Directors' Duties Under the UK Companies Act 2006 and the Impact of the Company's Operations on the Environment
40 Pages Posted: 6 Oct 2008 Last revised: 14 Feb 2014
Date Written: December 15, 2010
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). 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 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. Finally, Section G will draw some conclusions as well as provide some lessons and signposts for the future.
Keywords: Directors' duties, Companies Act 2006, UK, Impact, Environment, Business Review
JEL Classification: G34, G38, K41, K22, K32
Suggested Citation: Suggested Citation