts, only ‘quoted’
companies, that is those that are listed on the main market of the London Stock Exchange and a few
others. The definition of which companies are included and which are not is quite complicated.
According to section 385 of the Act, a “quoted company” means a company whose equity share capital
either: (a) has been included in the official list in accordance with the provisions of Part 6 of the
Financial Services and Markets Act 2000 (c. 8); or (b) is officially listed in an EEA State; or (c) is
admitted to dealing on either the New York Stock Exchange or the exchange known as Nasdaq.
www.opsi.gov.uk/ACTS/acts2006/60046--p.htm
14
following factors where they may have a bearing on the financial performance
of the company: Environmental matters (including the impact of the
company’s business on the environment); the company’s employees; social
and community issues; persons with whom the company has contractual or
other arrangements which are essential to the company’s business.
In other words, what is required is a narrative report of the company’s

business to accompany the figures as shown in the annual accounts.64 The
section is the product of much development in the way in which the
requirement for such a report is articulated, such that the business review now
required is known in practice as the ‘enhanced business review’.65 It arises
both from the debate about narrative reporting conducted by the Company
Law Review and subsequently by the Department of Trade and Industry (now
BIS), including on the occasion of the repeal of the short-lived statutory
operating and financial review (OFR), 66 and from requirements of the so-
called EC Modernisation Directive.67 The background to the business review
deserves a closer examination, not least, as it revels much of the thinking (or
lack of), attitudes and issues which arise in this context.
5. Putting the business review in context68
The Company Law Review proposed a major additional annual reporting

requirement, namely, the Operating and Financial Review (the ‘OFR’). But, as
the following somewhat chaotic chain of events will reveal, the final product
now contained in CA 2006 is a rather muted version of it which lacks the
explicit and clear strategic and forward looking orientation of the OFR. The
idea was to make good the deficiencies of financial reports by providing the
best picture in the directors’ judgement of the performance and prospects of
the business. The Review gave an indication of the key areas which such a
review would necessarily cover, together with a further list of issues directors
would be required to consider for inclusion, the coverage reflecting the areas
This includes the FTSE 100 Index (including HSBC, BP and Vodafone). These publicly trading
companies may have thousands of shareholders, from large institutional investors who manage shares
on behalf of groups such as pension funds or the insurance sector, to individuals. Some sub-markets of
the London Stock Exchange will not have to produce a report (for example those listed on the
Alternative Investment Market (AIM) which includes Domino’s Pizza, M&C Saatchi and Coffee
Republic). Neither will privately-owned companies such as Virgin Airlines and Asda.
64
65
Ibid.
66
The enhanced business review has much in common with the repealed statutory OFR and thus the
Accounting Standards Board’s (ASB’s) best practice Reporting statement—Operating and financial
review (ASB, 2006) will be a useful reference in relation to the enhanced business review.
67
Directive 2003/51/EC at [2003] OJ/L178/16. This directive amended various accounting directives
that, inter alia, set the requirement, in European legislation, for the directors’ report (eg, the EC Fourth
Company Law Directive, 78/660/EEC at [1978] OJ/L222/11, as amended).
68
What follows draws heavily on the account provided in P Davies and J Rickford ‘An Introduction to
the New UK Companies Act: Part II’ (2008) ECFR 239, 251-257. For a fascinating overview of the
background see also: CA Williams and JM Conley, ‘Triumph or Tragedy? The Curious Path of
Corporate Disclosure Reform in the UK’ (2007) 31 The William & Mary Law School Environmental
Law and Policy Review 317.
15
covered by the fidelity duty.69 But this list was not to be a numerous clauses;
directors would be required to include everything they believed in their
judgement necessary for the purpose; great emphasis was placed on the
responsibility of directors to decide what was necessary to give a fair picture
to the users of the document. The result would be similar to, but much less
rule-bound, than the US SEC Management Discussion and Analysis
Regime.70
It was envisaged that new standards would be developed for such

reviews, establishing for example a best practice on reporting on carbon
emissions. But the principle was adhered to that such standards should be
guidance, but not a shield, for directors, who would remain bound to exercise
their own best judgement on what, and how, to report.71 It was recognised that
the proposal was somewhat experimental. 72 It was envisaged that best
practice would develop both generally and in particular companies as their
reports and their subsequent performance and market responses iterated
over the years. 73 This new reporting requirement was endorsed by
Government and adopted largely without change in early 2005, as urgently
required in advance of the main legislation, by regulations amending the 1985
Act. 74 The main change was that the OFR was to be addressed to
shareholders rather than users at large and the “safe harbour” was rejected,
on the ground that it might inhibit the preparation of forward-looking OFRs.75
While apparently significant, it is doubtful whether the former change made
much difference in practice except perhaps in establishing a more limited
scope of potential liability. 76 The reason why the effect was probably little
altered is that the OFR continued to be required to be published and directors
were bound to have to consider the overall impact of the document on the
company and on wider opinion, not least because in its preparation they
would be bound by their fiduciary duties, including their duty to have regard to
the company’s reputation.77The Bill as introduced in November 2005, which
69
P Davies and J Rickford, 252.
70
P Davies and J Rickford, 252. The proposal developed and built on the existing Accounting
Standards Board nonmandatory guidance on such reviews which was widely but incompletely adopted
by the best practice. See CLR Final Report I, paragraphs 8.29– 8.71.
71
P Davies and J Rickford, 253.
72 But as Davies and Rickford report, not entirely so – the Accounting Standards Board had issued a
best practice statement which many leading companies followed at least in part. This was updated in
2003. See Operating and Financial Review Accounting standards Board Ltd., London, 2003.
73
A “safe harbour” provision, shielding directors from liability, but not from the obligation to produce
the report, nor from civil enforcement by the Financial Reporting and Review Panel, was proposed See,
Final Report I, paragraphs 8.38, 8.64– 8.67. This Panel, which is part of the Financial Reporting
Council, has a statutory authority to review company reporting and in particular to require restatements
of annual reports where breaches of the rules are found – see now Act sections 456 – 457 and
Companies (Revision of Defective Accounts and Reports) Regulations 2008/373.
74
Companies Act 1985 (Operating and Financial Review and Directors’ Report etc) Regulations 2005
SI 2005/1011.
75
2nd White paper, 146–147CLR. Its scope was also limited to quoted companies –section 234AA.
The CLR favoured coverage of all companies “with significant economic power” including private
company subsidiaries of international groups. Final Report I, paragraphs 3.44 and 8.57.
76
P Davies and J Rickford ‘An Introduction to the New UK Companies Act: Part II’ (2008) ECFR 239,
253.
77
Ibid, 254. see section 172(1)(e).
16
became the 2006 Act, effectively restated these provisions.78 Under the 1985
Act the OFR was to be:
a balanced and comprehensive analysis.. of the development

and performance of the business during the year and the
company’s position at the end of it”.. covering “the main trends
and factors underlying the present, and likely to affect the
future, development, performance and position .. so as to
assist the members to assess the strategies adopted and their
likely success”, including, “to the extent necessary”,
environmental matters, employee related information, social
and community matters and essential contractual and other
arrangements, and receipts from and returns to shareholders.
Any omission of these was to be stated. Coverage of employee and

environmental matters with, where appropriate, key performance indicators,
was mandatory.79
6. Abandonment of the OFR
A few days later there was an astonishing development, which perhaps

illustrates the importance of maintaining consensus in company law reform,
and the difficulty of managing the strong cross-currents of political and
business opinion which underlie the field of company governance. 80 In a
speech to the British Confederation of British Industry (CBI) annual
conference 81 the then Chancellor of the Exchequer, Gordon Brown MP,
announced that he/the Government had decided to abandon the OFR
proposal, together with certain other regulatory burdens. The reaction was
probably not as supportive as Mr Brown might have expected. The provisions
were the result of 7 years of careful consultation and represented the
consensus of widely diverging views, from environmental non-government
organisations and trades unions, on the one hand, to the Institute of Directors
and the Confederation of British Industry, on the other. Many companies were
already preparing their reviews for the current year and had incurred
significant expenditure and opportunity cost. Nor was the criticism confined to
non-business constituencies. The statutorily recognised Accounting
Standards Board had already prepared the relevant reporting standard, which
it clearly strongly supported. 82 The investor community also strongly
supported the OFR and the step was even criticised, as “clumsy” and “plainly
not an optimal” way of dealing with the “sensible compromise” reached, by the
head of the Government’s own Better
78
Company Law Reform Bill 2005, Clauses 393 to 395; UK Parliament, House of Lords,
HL Bill 34, 1 November 2005.
79
There was to be cross-reference, with explanation, to the financial accounts – cf section 234AA and
Schedule 7ZA of the 1985 Act, as amended by the Companies Act 1985 (Operating and Financial
Review and Directors’ Report etc) Regulations 2005, SI2005/1011, regs. 8 and 9.
80
254.
81
On 28 November.
82
Operating and Financial Review, Financial Reporting Council, London, May 2005. This was
withdrawn and converted into a “statement of best practice”.
17
Regulation Task Force.83
The Chancellor’s main criticism of substance, namely, that the

