Friends of the Earth is to seek a judicial review of last month’s
controversial UK government decision to abolish regulations that would
have required large companies to produce Operating and Financial
Reviews (OFRs) covering their social and environmental impacts.
The pressure group wants a judge to consider the lawfulness of the
decision, which was announced as a red tape saving measure by
chancellor of the exchequer Gordon Brown at last month’s Confederation
of British Industry annual conference. The judicial review will
consider whether Brown was entitled to make his decision without
consultation. It is unclear how strong a case the NGO has, but it would
have to pay costs if it loses. If the move is successful, the
government may have to backtrack and reintroduce the OFR regime some
other way – perhaps in the Company Law Reform Bill now in the House of
Lords.
Elsewhere, mainstream and SRI investors have begun to urge companies to
produce OFRs anyway, and there is now talk of trying to include
provision on the subject in the UK’s corporate governance code.
Meanwhile the government has tried to launch its own attempt at a
damage limitation exercise, claiming that although the OFR regime will
go, the requirements of the European Union Accounts Modernization
Directive, which come into effect in April 2006, will still require
companies to produce annual ‘business reviews’ that can take account of
social and environmental issues. However, the requirements of the
directive are less precise than the OFR and more easily side-stepped.
