Corporate Social Responsibility and The Combined Code on
Corporate Governance
This article is based on UK law as at 1st April 2007, unless
otherwise stated.
Although no part of the Combined Code is specifically
concerned with corporate social responsibility (CSR), there is some
recognition that a company’s duties extend beyond its
shareholders.
“The board should set the company’s values
and standards and ensure that its obligations to its shareholders
and others are understood and met” – supporting principles,
A.1.
Moreover, the Turnbull Guidance makes clear that risk assessment
should cover not only narrow financial risks but also those related
to “health, safety and environmental, reputation, and business
probity issues”.
The Companies Act 2006 has now added to those pressures by
requiring directors to have regard to community and environmental
issues when considering their duty to promote the success of their
company (see the section on Directors'
duties) and by the disclosures to be included in the Business
Review.
Increasingly, CSR is seen as part of best practice by both the
City and the government. The
Association of British Insurers, whose members own more than 20
per cent of the companies on the London Stock Exchange, publishes
guidance on CSR-related issues for both companies and investors.
Its 2007 “Socially Responsible Investment Guidelines” ask that the
annual report highlights a company’s environmental, social and
governance (ESG) risks. A remuneration committee should also
disclose whether it considers corporate performance on ESG issues
when setting remuneration for senior executives, and whether an
incentive structure may inadvertently encourage “irresponsible” ESG
behaviour.
The government sponsors a CSR
website, on which it says it has “an ambitious vision for UK
businesses to consider the economic, social and environmental
impacts of their activities, wherever they operate in the
world”.
Big companies such as BP and Unilever are keen to talk about
social and environmental issues in their annual reports, and many
people argue that complying with CSR guidelines attracts customers,
differentiates you from the competition and can have a positive
effect on the share price. The growing number of “green” and
ethical investment funds needs to find “green” and ethical
businesses to invest in.
The charity Business in the Community claims a membership of
over 700 of the UK’s top companies “committed to improving their
positive impact on society”. It publishes a Corporate
Responsibility Index, which measures the performance of companies
in terms of how well they apply CSR values to their business.
For bigger companies in particular, CSR is, it can be argued,
not an add-on or an optional extra: it is an integral part of good
governance.
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