provisions represented a “gold-plated” over-implementation of the business
review to be inserted in the directors’ report under the EC Accounting
Modernisation Directive, seems to have stemmed from a misunderstanding.84
The OFR proposals long pre-dated the Directive, which itself may well indeed
have been influenced by them. The OFR was designed to serve wider
purposes as part of a balanced package of governance reforms and to
complement the fidelity duty. After some delays85 and further consultation the
relevant clauses were removed from the Bill and the already existing
provisions repealed. 86 The business review provisions, however, covered
much of the ground of the OFR and the implementation of them inserted in
the Bill by Department of Trade and Industry ministers bore a remarkable
resemblance to the OFR provisions which had been removed.87 Two further
important concessions were made. First, a safe harbour was, after all,
added. 88 Second, in the final parliamentary stages provision was added
reinstating coverage of relations with those contracting with the company,
particularly company suppliers, where those arrangements were essential to
the company. 89 It remains to be seen how much of the OFR proposal will
survive in practice. It is clear that the accounting standards board continues to
support it as matter of best practice. The International Accounting Standards
Board is also considering the field of narrative and forward-looking reporting
and there are indications of significant continuing support and pressure for
broader OFR type reporting. For those who support this trend the indications
remain favourable.90
Perhaps more important, as practice develops the final version of the

directors’ business review provisions in the Act may well produce something
83
J Eaglesham and N Timmins, ‘Brown Criticised for Abolishing Operational and Financial Reviews’,
Financial Times, 5 December 2005.
84
255.
85
Caused by successful judicial review challenge by Friends of the Earth and others, asserting the
decision had been made without adequate consultation; see B Jopson, Strong Support for Operating
Reviews, Financial Times, June 26 2006.
86
SI 2005/3442, December 2005.
87
255.
88 Now section 463, restricting liability for false and misleading statements in directors’ reports to
those known to be untrue or misleading, or recklessly so, and in the case of omissions to dishonest
concealment of a material fact. But civil penalties and criminal offences are excluded from this
exemption.
89 Section 417(5)(c) with a public interest exception, probably of little or no practical
significance, in section 417(11). This late addition aroused strong feelings on both sides
of the debate – see Hansard, Commons, October 18, 2006, Vol.450 cols 881– 919 and
Lords, November 2, 2006, Vol 686 cols. 453 – 474 and Leader, How the DTI Turned Support into
Suspicion, and J Eaglesham, Blair Steps into Row over Company Law,
Financial Times 26. 10. 2006, 16.
90
See B Jopson Strong Support for Operating Reviews, Financial Times June 26 2006
reporting an IR Magazine survey – “more than 3/4 of investors and financial analysts
want companies to publish full OFRs in spite of the government’s last minute decision”.
18
very little different from the OFR. 91 As we saw, the statutory objective
prescribed for such reviews is ‘to inform members of the company and help
them assess how the directors have performed their duty under section
172’. 92 Thus the Review’s intended relationship with the fiduciary duties is
confirmed. As will be seen below, the business review must also provide a fair
review of the company’s business and describe the principal risks and
uncertainties facing it, and provide a balanced and comprehensive analysis of
development and performance during the year and position at the end of it,
including key performance indicators where necessary. 93 All this is direct
implementation of the directive. But the Act adds to the directive requirements
additional requirements for quoted companies: there must be coverage, to the
extent necessary for an understanding of the development, performance or
position of the business, of the main trends and factors likely to affect
development, information on the environment, employees and community and
social issues (including related company policies and their effectiveness) and,
as already noted, contractual and other arrangements. In a light form of a
“comply or explain” obligation, if any of these factors are not mentioned (sc.
because the directors do not believe this is necessary for enabling the
relevant understanding) the report must state that fact.
It appears then this set of requirements lacks the explicit and clear
strategic and forward looking orientation of the OFR but the requirements look
remarkably similar at the end of the day.94 It will be difficult to produce an
honest performance review without covering much the same ground as would
have been required for the OFR.95 In short, what promised to be a strangling
of the OFR at birth now more resembles the proverbial storm in a teacup.96
91
256.
92
See further below under E.
93
Section 172(3), (4) and (6). See further below under E.
94
A comparison of the 1985 Act provision inserted in 2005 with section 417 as it applies to quoted
companies shows a very large proportion of common ground and a strong overlap even of objectives.
95
Moreover on 18 October 2006 the DTI minister, Margaret Hodge MP, gave an undertaking that “if
the law does not work in the way we intend it” there would be a government review two years after the
implementation of the business review provisions. see, J Eaglesham, Government Cracks Down on
Corporate Accountability, Financial Times 19 October 2006, 3.
96
To use the words of P Davies and J Rickford ‘An Introduction to the New UK Companies Act: Part
II’ (2008) ECFR 239, 257.
19
D. Traditional interpretations and usage of the term ‘the environment
The purpose of this Section is to look at traditional interpretations and usage

of ‘the environment’ beyond the realm of company law. As the discussion will
make clear, the brief analysis raises the question, to be discussed in the
following Section, whether it is possible to include such an intangible notion
within the CA 2006.
1. Defining ‘the environment’
At the very heart of this paper lies the issue of the inclusion of the term
‘environment’ within the CA 2006 and its ramifications. For an environmental
lawyer, providing a singular, tangible definition of the ‘environment’ has
traditionally proved to be an unenviable and impracticable task. Similarly,
legal scholarship in this field has historically recognised the difficulty in
reconciling the various competing factors, which are required to be
amalgamated within a single expression. However, for the purposes of this
study, demarcation of the boundaries of traditional usage, legal interpretation
and general understanding, will allow for a more detailed consideration of the
effects and the ultimate identification of any discernable benefits or
shortcomings within the CA 2006.
2. Existing definitions of the environment
The plethora of online and paper-based dictionaries provide a variety of

definitions of the term ‘environment’, ranging from ‘the condition under which
any person or thing lives or is developed’97, to ‘the natural world, especially as
affected by human activity’98 and the ‘the complex of physical, chemical, and
biotic factors (as climate, soil, and living things) that act upon an organism or
an ecological community and ultimately determine its form and survival’. 99
These varied definitions serve to highlight the difficulty that has been
traditionally encountered in providing a singular definition, as well as
emphasising the broad characteristics that the environment embodies. These
definitions also accentuate the interrelationship between the human and
nature, as Sands suggests they share ‘both the features and the products of
the natural world and those of human civilisation’.100
The existing body of environmental law, at both the national and supra-
national level, includes numerous definitions of the term and posit various
interpretations of what constitutes the environment. The UK’s Environmental
Protection Act 1990 states that the environment:
97
Oxford English Dictionary Online.
98
Compact Oxford English Dictionary.
99
Merriam-Webster Online Dictionary.
100
P. Sands, Principles of International Environmental Law (Cambridge, Cambridge University Press,
2003) 15
20
‘..consists of all, or any of the following media, namely, the
air, water and land; and the medium of air includes the air
within buildings and the air within other natural or man-made
structures above or below ground’.101
This definition highlights the various constituents, which make up the

environment as human beings would traditionally view it; however it does not
include an explicit reference to their inclusion within this milieu; as Alder and
Wilkinson have noted; ‘living things within the media are not part of the
environment, but may have interests that are affected by the state of the
environment’.102 The exclusion of the human from the scope of the term is
further evidenced in the European Directive on access to environmental
information.103 The Directive defines ‘environmental information’ by reference
to information on:
‘(a) the state of the elements of the environment, such as air

