Is legislation on responsible business good for responsible companies?

Alasdair Marks, Corporate Adviser, Business in the Community considers what the recent mass of new legislation on responsible business matters - covered in our new briefing - tells us about the state of responsible business today and what the key considerations for business are.  

Why is there so much legislation related to responsible business right now?

Media and social media in particular has raised public awareness of unfair practices, tax avoidance, environmental risks and more. This has driven an increase in the volume of national legislation and European regulation in this sphere.

- Kate Fergusson,
Head of Responsible Business, Pinsent Masons
There’s currently a plethora of legislation, planned or enacted, related to responsible business. As we highlight in our new briefing, the number of new laws, either current or in the pipeline, and the range of responsible business issues they touch on is striking, including gender equality, youth employment, slavery and trafficking, conflict minerals, data privacy, supplier payment practices, community engagement and non-financial reporting.

One apparent reason for this spate of legislation is an increase in public awareness of these issues, driven by greater availability of information.  This which has led to demands for action to be taken.

As Kate Fergusson, Head of Responsible Business at Pinsent Masons, BITC's partner on this publication, puts it: ‘Media and social media in particular has raised public awareness of unfair practices, tax avoidance, environmental risks and more. This has driven an increase in the volume of national legislation and European regulation in this sphere. Reputational risk is becoming more difficult to manage’.

Also significant are government attempts to use legislation to accelerate change on stubborn issues where little progress is being made. Furthermore, it is very clearly setting out here that it is business’ responsibility to solve these issues. So, for instance, the impetus behind the government realising section 78 of the Equality Act 2010 requiring businesses to publish information related to employees' pay can be seen as the fact that latest figures show the UK’s gender pay gap unchanged at 19.2% - meaning that on average women earn just 81p for every £1 a man earns.

Similarly, the Apprenticeship Levy is clearly aimed at tackling the stubbornly high unemployment rate for 16-24 year olds, which is starting to creep back up from today’s 13.7% towards its 15.9% high.  The Levy's provisions show the government ‘very clearly placing responsibility for skills training onto the employer’ as Grace Mehanna, BITC Employment & Skills Director puts it.

What does this mean for business?

Businesses affected by legislation need to be ready to adhere to at least the letter of the law. Preparing early is key, and our new briefing will help companies understand what their new reporting and other obligations are.

But there is evidence to suggest that even the basics are not always happening. For example, The Business & Human Rights Resource Centre analysed the first wave of company statements required to be published annually by businesses covered by the new UK Modern Slavery Act on the steps they taken during the financial year to prevent slavery or human trafficking existing in its business and supply chain earlier this year.  It found that only 22 out of 75 met the minimum legal requirements, and just nine met both minimum legal requirements and reported on all six criteria suggested by the Act1.

Yet compliance is only ever a starting point for responsible business. Whilst it is important that our members understand the potential impact of forthcoming legislation and prepare early, it is even more important that they understand and engage proactively with the issues, collaborate and see the opportunity of going further than they are required to.

Compliance comes easily for companies with a genuinely responsible business approach. As Keithley Martin, Head of Supplier Development at Telefónica UK Ltd, referring to the UK Modern Slavery Act, explains, ‘Although important, our interest is less about getting the [Modern Slavery Act] statement to reflect the letter of the Act. It is more about ensuring that our due diligence processes that sit behind the statement are leading and that we are proactively working with our supply chain to minimise the risk of trafficking or forced labour’.

Companies that follow best practice are unlikely to be caught out by new legislation. The recently enacted Small Business Enterprise & Employment Act 2015 is a case in point. The Act contains a number of provisions aimed at reducing the barriers many small businesses face in their drive to innovate, grow and compete in the UK. Although timescales are unclear – the provisions of the Act are coming in in stages – this will include a requirement for large companies to report their supplier payment practices and policies twice a year.  Subjects to be reported on will include the average time taken to pay invoices; the proportion of invoices paid beyond agreed terms; and whether financial incentives were required to join or remain on supplier lists.   

We believe awareness amongst businesses of this may be low.  But it’s notable that those already following best practice on supplier practices laid out in BITCs Access Pledge or CR Index are unlikely to be concerned by the new requirements. 

Employees want to know the truth; employers can use that to their advantage to build trust and loyalty.

- Kathryn Nawrockyi,
BITC Gender Equality Director
The benefits of embedding responsible business best practice on a broad range of current and emerging issues within the organisation, across all functions, are obvious here. So, for those starting out or looking to accelerate their approach, the increasingly complex legislative landscape around responsible business – which affects an expanding number of functions – represents a golden opportunity to push the understanding of issues and best practice across all departments, including at Board level. Forthcoming legislation also offers chances to engage with those that may not yet understand their responsibilities, or  prompt companies to re-evaluate how they tackle specific issues.

Support for colleagues to help them understand the opportunity in going beyond compliance is vital. As Kathryn Nawrockyi, BITC Gender Equality Director put it in relation to the forthcoming gender pay reporting requirement, ‘Employees want to know the truth; employers can use that to their advantage to build trust and loyalty.’

This was borne out in a recent BITC survey on the issue which showed that 89% of employees would feel more positively towards their employer if they published their data along with an action plan to close the gender pay gap2.

Or, thinking about the new Apprenticeship Levy, take inspiration from companies like Barclays who saved £1 million in 2014 by rethinking how they recruit young people. Or consider why Edinburgh University is listening to its students and taking steps now to ensure that the goods it buys do not contain so-called conflict minerals, a UK first.

What is next for business?

Apart from the legislation we already know is coming and have highlighted in our briefing, it’s impossible to predict what new laws affecting business will appear.

However, what’s clear is that it pays for companies to stay well ahead of the legislative curve through ongoing engagement with stakeholders and taking proactive, transparent action on the issues that matter to them. This includes understanding and developing robust approaches on those issues often termed 'emerging' or 'frontier' issues. Here we might include; tax transparency, employee mental wellbeing, rising income inequality, extreme climate change and science-based targets, technology and the workplace, to name just a few. History suggests that the frontier issues of today will form the legislative landscape of tomorrow.

We actively encourage our members to use us and the Prince's Responsible Business Network to understand and share expertise on the issues, their impacts and the opportunities that exist in going far beyond minimum standards to develop and deliver business strategies that have responsibility at their heart.  


Notes

http://business-humanrights.org/en/uk-modern-slavery-act-analysis-of-early-company-statements-new-guidance-available