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Transparency and Public Trust in Business

Volume 579: debated on Tuesday 8 April 2014

Motion made, and Question proposed, That this House do now adjourn.—(Mark Lancaster.)

Six years after the peak of the global financial crisis there should surely no longer be disagreement among any of us that businesses are bound by the same ethical and social responsibilities that bind us all. As the financial crash showed, business transparency is absolutely essential to society. The lack of it in the financial sector in recent years continues to have huge repercussions for people in my town of Wigan, in the UK, and across the world.

We saw in the recent horsemeat scandal that lack of transparency can have major implications for consumers in the UK, but it can have even greater implications for the lives of people across the world, as in the horrific loss of life in Bangladesh with the collapse of the Rana Plaza complex. As business has become increasingly complex, it is very hard for consumers to know, first, whether they can trust the product they are buying, and secondly, whether the business they are supporting is operating ethically. Little wonder, then, that there is increasing public appetite for action. I was surprised to hear recently that the Edelman Trust Barometer found that the public want greater regulation of business by a margin of 4:1.

But it is not just the public who want action; companies and business leaders are also behind the call for higher business standards. The Minister will be aware of the B Team, an alliance of thinkers and business leaders, including Richard Branson and Paul Polman, the chief executive of Unilever, who are calling for a plan B that, in their words, puts

“people and planet alongside profit”.

At the World Economic Forum in Davos, they called for companies to implement the highest standards in their core operations and across their supply chains, including greater transparency as a matter of course and as good business practice.

There is good reason for this. Business needs to command the support of the public, of investors and of shareholders in order to survive and to grow. However, public trust is low. Last year, an Ipsos MORI poll found that only 34% of the people questioned trusted business leaders to tell the truth. We need to see this in context; I would hate to think what they had to say about politicians. Research by Goldman Sachs and KPMG has shown that companies that have implemented responsible business practices such as transparency throughout their operations often lead on stock market performance and attract a wider and more loyal investor base from investors who are increasingly looking at these issues and want to invest in companies that have a long-term, not a short-term, outlook.

There are many examples of business leading the way in this field. As chairperson of the all-party parliamentary group on corporate responsibility, I have been pleased to meet and work with many such business leaders over the past four years. However, the Government need to play their part too, because, as many of these business leaders have told me, operating transparently is not always easy. They do so in the glare of public attention, they sometimes get it wrong, and it is incredibly complicated. Companies are often involved in extremely complex supply chains. That was brought home to me and to the wider public after the Rana Plaza disaster, where some of the multinational companies involved did not even realise at first that they had been contracting from suppliers who were based in the complex. It was only after campaigners and the media got involved that they realised they had been doing so.

Some companies are making efforts to operate to the highest ethical standards in terms of human rights and the environment—and to be open about it—but their problem is that they are in competition with businesses that do not do that. Many such businesses are based in the UK and listed on the London stock exchange, but they face no penalties whatsoever for breaching the standards the Government say they want them to meet. Like so many others, I believe it is time that the playing field was tilted in favour of those that are operating to high ethical standards, not against them.

I asked the hon. Lady beforehand for permission to intervene on her. Does she agree that greater transparency of who owns and controls companies is necessary and that, in addition to addressing the issues she has mentioned, any new measures must address tax evasion, money laundering and the financing of terror?

That is absolutely right. This goes to the heart of public trust in business, which is about transparency and a commitment to tackling such issues.

The business and human rights action plan was published jointly last September by the Foreign Office and the Department for Business, Innovation and Skills. The UK was one of the first countries to breathe life into the United Nations’ guiding principles on business and human rights. I am proud of that and congratulate Ministers for taking a lead on it. “Good Business” sets out the standards it expects companies to uphold, but so far it does nothing to demand those standards of them. We have had a decade of voluntary corporate social responsibility. Given the experience of the past year and previously—when John Ruggie set out the guiding principles, which were unanimously endorsed by the UN—it is time for the Government to take a more proactive approach.

First, I have been deeply concerned by reports from non-governmental organisations and others that companies have been given conflicting messages by different parts of Government. Although the Foreign Office has consistently warned about the dangers for UK-based companies in knowingly or unknowingly breaching human rights overseas, it appears from anecdotal evidence that BIS has been acting in direct conflict with the commitments made in the action plan.