and atmosphere, water, soil, land, landscape and natural sites
including wetlands, coastal and marine areas, biological
diversity and its components, including genetically modified
organisms, and the interaction among these elements’.104
Once again reference is made to individual natural or scientific

taxonomies, such as soil, water, land and air; but without reference to
anthropocentric concerns or their interaction with humankind.
The EU Directive on Environmental Impact Assessment (EIA) 105

provides a more detailed definition of the environment, which Stookes has
suggested, ensures that the scope of the process is not limited106. Here a
broad definition is employed, for an environmental assessment is to be based
upon its direct or indirect effects on ‘human beings, flora and fauna; soil,
water, air, climate and the landscape; natural assets and the cultural heritage
and the interaction between the factors……’.107 This definition represents a
more holistic view of the environment, one which incorporates a wide range of
natural and social elements and clearly includes anthropocentric constructs.
In this definition there has been a clear attempt to recognise the interplay
between the pure ecological or natural spheres and the realm of the human.
Attempts to define the environment may also be found in international

laws, where a similar approach may be observed. The definition of adverse
effects upon the environment found in the Climate Change Convention 108
includes ‘changes in the physical environment or biota, resulting from climate
101
Environmental Protection Act 1990, Part I, Section 1(2).
102
J. Alder and D. Wilkinson, Environmental Law and Ethics (London: Pallgrave Macmillan, 1999) 8.
103
Directive 2003/4/EC of the European Parliament and of the Council on public access to
environmental information and repealing Council Directive 90/313/EC.
104
Ibid, Article 1(a).
105
Directive 85/337/EEC on the assessment of the effects of certain private and public projects on the
environment (as amended by Directive 97/11/EC).
106
P. Stookes, ‘Getting to the Real EIA’ [2003] 15(2) Journal of Environmental Law 141, 142.
107
Directive 85/337/EEC, Article 3.
108
United Nations Framework Convention on Climate Change 1992.
21
change which have significant deleterious effects on the composition,
resilience and productivity of natural and managed ecosystems, or on the
operation of natural and managed ecosystems or on the operation of socio-
economic systems or human health and welfare’109. This definition includes a
broad range of characteristics ranging from physical and natural media,
through to the anthropocentric concerns of ‘socio-economic systems’ and
‘health and welfare’.
3. Influence of ‘environmental law’
Emerging principles and discernable shifts in direction within contemporary

environmental law may also influence the ways in which the ‘environment’ can
be defined. Historically, environmental law concerned itself with the regulation
of resources and of localised pollution, for in times past, the environment was
merely ‘the instrument by which the community achieves its economic
objectives’ 110 . Over time however, environmental law has evolved to
recognise the inherent value of the environment, as well as the dangers of
overexploitation and the vulnerability of particular ecosystems and habitats.
The need to protect natural resources and environmental functions has shifted
beyond purely anthropocentric concerns, towards recognising the
fundamental value of the environment for its own sake.
Susan Emmenegger and Axel Tschentscher 111 have proposed three

separate stages, which may be seen to characterise the development of
environmental law. The first is epitomized by the exploitation of nature and
natural resources; any legislative protection afforded is solely for mankind’s
benefit. The second stage sees the inclusion of the concept of
intergenerational equity and the notion that legislation may provide
environmental benefits for future generations; whereas the third stage
provides an assertion of nature’s worth unfettered by human ideals and
values. This final stage recognises non-anthropocentric values and suggests
a paradigm-shift in environmental law112; new environmental legislation must
be ‘inoculated with ecological considerations’ 113 . In light of these
developments however, some scholars suggest that examples of this type of
legislation are few and far between and that much environmental law ‘remains
antithetical to ecological precepts’114
A more holistic understanding of the environment, typified by modern

environmental regulation, has lead to a more integrated approach with a
greater recognition of the effects polluting activities are having across a range
109
Ibid, Article 1(1).
110
D. E. Fletcher, ‘The principles of a contemporary environmental legal system’ 15 [2003] 6
Environmental Law and Management 347.
111
S. Emmenegger and A. Tschentscher, Taking Nature’s Rights Seriously: The Long Way to
Biocentrism in Environmental Law 6 [1994] Georgetown Environmental Law Review 545.
112
Ibid, page 568
113
G. Winter, Perspectives for Environmental Law – Entering the Fourth Phase [1989] 1(1) Journal of
Environmental Law 38, 45.
114
J. Holder and M. Lee, Environmental Protection: Law and Policy (Cambridge, Cambridge
University Press, 2007) 4.
22
of natural media. 115 An integrated approach has recognised the interplay
between the individual environmental constituents, as well as highlighting the
need to adopt a sustainable approach when making decisions relating to
environmental development.116
4. Is it possible to produce a single definition?
Providing a singular definition of the term ‘environment’ remains in many

instances unfeasible, however some more generalised assumptions and
characteristics may be discerned. One of the most frequently cited criticisms
is that the very term environment has inherently ‘external connotations’117. It
has been viewed as symptomatic of a wider ‘malaise’, which embraces merely
anthropocentric concerns and sets humankind apart from nature 118 , many
examples of which may be found in the definitions considered above and
elsewhere in both national and supranational legislation. In earlier definitions,
legislators focused upon the relevant aspects and environmental media which
offered human benefits, as a result these definitions are profoundly subjective.
Alder and Wilkinson 119 emphasise that the environment is a ‘socially
constructed idea’ and that all humans give the environment ‘meaning’
depending upon predisposed beliefs and purposes; as such we inhabit many
different environments.
Emerging trends in environmental law would suggest however, that

there is greater recognition of the intrinsic value of nature and that what is
actually required is a greater ecological focus to law-making. Although few
examples of true legislative biocentrism exist, of the type suggested in the
third stage of Emmenegger and Tschentscher’s critique,120 there has been a
distinct move towards legislation which goes beyond pure anthropocentrism.
In achieving legislation of this sort, human involvement within a given
environment must be reconciled with recognition of the fundamental value of
that environment itself. Such ecologically focussed legislation would require a
definition of the term, which encapsulates both anthropocentric and non-
anthropocentric values without issues of hegemony and hierarchy.
The International Court of Justice has stressed, in the following terms, the
great significance that it attaches to respect for the environment, not only for
States but also for the whole of mankind:
"the environment is not an abstraction but represents the living

space, the quality of life and the very health of human beings,
including generations unborn. The existence of the general
obligation of States to ensure that activities within their jurisdiction
and control respect the environment of other States or of areas
115
See A. Waite, The quest for environmental law equilibrium, 7 [2005] Environmental Law Review
34, 35
116
note 14 above, at page 348 .
117
note 17 above, at page 38
118
J. Holder, New Age: Rediscovering Natural Law (2000) 53 Current Legal Problems 151, 159
119
note 6 above, at pages 8-9
120
note 15 above
23
beyond national control is now part of the corpus of international
law relating to the environment."121
The protection of environment became a central concern of international law.

Assuming planetary dimension, the international legal system now deals with
issues such as approaches to global warming and ‘the layer atmospheric
ozone above the planetary boundary layer”. 122 The development of
international law in terms norms and standards for the protection of the
environment is illustrated in the decision of the international Court of Justice in
case concerning the Gabcikovo-Nagymaros project:123
Throughout the ages, mankind has, for economic and other

