Global Policy Forum

By Jonathon Porritt

The argument about whether or not we need to shift towards sustainable development is won. We do - no ifs, no buts. There is no argument either about whether or not business has a part to play in that shift. They do and I think that after the World Summit in Johannesburg earlier this year that fact is increasingly recognised. So how can business shift to more environmentally and socially sustainable ways of doing things? Clearly, the conditions need to be right. How to create the right conditions is currently fertile ground for debate, especially as the UK Government reconsiders its approach to Company Law.

Yet the debate about the role of regulation and intervention has become constipated. The British government has got itself into such an ideological muddle over it that it would appear to have fewer good things to say about the role of regulation than any previous British administration - including the Conservatives under Mrs Thatcher. For reasons all wrapped up in the confrontation between Old Labour and the business community, and New Labour's "business friendly" repositioning, we have ended up in a bizarre world where the interests of under-performing businesses are given precedence over securing critical environmental and social benefits for society as a whole.

New Labour's progress on a new Company Law Bill has been agonisingly slow, despite the consultative process going right back to the first few months after the 1997 election. With no mention of it in the recent Queen's Speech, rumour has it that it's now been relegated at least to 2004 and possibly beyond.

Contrast this with the impressive speed with which the US Congress responded to the Enron and WorldCom scandals, taking just a few weeks to whip through its Corporate Corruption Bill (the Sabanes Oxley Act), the biggest reform of US securities law and corporate governance since the Great Depression. In fact, the US Act may now represent a bigger corporate governance challenge to UK companies than anything going on in the UK itself, since any UK company with a secondary listing on the New York Stock Exchange must comply in full with all the provision of the Act, including much fuller disclosure requirements, new rules to inspect "off balance sheet" arrangements, and so on.

The interesting thing is that UK listed companies had no chance to protest or even offer any ideas. By contrast, many issues in the emerging Company Law Bill have already been consulted to death. On environmental and social reporting, for instance, both ministers and senior civil servants clearly made up their mind years ago that they weren't going to mandate compulsory reporting for companies above a certain size. Instead, we will probably get some wishy-washy wording exhorting companies to report on their "material", social, ethical and environmental impacts. But who will defines "material"? Another group of yet more stakeholders who will advise the Standards Board which (presumably) will eventually rule on whether or not companies are reporting adequately.

This is pure fudge. It may be high quality, rhetorically-enhanced fudge, but it is fudge for all that. And by the time UK businesses eventually get to grips with it, you can pretty much bet that almost all EU countries will have followed the example of the first four who have already mandated social and environmental reporting in their own territories.

But why this apparent aversion to effective regulation - defined by a former DTI Minister under Labour as "the policy instrument of last resort"? Policy-makers rightly take pride in significant improvements in air quality, bathing waters and river quality, they tend to overlook the fact that all these improvements have come about as a direct consequence of what is pejoratively known as "command and control regulation". There have been few serious improvements in our physical quality of life that haven't been driven by regulation. Hardly surprising; if companies can legally out-perform competitors by externalising some of their costs onto the environment, then why wouldn't they do so?

As the business commentator Roger Cowe and I argue in a new pamphlet, this isn't so much a question of regulation versus voluntarism (after all, every tool in the toolkit - economic, fiscal, voluntary and mandatory - has an important part to play in supporting more sustainable economies) but rather half-hearted versus whole-hearted. Whatever the policy tool, the half-hearted tendency all too often wins out. Introduce a landfill tax - great. But even after the recent increase, why keep it at such a low level that it has had a far lower impact on waste reduction than it should have? Promote renewable energy - great. But why introduce new trading arrangements at the same time which have had an incredibly negative effect on the whole renewables industry? Get businesses to sign up to a voluntary commitment on energy, waste and water - great. But why then let it languish on the shelf marked "worthy but essentially useless voluntary mechanisms"?

The prevailing view of the non-governmental organisations is that these proposals often start out reasonably ambitious, but then get progressively watered down by incessant lobbying from the CBI and other 'lowest common denominator' business organisations.

So, having introduced the Climate Change Levy, Environment Minister Michael Meacher then negotiated 44 separate agreements with energy-intensive sectors involving more than 5,500 companies, discounting the levies due in return for vague promises about increased energy efficiency. "We don't want to penalise people; what we actually want to do is to change their behaviour", said Meacher. Indeed, but with energy prices being driven down by the assiduous efforts of OFGEM (which has no remit to think about broader environmental and social issues), there are many independent commentators who are now beginning to question whether the government will get anywhere near its target of a 20% cut on C02 emissions by 2010.

And the government still has problems 'Walking the Talk' in terms of its own behaviour too. Every year, it spends tens of billions of our taxes in the UK economy, only a fraction of which might be said to comply with best environmental practice. Dozens of new hospitals and schools are going up all over the place under PFI contracts in which the words 'sustainable construction' are highly unlikely to feature.

So while the good intentions are there aplenty, but they are seldom followed through. There have been some genuinely creative advances - including the world's first trading scheme for greenhouse gas emissions and the very welcome decision to impose an aggregates tax after the aggregates industry failed completely to come up with half-way serious voluntary agreement to reduce environmental impacts. And there is no shortage of encouraging speeches. Take Gordon Browní­s declaration (earlier this year at the Urban Summit) that, "We talk a great deal about the 1944 economic objectives that governments across the western world have followed: high and stable levels of growth and employment. With the understanding we now have, I believe these objectives are better expressed as high and stable levels of growth, employment and sustainable development". That surely sends out some kind of signal. But we still have not seen that that signal carried through in whole-hearted policy-making across the whole of government.

Tony Blair told the Johannesburg summit that "We know the solution: sustainable development. The issue is political will". Yet British ministers continue to exhort businesses to do more without any real intention of either compelling or incentivising them. This represents a serious failure of political will. Governments, not companies, have the democratic mandate to intervene to shape market forces. If ministers are persuaded that there is sufficiently widespread public support for raising standards, or incentivising best practice, then they should intervene decisively to secure those public benefits without endlessly passing the buck back to business to do it on our behalf.

· Jonathon Porritt is Programme Director of Forum for the Future and Chairman of the UK Sustainable Development Commission.

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