I want to draw the Minister’s attention to one concrete example where there is evidence of that happening. The Kiobel case was brought by a group of Nigerian activists who claimed that Shell had helped the Nigerian military to systematically torture and kill environmentalists in the 1990s. The cases against Shell were filed under the US alien tort statute, which applies extraterritorially, so it enables non-US plaintiffs to bring claims against foreign companies in the US courts for acts that occur in a third country. Shell challenged that use of the alien tort statute and the UK Government intervened to support the company’s position. The court then ruled in Shell’s favour, which limits the ability of communities in developing countries to challenge corporate malpractice in the US courts in future. The Government’s intervention ran contrary to the commitment made by the Prime Minister to implement the UN guiding principles on business and human rights, which were unanimously endorsed by Governments in 2011.

Will the Minister give an assurance that her Department is completely committed to upholding the principles in the action plan, without qualification, and that it will commit to the same openness in its dealings with business as the Government say they want to see from business itself? In particular, will she ensure that businesses receiving export credit support or development partnership funding have to show that they are meeting the standards of the UN guiding principles?

Secondly, the entire action plan is predicated on the principle of transparency—none of it can be monitored or enforced without it. Nowhere is that more true than in one of the central pillars of John Ruggie’s principles, namely the access to remedy. Without transparency, people whose lives and communities have been destroyed have no effective way of getting justice. As we saw with the South African miners who took a case against Cape plc, companies will often seek to cover the impact of their actions, creating enormous difficulties for communities and their lawyers in gaining the evidence they need to put before the courts.

I must tell the Minister that without transparency requirements, there is no way to prevent such injustices. I recently met representatives of the Afro-Colombian Community Council of Opoca in Colombia. After an 11-year struggle to acquire a collective land title, it was finally granted the right to 73,000 hectares of collective land titles in September 2011, which affected about 17,500 people. They had an 11-year struggle only to discover that a mining concession, covering approximately 55,000 hectares of their ancestral territory, had been granted to AngloGold Ashanti, which is a company registered on the British stock exchange. A proactive duty on companies to disclose information would prevent such harm, while a greater commitment to transparency and—crucially—penalties for those who do not comply is the only way to enable people to access justice.

Finally, I want to tell the Minister:

“To no one will we sell, to no one deny or delay right or justice.”

That principle in Magna Carta has formed the basis of law, liberty and rights in this country for centuries. In this area at least, we are falling well short. Will the Minister commit to improving transparency and access to justice for communities harmed by the actions of British businesses abroad? At present, I and many other hon. Members in the Chamber are approached by so many people who have such a different story to tell. This is an issue of morality, good business and consumer confidence, but above all of national reputation. We should promote not the worst but the best of British business to the world. I look forward to the Minister’s response.

I congratulate the hon. Member for Wigan (Lisa Nandy) on securing this very important debate. I completely agree with her about the importance of getting this issue right. As she said, it has very wide repercussions not just in the UK, but in communities across the world. British companies work in so many countries. It is critical to get it right here, because it may have such broad repercussions on thousands, ten of thousands or hundreds of thousands of people. This important subject is not debated enough in the House, so I congratulate her on securing the debate today.

Business should be, and often is, a force for good in society. However, as the hon. Lady highlighted, the financial crisis a few years ago revealed severe shortcomings in corporate governance and caused widespread and understandable loss of trust for many people in relation to not only the financial sector, but business more generally, and we need to tackle that. At the same time, there was a realisation that companies had grown so powerful that their activities could have an impact on even the largest economies. The development of such a situation was a real wake-up call to many Governments.

Among the lessons that we have learned from the financial crisis, I want to highlight three areas on which the Government are taking action, and which relate to the points emphasised by the hon. Lady—greater transparency, accountability to both shareholders and wider society, and businesses and shareholders taking responsibility for the impact of their actions.