reasons, constantly interfered with nature. In the past, this was
often done without consideration of the effects upon the
environment. Owing to new scientific insights and to a growing
awareness of the risks for mankind -for present and future
generations - of pursuit of such interventions at an
unconsidered and unabated pace, new norms and standards
have been developed, set forth in a great number of
instruments during the last two decades. Such new norms
have to be taken into consideration, and such new standards
given proper weight, not only when States contemplate new
activities but also when continuing with activities begun in the
past. This need to reconcile economic development with
protection of the environment is aptly expressed in the
concept of sustainable development.
121
Legality of the Threut or Use of Nuclear Weapons, Advisoty Opinion, I. C. J. Reports 1996, pp. 241
-242, para. 29.
122
The Earth's surface has many profound effects on the atmosphere that impact our ability to
understand and predict its behavior. The rain that falls on your house originally evaporated from the
surface (the ocean, a lake, or even a tree), and much of the heat that we receive from the sun is first
absorbed at the Earth's surface and is then transferred to the atmosphere. The lowest portion of the
atmosphere (from surface to about 1 to 2 km high) is where surface effects are most evident. This
region is known as the atmospheric boundary layer of our planet, or the planetary boundary layer or
simply "boundary layer". The different ways in which the surface interacts with the boundary layer or
the boundary layer responds to the surface are called surface and boundary layer processes. This
heading also includes interactions between the boundary layer and the rest of the atmosphere.
123
Case concerning the Gabcikovo-Nagymaros project (Hungarislovkia), I. C. J. Reports 1997, ( 25
September 1997), 75. available at:
http://www.icj-cij.org/docket/index.php?p1=3&p2=3&code=hs&case=92&k=8d
24
E. The term ‘environment’ for the purposes of the CA 2006:
Can a consistency be found?
As was saw in the previous Section, providing a singular definition of the term
‘environment’ remains in many instances unfeasible. The purpose of this
section is to try and see whether it is possible to define the term ‘environment’
for the purposes of the CA 2006. As will be seen, this is a rather complex
task. In the second stage thus, and in the absence of quantifiable or
qualitative definition, the Section examines whether there are parameters
which could delineate this term within CA 2006, for example, by reference to
comparative legislation, both domestically and internationally.
1. Section 417 Analysis: The Devil is in the Details (or lack of…)
As we saw in Section B above, section 172(1) of the CA 2006 requires a

director of a company to act "in the way he considers, in good faith, would be
most likely to promote the success of the company for the benefit of its
members as a whole". A director is specifically required to have regard to a
non-exhaustive range of factors in accordance with s.172(1)(a)–(f).124 These
include in (d) ‘the impact of the company's operations on the community and
the environment’.
S. 417 sets out the obligation to produce a report which is required to

inform members of the company and help them assess how the directors
have performed their duty to promote the success of the company. 125 This
report would therefore, in theory, enable both shareholders and consumers to
be enlightened as to the company's activities and to make informed choices
thereon. However, things are not as clear as we explore next. The first
substantive requirement of the section is that of subsection (3) as amplified by
subsection (4). The relationship between the two is not, however, entirely
clear.126 Subsection (3) requires that the ‘business review’ must contain a ‘fair
review’ of the business and a description of the risks and uncertainties faced.
Subsection (4) then makes further provision about ‘the review’. 127 It is not
clear whether this refers to the ‘business review’ of subsections (3)(a) and (b)
or only the ‘fair review’ of subsection (3)(a). Indeed, the risks and
uncertainties facing the company can be an inherent part of both the
performance during the year and the position at the end of the year. Thus
taking subsections (3) and (4) together the intent may appear to be to require
124
125
Section 417 (2) reads: ‘the purpose of the business review is to inform members of the company and
help them assess how the directors have performed their duty under section 172 (duty to promote the
success of the company).
126
127
i.e. that it be balanced, comprehensive, and cover the business’s development, performance, and
position.
25
disclosure of the business’s development, performance, and position at the
end of the year including risks and uncertainties faced.128
Subsection (4) also require that the review must be balanced and
comprehensive.129 Likewise, the analysis needs to be consistent with the size
and complexity of the business. Thus, that for a multinational conglomerate
may be in greater detail and of greater length than that of a company with a
single and unsophisticated line of business in the UK.130 Interestingly, the risk
and uncertainties inherent in the position of the business at the end of the
year will require an element of forward-looking disclosure, a point also noted
in a DTI (later became DBERR and now BIS) publication on the business
review.131
In compiling the review required by subsections (3) and (4), subsection

(6) requires the use of key performance indicators (KPIs), both financial
KPIs 132 and, for companies other than those that are medium-sized, KPIs
relating to environmental and employee matters. Non-financial KPIs might
deal with, for example, carbon emissions or staff turnover. The particular KPIs
used are left to the discretion of the directors. They must be factors that are
effective in measuring the development, performance, or position of the
business. Moreover, KPI analysis is required only to the extent necessary for
an understanding of the development, performance, or position of the
business. Thus if the use of KPIs does not, in the directors’ judgment, add
anything to the understanding of the development, performance, or position of
the business otherwise successfully conveyed by the business review, then
KPIs need not be used; however, in most practical circumstances it is difficult
to envisage a meaningful discussion of performance without the use of key
measures.
In connection with non-financial KPIs, the DTI draws attention 133 to

Environmental key performance indicators: reporting guidelines for UK
business (DEFRA, 2006), and Accounting for people: report of the task force
on human capital management.134 For a quoted company subsection (5) gives
yet further specification in three areas. 135 First, subsection (5)(a) gives a
strong forward-looking aspect to the review (trends and factors affecting the
future). Second, subsection (5)(b) specifies environmental, employment, and
social and community issues for potential coverage; that coverage would
128
129
Ibid, 15.417.07.
130
Ibid.
131
Guidance on the changes to the Directors’ report requirements in the Companies Act 1985 (DTI,
2005), which provided guidance on the application of CA 1985, s 234ZZB(2) and (3). The
requirements of s 234ZZB included the equivalent of the current subs (4). Ibid.
132
Financial KPIs might include measures drawn from, or based upon, the annual accounts—for
example, interest cover or gearing—and hitherto unpublished internal measures that the directors use to
monitor performance, for example sales per square foot of retail space. See, Annotated Companies Acts
(Oxford University Press, loose-leaf) under 115.417.08
133
In Guidance on the changes to the Directors’ report requirements in the Companies Act 1985 (DTI,
2005).
134
Presented to the Secretary of State for Trade and Industry, 2003.
135
Annotated Companies Acts (Oxford University Press, loose-leaf) under 15.417.09.
26
include, but not necessarily be limited to, the company’s policies on such
matters and their effectiveness. Third, subsection (5)(c) requires (subject to a
narrow exemption) 136 information about persons with whom there are
contractual or other arrangements essential to the business.
It is noteworthy that all of the matters identified by subsection (5) are

required only to the extent that they are necessary for an understanding of the
development, performance, or position of the business. Whether such
information is necessary for an understanding of the business can only be
judged in relation to the specific business in question. Thus the onus falls
upon the directors of the company in the first instance to determine the extent
to which the information noted in subsection (5) is necessary. With respect to
environmental, employment, and social and community issues, and
contractual and other arrangements, even if it is judged that information upon
these issues is not necessary, the business review cannot be silent upon
them. Rather, the subsection requires the review to state that it does not
cover those matters—in effect an overt assertion by the directors that such
matters are not necessary for an understanding of the business.
It is also interesting to consider the positions of quoted companies and

unquoted companies including medium-sized companies. A quoted company
must include the subsection (5) and (6) information to the extent necessary for
an understanding of the business; and an unquoted company is not subject to
subsection (5) or, if medium-sized, to the subsection (6)(b) requirement for
non-financial KPIs. 137 The implication for an unquoted company is that,
apparently, it need not include subsection (5) type information even where it
would be necessary for an understanding of the business; and for a medium-
sized company that it need not include non-financial KPI’s even where they
would be necessary for such an understanding.138 Thus whilst the legislation
appears to expect less of an unquoted company and even less of one that is
medium-sized, nevertheless due to the subjective terms in which the section
is framed and the potential for overlap among the provisions of subsections (2)
to (6), the legislation is unclear; thus unquoted and medium-sized companies
may need, to some extent, to provide disclosure that goes further than the
apparent minimums in subsections (6) and (6)(a) respectively.139
Indeed, the DTI itself has in effect drawn attention to the absence of
clear dividing lines between the different provisions. At a time when the OFR
had been repealed, and when what are now the subsection (5) trends-and-
factors etc requirements had not yet been introduced, the DTI stated that:
136
The disclosures required by subsection (5)(c) may occasionally prejudice the person of whom it is
made. In order to avoid this, subsection (11) permits a company to avoid disclosure where two
conditions are met: first, the disclosure must be seriously prejudicial to that person (not the company);
and, second, the disclosure would be contrary to the public interest. Thus, the circumstances in which
this exemption is available are very limited. The example given by the Government, on the introduction
of this exemption, was in relation to persons at risk from ‘animal rights activists’, Hansard, HL, vol 686,
col 456 (2 Nov 2006). Ibid, 15.417.12.
137
Ibid, 15.417.10.
138
Ibid.
139
Ibid.
27
the OFR specified in detail additional areas in respect of
which disclosures might be required. These areas included
trends and factors likely to affect the future development,
performance and position of the business, and information
about environmental, employee, social and community
issues and policies. Companies producing a business
review are not specifically required to make disclosures in
as many additional areas, but will need to considering [sic]
doing so where information is material to understanding the
development, performance and position of the company,
the principal risks and uncertainties facing it, or to provide
an indication of likely future developments in the business
of the company. Moreover, key performance indicators
must be used where appropriate (including specifically
those relating to environmental and employee issues).140
It has been suggested that companies might be expected to report to

