The Better Business Act would put responsibility to society and the environment on the same footing as responsibility to shareholders, explains Chris Turner
COVID-19 has forced us to adapt the way we live and to reflect on the future. Climate change, inequality and discrimination remind us of our interconnectedness while highlighting the role of business, as global brands and local enterprises bring us together. While business contributes to these crises, it can also deliver solutions.
A 2020 B Lab UK poll revealed that 72% of the UK population think business should have a legal responsibility to the planet and people, and an Institute of Directors survey in May 2021 found that 62% of directors believe businesses should not exist solely to make money and generate shareholder profits. Financial markets are chiming in, too: according to The Investment Association, investors poured £7.1bn into responsible environmental, social and governance (ESG) funds in the UK during the first three quarters of 2020, while a March 2021 study by PlanetOne Capital predicts that the ESG market is set to double in 2021.
“CEOs may still invoke shareholder primacy in defence of harmful actions”
The Companies Act is still rooted in shareholder primacy. While the ‘enlightened shareholder primacy’ principle requires directors to have ‘regard’ for other stakeholders, it has created ambiguity and failed to remove the overriding principle of shareholder primacy, which CEOs may still invoke in defence of harmful actions.
We must create a new level playing field, where every business puts the interests of people, profit and planet at the heart of their purpose, and directors. The Better Business Act is an amendment to Section 172 of The Companies Act that will ensure directors are responsible for aligning shareholders’ interests with those of wider society and the environment. Its includes four principles:
- Shareholder interests should be advanced alongside those of society and the environment. This establishes a principle of fiduciary duty within Section 172 of the Companies Act.
- Directors should be empowered to exercise their judgment in weighing up and advancing stakeholder interests.
- It must apply to all businesses.
- Businesses must report on how they align long-term interests of people, planet and profit in a strategic report or impact report, where required.
Since it launched in April 2021, more than 600 businesses have joined the Better Business Act coalition – including brands such as John Lewis, Innocent Drinks, Iceland, Danone, The Body Shop and Bulb. The Act is an opportunity for the UK to demonstrate leadership – creating a competitive advantage, driving innovation, accelerating progress to net zero, and aligning with the government’s ambition to ‘build back better’.
Visit betterbusinessact.org to find out more.
Read a longer version of this article at bit.ly/Crisis_Comm
Chris Turner is campaign director for The Better Business Act and executive director at B Lab UK.
Image credit: Shutterstock