Mandatory reporting requirements are the key lever that the Government use to increase transparency. At its best, the narrative section of a company’s annual report allows investors to make informed choices through a proper understanding of the company’s strategy, the risks that it faces and its long-term sustainability. There is also the wider public interest to consider. As I have said, companies can have a significant impact on communities and the natural environment in which they operate. Requiring businesses to report fully and openly is therefore the first essential step towards social responsibility and accountability.

As the hon. Lady highlighted, shareholders have responsibilities as well as rights. As owners of a company, they have a duty to understand its operations and hold the board accountable, which is a very important role for them to play in our economy. That is especially the case for investment companies that place funds on behalf of savers and pensioners who are not in a position to exercise their ownership rights directly. They can be incredibly powerful in their role in influencing the direction of the company and how it operates.

The Government are not just talking about transparency but have taken action to ensure that we see greater transparency. Last October, the Government’s new reporting reforms came into force, increasing the transparency and quality of disclosure by both listed and private companies. The new reporting framework requires companies to set out clearly in their new strategic report how they operate, where they are heading and how they are managing risk.

In addition, we introduced important new reporting requirements in three areas related to the issues that the hon. Lady highlighted. On the environment, companies are now required to report on their greenhouse gas emissions and other environmental impacts. On gender balance, they now need to state the number of men and women on their board, in their senior management team and in the work force as a whole. I know that she has an interest in that issue. Finally, they need to report on human rights issues, which were at the heart of some of the examples that she gave.

I commend my hon. Friend on the work that she and her team are doing in the Department. One point that the hon. Member for Wigan (Lisa Nandy) rightly made was that there are still voluntary arrangements in place on human rights and the environment in the supply chain. As the hon. Lady said, the risk of voluntary arrangements is that the best companies comply but those that we want to do better are allowed to get away with competing unfairly with those pursuing best practice.

I reassure my hon. Friend that the UK’s requirements already go beyond a lot of the voluntary principles that have been in place. We have agreed in the EU stronger mandatory reporting requirements for large companies to disclose their policies in a number of areas, including in their supply chain, which my hon. Friend highlighted and in which I know the hon. Member for Wigan is interested. That is a huge step in enhancing transparency, and for many member states of the EU it is the first time that they have had such broad requirements. The UK has traditionally been further ahead in mandatory requirements on businesses. I personally feel strongly about the issue, and it was one of the first that I raised in the Department when I took on my role. I will come in a minute, if my hon. Friend the Member for Cheltenham (Martin Horwood) will bear with me, to some of the reasons why I believe there is a driver in the UK economy for businesses to act voluntarily.

The requirement to report on human rights issues is in line with the Government’s implementation of the UN guiding principles on business and human rights, which the hon. Lady highlighted. The first annual reports under the new requirements are just being published, and early signs are encouraging. I am proud that, as I have just said, the UK is leading the way in high-quality company reporting, which will really make a difference. For example, the clothes retailer H&M now not only publishes a list of all its suppliers but sets out the standards and codes of practice that it expects them to meet. Marks and Spencer uses a social enterprise technology provider, Good World Solutions, to gather feedback directly from 22,500 workers in its clothing supply chain in India, Sri Lanka and Bangladesh, ensuring that they can raise concerns without fear of reprisals or discrimination. There are companies in the UK that are doing a significant amount to tackle some of the problems that exist.

As I highlighted to my hon. Friend, we have been negotiating with our EU partners on a related proposal to improve companies’ reporting in general. The EU non-financial reporting proposals have now largely been negotiated and broadly mirror our own regulations, and I hope that they will be adopted before the European parliamentary elections in May. They will start to drive behaviour change in the EU more generally, which will provide more of a common platform for companies operating in the EU. British domestic regulations led the way and have given our companies and shareholders a head start.

As the hon. Member for Cheltenham (Martin Horwood) said, the problem is that although some companies are leading the way, there are also companies that, frankly, are not paying this the blindest bit of notice. Will the Department commit to monitoring the impact of those tougher regulations to see whether they produce the results that we seek, not for those companies that are already doing it but for those that are not?

Absolutely. We have the firm basis of mandatory requirements because it is important that companies provide such information. I have mentioned the measures that impose compulsory requirements and, as the hon. Lady said, it is extremely important that those measures are enforced and monitored. However, we cannot change business culture through legislation alone, which is one reason why I actively encourage businesses to go beyond the regulatory requirements and consider what more they can and should be doing.