their shareholders on measures for reducing carbon dioxide emissions; staff
retention, diversity and training; the human rights implications of their activities;
and supply chain issues (including the environmental and human rights
standards of other companies of which they own all or part).141 The date these
reports are released will vary, depending on a company’s financial year.
Perhaps the main point to note at this stage is that there are currently no set
reporting rules in place. This means that companies can report in the way
they like so long as they do not leave out any important information. 142
Interestingly, the Government has agreed to review in 2009 how successful
social and environmental reporting by companies has been.
The National Association of Pension Funds (NAPF) usefully

summarized what shareholders will wish the Review to contain: 143 Be
comprehensive but succinct, signposting more detailed information in others
parts of the annual report; Take a longer-term perspective; Contain pointers
toward future development; Be easily understandable; Present good and bad
news in an even-handed way; Be comparable over time; Complement the
financial statements.
140
Guidance on the changes to the Directors’ report requirements in the Companies Act 1985 (DTI,
2005).
141
See further, “Accounting for people: report of the task force on human capital management” (2003)
www.accountingforpeople.gov.uk
142
CORE and the Trade Justice Movement do not believe this approach will adequately improve the
transparency of corporations. See, A Campaigner’s Guide to the Companies Act, published by The
Corporate Responsibility (CORE) Coalition and the Trade Justice Movement (September 2007), 8.
143
Corporate Governance Policy and Voting Guidelines (November 2007) issued by the National
Association of Pension Funds (NAPF), para 3.2 available at:
http://www.napf.co.uk/DocumentArchive/Policy/Corporate%20Governance/20071126_Corporate%20
Governance%20Policy%20and%20Voting%20Guidelines%20-%20November%202007.pdf
28
2. Section 172 V. Section 417: lack of consistency
As we have seen, sections 172 and 417 are clearly linked and ‘work’ in
tandem in the sense that section 417 implements the requirements imposed
by section 172. 144 That said, as Table A below shows, there are some
differences in the terms used in both sections which raise the question
whether enough thought has been invested in drafting them or whether they
are simply a reflection of the changes put in each (as discussed above) at a
very late stage in Parliament, without a proper reflection of the nuances and
implications of these discrepancies.
TABLE A
s. 172 s. 417
(d) the impact of the (b) information about:

company’s operation on the (i) environmental matters (including
community and the the impact of the company’s business
environment; on the environment),
…. and
(iii) social and community issues,
(d) the environment (b) (i) environmental matters
Three major differences are noteworthy. First, as can been seen in Table A,
whereas in section 172 (d) uses the term ‘the impact on the environment’, ‘the
impact on the environment’ is part of ‘environmental matters’ in section
417(b). Secondly, whereas section 172 (d) uses the term ‘the impact of the
company’s operation’, section 417(b) refers to ‘the impact of the company’s
business’. Finally, whereas ‘the environment’ is linked or at least appears
together with ‘community in section 172, under section 417 ‘environmental
matters’ appear separately ((b)(i)), whereas ‘community issues’ are separate
((b)(iii)) and are here linked with social matters.
It is likewise clear from Table A that a central facet is understanding ‘impact’.

The next step is thus to consider what the meaning of ‘impact’ is.
3. The meaning of ‘impact’
According to Blowfield & Murray there are five dimensions on which corporate
responsibility seeks to have an impact:145
144
Recall that s.417 states that its purpose is to “help them assess how the directors have performed
their duty (to promote the success of the company) under s.172”.
145 M Blowfield & A Murray Corporate Responsibility: A Critical Introduction (OUP, 2008, Oxford),
xxx.
29
1. The ‘Big Picture’ i.e. large social and environmental issues including global
warming.
2. Instrumental benefits, meaning the connection between financial
performance and social and environmental performance, including the impact
of making the business case for corporate responsibility.
3. Business attitudes, awareness and practices. In other words, the impact
that corporate responsibility is having on the way in which companies think
about non-financial aspects of business operations and the way that they
operate.
4. Non-business stakeholders: the impact of corporate responsibility on other
stakeholders including those who argue for greater social and environmental
responsibly.
5. The impact of corporate responsibility on itself. This covers the way in
which corporate responsibility's evolution and growth has affected how we
think about and practice corporate responsibility today.
Blowfield & Murray point out that ‘impact’ in its most general sense
refers to outcomes associated with particular actions.146 This helps to highlight
two important points. First, it draws attention to the importance of outcomes
(as opposed to outputs); and secondly, the significance of causality. However,
as they point out, discussions of impact often confuses ‘outputs’ for
‘outcomes’ and although the two overlap in some contexts, in fact, ‘output’ is
narrower referring to the specific actions that are needed to achieve a larger
result where as ‘outcome’ is the larger result itself. 147 But what is the
significance in thinking in terms of actions rather than outcomes?
4. Are there parameters which could delineate this term within the Companies
Act 2006?
In the absence of quantifiable or qualitative definition, are there parameters

which could delineate this term within the Companies Act 2006? Recent
developments in corporate and environmental regulations in the US148 may
help to shed some light on this.
The 2002 introduction of the Sarbanes-Oxley Act 149 (hereafter

‘Sarbanes-Oxley’) increased the pressure on corporate management to
ensure the disclosure of all material financial information, including material
environmental liabilities, 150 to investors in conformance with SEC
requirements. 151 One of Sarbanes-Oxley's primary purposes is the
establishment by management of information collection, and Disclosure
146
XXXX
147
For example, an environmental report is an output, not an outcome.
148
This section draws heavily on M Viscuso, ‘Scrubbing the Books Green: A Temporal Evaluation of
Corporate Environmental Disclosure Requirements’ 32 (2007) Delaware Journal of Corporate Law
879.
149
Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (codified in scattered sections of
11, 15, 18, 28 & 29 U.S.C.)
150
See GAO-04-808, supra note 20, at 8. Memorandum from Mary K. Lynch & Eric V. Schaeffer to
151
W Walsh et al., ‘New Initiatives to Encourage Disclosure of Environmental Costs
and Liabilities, 34 Env't Rep. (BNA) 217, 228 (Jan. 24, 2003).
30
controls and procedures. Under Sarbanes-Oxley, corporate chief executive
officers (CEOs) and chief financial officers (CFOs) must now ensure that an
internal process is developed for the purpose of identifying and
communicating to management environmental matters that require
disclosure. 152 Because this internal reporting system must be periodically
evaluated for sufficiency of operation, and because CEOs and CFOs are now
required to disclose any deficiencies or fraud in the reporting structure, claims
by management that they were unaware of reporting process deficiencies will
often fall on the SEC's deaf ears.153 The potential exists for Sarbanes-Oxley to
increase the quality and quantity of environmental disclosures. Indeed, such
increases seem required, 154 as a 2001 EPA Policy Memorandum revealed
that seventy-four percent of registered corporations listed no known
environmental liabilities to be disclosed.155
In addition to being subject to increased pecuniary punishment, certain

