The Government is not persuaded that amending section 172 of the Companies Act in this way would be workable. Section 172 already requires directors to have regard in their decision-making to the environment, employees, customers and suppliers, among other matters. Since 2019, directors of large companies have been required to make a statement as part of the annual report describing how they have had regard to these matters.

Section 172 of the Companies Act 2006 already requires directors to have regard to the impact of their company’s operations on the community and the environment, amongst other things. The Government strengthened this requirement in 2019 by requiring directors to make an annual statement explaining how they have discharged their section 172 duty in practice over the previous reporting year.

The Government believes the most effective way to encourage companies to address environmental and other challenges is through a transparent corporate reporting framework. This month, the UK became the first G20 country to introduce mandatory reporting in line with the recommendations of the Taskforce on Climate-related Financial Disclosures, for economically significant UK companies. This will ensure that businesses consider the risks and opportunities they face on climate change and encourage them to set out their emission reduction plans and sustainability credentials. The Government has also published a landmark Roadmap on Sustainable Investing, the first phase of which will introduce new economy-wide sustainability disclosure requirements.