The hon. Lady highlighted that there is real consumer demand for this approach. There is increasing awareness of the power of the money that we spend in shops and on services, and of the broader impact that that spending can have across the world. Consumers have the power to influence company behaviour. People choose not to purchase clothes that they believe to have been made in a sweatshop and instead spend a bit more money somewhere else, which drives company behaviour too.

The voluntary approach is also important. Last year, we carried out a consultation to assess what Government, business and others should and could do to realise the full benefits of good corporate responsibility. One of the key findings from that consultation was that businesses increasingly see corporate responsibility as a source of competitive advantage because consumers are driving that behaviour. Businesses see corporate responsibility as essential to managing long-term success, which is positive.

Initial reporting of performance was limited, being produced by just a few pioneering companies, but that has now been replaced by more substantial reports with clearer business relevance. There has been huge growth in the number of organisations that are reporting and taking responsibility for the impact of their activities. There is a balance to be struck between ensuring that we have a solid baseline of mandatory reporting with which all companies must comply and encouraging businesses that want to go further. It is good that businesses see reporting as a competitive advantage and that there is a strong business case for reporting because it encourages more businesses to act in that way. Progress has also been driven by the work of international organisations such as the OECD and its guidance for multinational enterprises.

The hon. Lady talked about the business and human rights action plan, and the importance of business impacts on human rights is increasingly recognised, not least through the action plan. As she said, the UK is the first country to publish an implementation plan for the UN guiding principles in this area. The Foreign and Commonwealth Office and the Department for Business, Innovation and Skills are working together to deliver that implementation plan, and I reassure her that BIS is completely committed to the plan and is working closely with the FCO to ensure that we deliver. The implementation plan is important to me and to the Department, and in it we encourage UK companies to adopt due diligence policies to identify, prevent and mitigate risks to human rights, to understand the full extent of their supply chains in the UK and overseas, and to emphasise to businesses the importance of behaviour in their supply chains that is in line with the guiding principles to ensure that we see progress throughout the supply chain.

Supply chain relationships are just one example of where businesses can take positive action that will have a greater impact than UK or even EU regulations. The hon. Lady highlighted how badly things can go wrong with the absolutely shocking example of the Rana Plaza fire. The British public’s awareness of the importance of such action has increased. The business and human rights action plan provides a framework for businesses to engage with their supply chains overseas, and it equips UK companies to give their suppliers both the information they need and the commercial incentive to act in accordance with UN guiding principles, which is important for driving behaviour.

I am proud of the Government’s record on transparency. The UK company reporting framework is proving to be an example to others. When the EU non-financial reporting proposal is finally adopted, we will implement it to improve company reporting still further. Those reforms will need time to prove their worth. We will continue to engage with businesses and civil society in the debate on transparency and reporting, so that we continue to anticipate events rather than react to them. At the same time, we will continue to work with businesses that choose to go beyond regulatory requirements in taking responsibility for the wider impact of their actions, including the activities of their supply chains.

Before the Minister finishes, will she commit to look at export credits? If she cannot answer now, I will be more than happy if she writes to me later.

I am happy to write to the hon. Lady on export credits.

I agree with the hon. Lady on access to justice. That is a key plank of the Foreign and Commonwealth Office and Department for Business, Innovation and Skills action plan on human rights. We support access to an effective remedy for victims of human rights abuses involving business enterprises within UK jurisdiction—that is the wording. We are working with the FCO and will report on progress by the autumn. That is an important element of the action plan.

I have asked businesses, business organisations such as the CBI and the British Retail Consortium, and Which?, Business in the Community and other non-governmental organisations and consumer groups to work with BIS to make it easier for businesses to do more and go further, as the hon. Lady highlighted. Together, we will consider what further steps will enable UK businesses to engage with their global supply chains, act on human rights issues and report on the action they are taking to make it more transparent.

The Government remain fully engaged—I hope the hon. Lady is reassured by my commitments this evening—and will continue to take action. I look forward to updating the House on progress later this year.

Question put and agreed to.

House adjourned.