corporate executives now face the possibility of prison time for failure to
comply with SEC reporting regulations.156 Additionally, it is reported157 that a
recent trend in the federal courts is to premise corporate managers' criminal
liability on mere negligence in their violation of environmental laws. 158 The
lowering of the mens rea necessary to impose criminal liability on corporate
management under environmental regulations, coupled with the imposition of
criminal liability of corporate managers introduced by Sarbanes-Oxley, 159
arguably creates a legal gauntlet of potential jail time for corporate managers
who fail to comply with environmental laws, or who fail to ensure disclosure of
material environmental information to the SEC. 160 It is likewise argued that
successful navigation of this green gauntlet can lead to both tangible and
intangible corporate benefits. 161 Notwithstanding the capital investments
152
15 U.S.C. § 7241 (2002) (discussing the effect of Sarbanes-Oxley on internal corporate
environmental reporting systems in holding corporate officers responsible for financial reporting).
153
15 U.S.C. § 7241 (a)(5) (2002).
154
M Viscuso, ‘Scrubbing the Books Green: A Temporal Evaluation of Corporate Environmental
Disclosure Requirements’ 32 (2007) Delaware Journal of Corporate 879 available at:
155
Memorandum from MK Lynch & EV Schaeffer to EPA Office of Enforcement and Compliance
Assurance (OECA) Office Directors, Guidance on Distributing the “Notice of SEC Registrants' Duty to
Disclose Environmental Legal Proceedings” in EPA Administrative Enforcement Actions (Jan. 19,
2001):
http://www.epa.gov/compliance/resources/policies/incentives/programs/sec-guid-
distributionofnotice.pdf
156
See Sarbanes-Oxley, 18 U.S.C. §§ 1350, 1519 (2002).
157
Disclosure Requirements’ 32 (2007) Delaware Journal of Corporate 879, 883.
158
See, e.g., United States v. Ortiz, 427 F.3d 1278, 1279, 1281 (10th Cir. 2005) (holding an operations
manager criminally liable for a negligent violation of the Clean Water Act, 33 U.S.C. §§ 1311(a),
1319(c)(1)(A) (2000), and failure to obtain a National Pollutant Discharge Elimination System
(NPDES) permit). Consider too that, in addition to Ortiz's twelve month jail sentence, his corporation
(if it were public) would be required to disclose the cost associated with obtaining the required NPDES
permit, and costs associated with altering the company's business practices to comply
with that permit, if these costs were material within the meaning of 17 C.F.R. § 229.101(c)(xii).
159
See Sarbanes-Oxley, 18 U.S.C. § 1350 (2002).
160
161
Ibid.
31
involved in bringing existing environmental practices into compliance, and the
maintenance costs associated with environmentally compliant practices, a
corporate manager would still appear provident to force his corporation into
full compliance, 162 as it would eliminate both the possibility for civil and
criminal penalties arising from environmental compliance statutes and
Sarbanes-Oxley. The result is a huge benefit for investors and an even bigger
one for registrants.163
162
See U.S. GOV'T ACCOUNTABILITY OFFICE, ENVTL. DISCLOSURE: SEC SHOULD
EXPLORE WAYS TO IMPROVE TRACKING AND TRANSPARENCY OF INFORMATION,
GAO-04-808, at 10-11 (July 2004), 35 (discussing the potential benefits in corporate perception
associated with corporate compliance with environmental regulations).
163
32
F. Corporate environmental disclosure: too little, too late?
The purpose of this Section is to look at recent trends in corporate

environmental disclosure and examine whether there has been a marked
improvement in terms of quality and quantity of disclosure. Initial indications
as to how the new requirements in relation to reporting about environmental
issues under the CA 2006 are implemented (or not) in practice will also be
briefly considered. Finally, recent developments in the UK and on the EU front
are looked at.
1. Corporate environmental disclosure: recent trends
Recent studies reveal that the majority of environmental disclosures, both in

the US164 and in other countries,165 lack depth and quality.166 However, some
financial experts, and those in charge of preparing SEC disclosure reports,
say that the existing reporting flexibility is necessary given the diversity of
registrants. 167 Reasons given by pro-registrant stakeholders against
increasing the scope of required environmental disclosures include the fear of
overlapping with current disclosures under existing environmental
regulations; 168 the relative immateriality of environmental information as
compared to management compensation or other purely financial matters;169
the additional reporting burden 170 placed on registrants without any
164
This paragraph draws heavily on M Viscuso, ‘Scrubbing the Books Green: A Temporal Evaluation
of Corporate Environmental Disclosure Requirements’ 32 (2007) Delaware Journal of Corporate 879.
165
See generally Cynthia Williams & John M. Conley, ‘An Emerging Third Way? The Erosion of the
Anglo-American Shareholder Value Construct’ 38 (2005) Cornell International Law Journal 493, 511-
521 (discussing the United Kingdom's struggle to address issues associated with corporate reporting of
environmental and social data).
166
U.S. GOV'T ACCOUNTABILITY OFFICE, ENVTL. DISCLOSURE: SEC SHOULD EXPLORE
WAYS TO IMPROVE TRACKING AND TRANSPARENCY OF INFORMATION, GAO-04-808, at
10-11 (July 2004).
167
Ibid, 15 (identifying arguments made by industry stakeholders that current disclosure requirements
are sufficient to ensure environmental information is reported).
168
ECHO publishes the compliance history of over 800,000 facilities regulated by the Clean Air Act,
the Clean Water Act, the National Pollutant Discharge Elimination System and the Resource
Conservation and Recovery Act ECHO, About the Site, http://www.epa-echo.gov/echo/about_site.html
(identifying several federal regulations that already require disclosures of environmental data).
169
10-11 (July 2004) at 15 ("According to financial analysts with general investment interests,
environmental information is less important than other types of information, such as executive
compensation or the percentage of stock owned by the Board of Directors, in assessing a company’s
condition and its desirability as a potential investment."). However, the author wonders why pro-
registrant stakeholders should make arguments concerning relative importance of accounting
information when the SEC and federal courts have specified countless times that all material
information must be disclosed.
170
Registrants do not want to confound investors. Suddenly, registrants are philanthropic concerning
the withholding of environmental information—that is presumably already in a reportable format,
having purportedly been disclosed as required by various other federal regulations—in SEC disclosure
reports when it seems that the more confusing environmental information contained in a disclosure
report, the more likely it is to be rubber stamped by an SEC reviewer. A more realistic
33
discernable benefit to investors' decision making; and aggregating the
uncertainties associated with the compliance costs of pending environmental
regulations results in increased uncertainty, making the magnitude of the
resulting environmental liability disclosure useless.171
The UK Environment Agency surveyed in 2004 FTSE companies on

environmental reporting and environmental disclosures and found a lack of
meaningful quantified information.172 Although 89% of companies mentioned
some aspect of their interaction with the environment, most disclosures lacked
rigour, depth or quantification. Very little reporting could be described as
comprehensive or even adequate for shareholders to assess the
environmental risks or opportunities facing a company. In 2006 the
Environment Agency investigated the progress made by FTSE All-Share
companies on environmental reporting since the 2004 report.173 It included an
analysis of 100 FTSE All-Share companies’ annual reports. These were the
first 100 companies that had to comply with the revised company law
regulations. It found: an improvement in environmental reporting – 96% of the
companies surveyed mentioned some aspect of their interaction with the
environment. However, their disclosures faced the same criticism levied in the
2004 report, namely a lack of rigour, depth or quantification.
A year later, the KPMG international Survey of corporate responsibility

of 2005174 found that corporate responsibility reporting has risen steadily since
1993 and sustainability since 2005, that the nature of the report has changed
from purely environmental reporting up to 1999, to sustainability reporting,
that industrial sectors with relatively high environmental impact continue to
lead in reporting and finally, that the financial sector (traditionally a low
reporting sector) shows a twofold increase. In 2005, ACCA reported on the
areas in which companies’ reports show weakness:175 Few companies define
what they mean by sustainability and, even if they do, it is not reflected in the
main body of the report; Few companies define the issue they are reporting
and its implications for their business; Reports list different social, economic
and environmental imperatives, but they do not show how the company
resolves conflicts between imperatives (precisely the difficulty which lies at the
heart of section 172 as discussed above); Little consideration is given to the
impact that being a truly ‘sustainable business’ would have on the company’s
operations.
Reports of the judges of the ACCA Awards for sustainability reporting176 in

2006 found that the quality of reporting had not improved significantly since
evaluation might be to call the registrants' arguments pretextual; the intention being the withholding of
sensitive and detrimental information pertaining to the registrants' environmental liabilities.
171
10-11 (July 2004) at 15.
172
http://www.environment-agency.gov.uk/business/topics/performance/32348.aspx
173
http://publications.environment-agency.gov.uk/pdf/GEHO1007BNGJ-e-e.pdf
174
http://www.csrwire.com/press_releases/22823-KPMG-Survey-Shows-Dramatic-Increase-in-
Corporate-Responsibility-Reporting
175
ACCA, 2005. http://www.accaglobal.com/
176
ACCA, 2006; www.accaglobal.com
34
last year. Interestingly, it also found that most reports state in stand-alone
sustainability reports that their contribution to sustainable development is at
the forefront of the business, but that these statements, however, are often
not consistent with strategic statement in the Annual Report and Accounts.
The value of assurance statements was also questionable in many reports. In
response, the judges suggested that reports should be transparent in
specifying the dilemmas and challenges faced, that boundary and scope of
report needs to be clearer, that more disaggregated data is required and that
quality of external assurance statements needs to improve.177
More recently, the KPMG International Survey of Corporate

Responsibility Reporting 2008 178 found that Eighty percent of the Global
Fortune 250 now release corporate responsibility information in stand alone
reports or integrated with annual financial reports, up from 50 percent in the
three years since KPMG last conducted its survey in 2005. 179 The survey
reveals that about half of the Global 250 has detected the business
opportunities of corporate responsibility and report on the business value.
One third of companies cited shareholder value as a driver for reporting. With
these results the KPMG Survey shows that sustainability reporting is now
becoming a mainstream business issue for many of the world's largest
companies – although the level of integration into annual reporting shows
considerable room for improvement.180 Wim Bartels, Global Head of KPMG's
Sustainability Services, noted that:
‘But the true judges of a company's report quality are its
readers…
…Our findings show that stakeholder engagement is
becoming more formalized, but that there is still room for
greater transparency about who stakeholders are and how
their concerns are being addressed.’181
In addition to tracking the increase in reporting and assurance over time,
the KPMG survey examined key topics in reporting such as corporate
177
Ibid.
178
28 October 28 2008 http://www.csrwire.com/press_releases/13790-KPMG-International-Survey-of-
Corporate-Responsibility-Reporting-2008 The "KPMG International Survey on Corporate
Responsibility Reporting" is the most comprehensive conducted on this subject to date. In addition to
the Global Fortune 250, the sample also included the 100 largest companies by revenue in 22 countries.
179
Ibid. It is also reported that national level companies trail the Global 250 with an average of 45
percent issuing reports, but numbers vary widely from country to country. For example less than 20
percent of large companies in Mexico and Czech Republic issue reports, but well over 90 percent of
companies in Japan and the UK do so.
180
Ibid. The survey also looked into assurance trends. The number of companies that utilize formal
assurance with their corporate responsibility reporting made a significant jump to 40 percent in 2008
after holding steady at 30 percent in the 2002 and 2005 versions of the survey. Top drivers for
assurance cited by companies in the sample included improving report quality and reinforcing
credibility among stakeholders.
181
http://www.csrwire.com/press_releases/13790-KPMG-International-Survey-of-Corporate-
Responsibility-Reporting-2008
35
governance, supply chain, and climate change. Key findings from the Global
250 sample on these topics include:182
 92 percent disclose a code of conduct or ethics, but less than 60
percent report on non-compliance with the code
 Over 90 percent have a supply chain code of conduct, but only half
disclose details of how it is implemented and monitored
 60 percent report on new business opportunities associated with
climate change, but 41 percent of the Global 250 and 62 percent of the
100 largest companies by country do not report on their carbon
footprint.
The survey also looked at the process behind reporting to see whether
reporting standards were being used and whether reporting was a part of a
larger strategy and management system for corporate responsibility overall.
Fully three quarters of Global 250 have a corporate responsibility strategy in
place, and the same number use the Global Reporting Initiative (GRI)
Sustainability Reporting Guidelines as the basis for their reporting. Overall,
the Survey found that companies are moving toward a more strategic
approach to corporate responsibility management and reporting, and a
maturing of the practice seems to be occurring. Top drivers for reporting cited
by companies were ethical considerations and innovation – two aspects that
will be key to helping companies steer to success through the challenges in
today's prevailing economic climate.183
2. Has the CA 2006 made environmental and social reporting more effective?
The Corporate Responsibility Coalition (CORE) on April 28 2010 published

research examining FTSE 100 companies' business reviews prepared under
s.417 of the CA 2006.184 In light of the discussion in the preceding sections, it
is not surprising to learn that CORE found that there were three areas where it
was not clear how, if at all, companies were complying with the Act. Only a
minority of companies described how their business review was prepared,
despite s.417 of the Act stating that its purpose is to “help them assess how
the directors have performed their duty (to promote the success of the
company) under s.172”. None of the reports conformed to s.417's requirement
that business reviews should indicate whether there was any information
missing about each of the specified key factors underlying the company's
performance. The survey says there was evidently considerable confusion as
to what a business review actually was. At its worst, this meant that in some
cases, it was not possible to identify the business review.
182
Ibid.
183
Ibid.
184
Copies of the report, The Reporting of Non-Financial Information in Annual Reports by the
FTSE100, can be downloaded from the CORE website at http://corporateresponsibility.org/ftse100-
company-reportsreveal-inadequacy-of-companies-act/ (visited 10 May 2010).
36
According to the report, eight annual reports appeared to have no
identifiable business review section, thus not being compliant with the Act and
certainly outside its spirit. Even where it was possible to identify the business
review, CORE found that there was a wide variety of practices concerning the
status and use of external sources of no financial information. Some
companies referred to more detail on their websites, others referred generally
to their corporate responsibility reports, while yet others made reference to an
internet location at which further detail could be found, according to the report,
although such general references should not be considered a part of a
business review.
3. Reforms in Continuing Disclosure on Non-financial Reporting in the EU and

UK
The EC Commission has recently published a report on the operation of the

Transparency Directive185 accompanied by a public consultation on possible
ways forward to modernise the transparency regime for listed companies.186
Then on 22 November 2010 the European Commission launched a
consultation on how to improve the disclosure of non-financial information by
companies.187 Recall that the Fourth Company Law Directive already requires
companies to include key performance indicators (KPIs) in relation to
environmental and social issues in their annual report to the extent necessary
to understand the company's development, performance or position. 188
According to the Commission, the economic crisis and the need for
sustainable development has highlighted the importance of disclosure of non-
financial information. The Commission emphasises, however, the need to
achieve better transparency without increasing the regulatory burden on
companies.
The consultation consists of a short questionnaire on a range of issues
relating to the disclosure of non-financial information, such as which entities
should be required to disclose non-financial information, what disclosures
should be required, what measure of non-financial information should be used
to achieve materiality and comparability, what process should be undertaken
to identify the principles or KPIs on which to base the EU measure and
whether European policy should promote integrated reporting (whereby key
financial and non-financial information is reported together to show the
relationship between financial and non-financial performance). The
consultation also looks at the role of institutional shareholders and whether
185
Directive 2004/109/EC.
186
On 27 May 2010. The deadline for responses was 23 August 2010. The consultation document is
available at:
http://ec.europa.eu/internal_market/securities/docs/transparency/directive/consultation_questions_en.pd
f
187
The consultation closes on 24 January 2011 and is available on the European Commission's website.
http://ec.europa.eu/yourvoice/ipm/forms/dispatch?form=NonFin&lang=en
188
And as we saw, In the UK, this is implemented in section 417 of the Companies Act 2006 as part of
the contents requirements for the business review (there are dispensations for small and medium sized
companies as permitted by the Fourth Company Law Directive).
37
they should be required to disclose how they take non-financial factors into
account in their investment decisions.
This is an area already being examined by the UK Government. In May

2010, the Coalition Government announced its commitment to
re-introducing the Operating and Financial Review and to putting greater
emphasis on the reporting of the social and environmental impacts of
companies. As part of this commitment, the Department of Business,
Innovation and Skills (DBIS) launched a consultation on narrative reporting in
August 2010, which closed in October 2010.189 The Government has said
that it will publish its conclusions at the end of the 2010. The BIS Consultation
considers two elements of the current narrative reporting requirements, the
business review (which all companies, other than small companies, are
required to prepare) and the directors' remuneration report (which quoted
companies are required to prepare and put to an advisory vote at their AGM).
With respect to narrative reporting it specifically asks whether:
 information currently provided in the business review is comprehensive

and meets users' needs and whether quoted companies should be
required to put the business review to an advisory vote;
 a mandatory reporting standard should be re-introduced, similar to the
Accounting Standards Board's voluntary Reporting Standard No 1 "The
Operating and Financial Review", which was withdrawn and is now
best practice guidance; and
 other documents published by companies, for example corporate and
social responsibility reports, are useful sources of information.
Time will tell how these proposals will materialise and in what form, and
whether they will lead to improvements.
189
The BIS consultation is available from the BIS website at:
http://www.bis.gov.uk/assets/biscore/business-law/docs/n/10-1057-future-narrative-reporting-
consultation.pdf
38
G. Conclusions
The inclusion of the term ‘the environment’ in the Companies Act 2006 is in
line and, indeed, reflects recent trends in the corporate world, public policy
and trends in public life generally with regard to the environment. That said
the inclusion of the term as part of one of the most important, if not the most
important, duty owed by a company director, namely the duty to promote the
success of the company (section 172) of the Act, raises more questions than
answers.
First, although section 172 is clearly linked and ‘work’ in tandem with
section 417 of the Act,190 there are some important differences in the terms
used in both sections which raise the question whether enough thought has
been invested in drafting them or whether they are simply a reflection of the
changes put in each (as discussed above) at a very late stage in Parliament,
without a proper reflection of the nuances and implications of these
discrepancies. Secondly, a close examination of these two sections revealed
the absence of proper guidance, rules and regulations which could serve as
benchmarks for the quality and quantity of required disclosure. The omission
of such standards reflected the (then) Labour Government’s concern not to
impose costly reporting obligations on companies, and to leave much of the
nature of reporting to directors’ discretion. That said, the legislation ought to
give some indication of what the standard reporting practice should be.
Surely, the whole purpose of this is not only to obtain the disclosure of
information itself, but also to provide a measure by which those who wish to
invest within an ethical framework can obtain comparisons between different
companies. It would be difficult for those comparisons to be made without
some element of standard reporting practice. 191 Thirdly, a central facet in
sections 172 and 417 is that of ‘impact’, yet very little if nothing is offered by
way of guidance as to its meaning and the way it is to be assessed. Finally,
as we saw immediately above, first indications suggests that the CA 2006 has
not made environmental and social reporting more effective.192 If anything it
imposed costs on companies without clear benefits emerging yet.
These observations beg the inevitable question: What is all this for? It
is clear that, to a certain extent, it builds on forcing internal reflection and
allowing internal scrutiny and so in this respect it is not a bad starting point. At
the same time, it appears, to date, to be far from being effective. In fact, there
are admittedly stronger obligations elsewhere in the law (e.g. Environmental
Impact Assessments). Likewise, it appears to be a breach of director’s duty
not to maximise profits for the benefit of the members (clearly s. 172 is not
190
Recall that s.417 Section (which sets the requirement for the business review) states that its purpose
is to “help them assess how the directors have performed their duty (to promote the success of the
company) under s.172”.
191
See in this respect the EU Modernisation Directive which its’ principal purpose was to generate a
common reporting standard so as to allow comparison between European traded companies on
financial and non-financial measures.
192
Part F above under 2, and, in particular, the report, The Reporting of Non-Financial Information in
Annual Reports by the FTSE100, http://corporateresponsibility.org/ftse100-company-reportsreveal-
inadequacy-of-companies-act/ (visited 10 May 2010).
39
advocating that profits can be sacrificed for the environment) and so, to some
observers, the legislation may just appear as ‘keeping up appearances’. This
raises a wider question: is the inclusion of the term ‘environment’ justicable or
normative? In other words, how does the inclusion of ‘the environment’ within
directors’ duties add to the impetus received from corporate markets? Will it
affect the bottom line (i.e. will it motivate directors to do more than give lip
service?) So far, this does not seem to be the case. With that in mind, the
question is what can be done to alter this?
The authors wish to highlight a number of issues. First, as this paper

suggests, it is important to understand why ‘impact’ which appears alongside
‘the environment’ is important as well as look at the different ways in which
impact is assessed (and how we learn about it). The challenge now is to
establish a framework for understanding the different dimensions to impact as
well as provide signposts for future development of the law. Secondly, as
Section F above highlighted, fundamental questions remain. For example, is
annual reporting of environmental and social performance nested in narrative
financial reporting the same as social responsibility reporting? Is there a future
for mandatory reporting of socially responsible performance in ongoing
transparency? The challenges that lie ahead are equally demanding: How to
measure social performance, 193 the comparability of the reports, and who
audits social performance and at what costs (to companies). i.e. it is important
to try and establish accurately what is the cost involved in doing this reporting
effectively. Thirdly, as the paper suggests, perhaps it is impossible to give
precise definition for ‘the environment’ and it is possible that instead a working
definition would evolve in practice. Fourthly, there is the issue of enforcement,
i.e. what penalties are attached to section 417 and if they are obligatory, will
this potential liability have any impact? Finally, it is equally vital to
acknowledge, that although issues such as environmental protection are
enormously important, nonetheless, the best way to promote responsible
business behaviour is to show how such behaviour leads to business
success. And so, the case is still to be made that business success ties in and
chimes well with having full regard to the ‘environment’.
193
A1000 by processes and reporting on implementation; GRI on reporting specific items, and
generation of own performance indicators and self-assessment.
40

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Directors' Duties Under Companies Act 2006 and the

Impact of the Company's Operations on the Environment

UCL Faculty of Laws

This paper can be downloaded without charge from the

Electronic copy available at: http://ssrn.com/abstract=1274567

Section (hereafter ‘section’ or ‘s’) 172(1) of the CA 2006 requires a director of

Electronic copy available at: http://ssrn.com/abstract=1274567

During the passage of the CA 2006 in Parliament Lord Avebury draw

It is important to note that the changes in the corporate world, public

In 2000, the Global Reporting Initiative (GRI) produced broader

2. The factors listed in Section 172(1)

The factors listed in subsection (1) to be taken into account by directors in

In interpreting the statutory list of factors relevant to determine whether

In many, if not most, cases, the success of the company is

We believe this is far too important and critical an area to be left

In responding to criticisms of the lack of practical effect of the duty, Lord

and Planet?’ (2010) 31 Company Lawyer, 406.

…company law reform is not a suitable vehicle for our wider

…we believe that the best way to promote responsible business

These clarifications highlighted the absence of rules and regulations

we support the NGOs in believing that the Government…ought

3. The Business Review- background

The CA 2006 links the directors’ duties in part 10 to a company’s reporting

Some believe these duties have been introduced in recognition that

4. Section 417 and the business review

As noted above, section 417 of CA 2006 requires certain publicly listed

In other words, what is required is a narrative report of the company’s

5. Putting the business review in context68

The Company Law Review proposed a major additional annual reporting

It was envisaged that new standards would be developed for such

a balanced and comprehensive analysis.. of the development

Any omission of these was to be stated. Coverage of employee and

6. Abandonment of the OFR

A few days later there was an astonishing development, which perhaps

The Chancellor’s main criticism of substance, namely, that the

Perhaps more important, as practice develops the final version of the

The purpose of this Section is to look at traditional interpretations and usage

1. Defining ‘the environment’

2. Existing definitions of the environment

The plethora of online and paper-based dictionaries provide a variety of

This definition highlights the various constituents, which make up the

‘(a) the state of the elements of the environment, such as air

Once again reference is made to individual natural or scientific

The EU Directive on Environmental Impact Assessment (EIA) 105

Attempts to define the environment may also be found in international

3. Influence of ‘environmental law’

Emerging principles and discernable shifts in direction within contemporary

Susan Emmenegger and Axel Tschentscher 111 have proposed three

A more holistic understanding of the environment, typified by modern

4. Is it possible to produce a single definition?

Providing a singular definition of the term ‘environment’ remains in many

Emerging trends in environmental law would suggest however, that

"the environment is not an abstraction but represents the living

The protection of environment became a central concern of international law.

Throughout the ages, mankind has, for economic and other

As we saw in Section B above, section 172(1) of the CA 2006 requires a

S. 417 sets out the obligation to produce a report which is required to

In compiling the review required by subsections (3) and (4), subsection

In connection with non-financial KPIs, the DTI draws attention 133 to

It is noteworthy that all of the matters identified by subsection (5) are

It is also interesting to consider the positions of quoted companies and

It has been suggested that companies might be expected to report to

The National Association of Pension Funds (NAPF) usefully