During the parliamentary debates on s.172 one of the major focuses of the discussions was the inclusion of environmental concerns. Under s.172(1)(d) the director of a company is to have regard to the impact of the company's operations on the community and the environment when making decisions. Although modern company law, in the majority, now accepts that companies have a positive role to play in promoting best social and environmental practices.189 Some politicians feared
that the new provisions would enable stakeholders to bring an action to block directors’ decisions on environmental grounds. The Honourable member for Workingham for example, Mr John Redwood, posed the question:
‘Would that provision [now s.172] give people living near a quarry, a coal mine or a nuclear power station the right to take the company in question to court because they did not like the activity, even though it was legal and had all the health and safety permissions?’
The short answer to this, it would appear, is a resounding no. S.172 does not give stakeholders an individual right to bring an action. Nor does it allow them to halt decisions as in the scenario posed by Mr Redwood above. The then secretary of state for trade and industry, Alistair Darling, gave a clear response to the question also:
‘No, it would not. The requirement is for the director, in reaching a decision, to have regard to all such matters, including the impact on the community. We cannot have a situation in which, essentially, two groups of people are running a company—one being the directors and the other being people who like or do not like what the company is doing and ask the courts to second-guess the company’s decisions. If we as a society decide that we do not want quarries,
188 [1995] 1 BCLC 14.
133 | P a g e the best way to achieve that outcome is to pass legislation forbidding them. If quarries are legal, and provided that all planning permissions are obtained and other legal obligations are met, directors are entitled to reach that decision, because their duty is to the company. However, they do have to have regard to what they are doing. This is an important step forward and many in the other place were deeply opposed to it, but I hope that the House will support it.’190
This was affirmed by Lord Goldsmith who, whilst supporting the need to protect environmental issues, did not believe that they should be addressed through company law reform.191 This is slightly
misleading as the recurring theme of the new legislation is the implementation of Enlightened Shareholder Value, and one of the guiding principles of this theory is to place on a statutory footing the requirement of consideration of wider social and environmental issues.
So on the whole, it would appear that there has been very little movement on the ability of
environmental stakeholders to influence the decisions of directors for their benefit. That is until the financial crisis and the nationalisation of a number of financial institutions, and the case of R(on the application of People & Planet) v HM Treasury.192 This is an extremely interesting case, and as such it
is important to set out the facts first. The case involves a challenge by activists to the approach taken by Government in its ownership of the financial institution RBS, and in particular its conflict with the Government’s own stated policy on issues of climate change. This conflict was put to the courts via an application for judicial review, and in doing so People & Planet argued that HM Treasury’s policy as to the UKFI’s management of RBS was unlawful. What is important in the judgment is not the application specifically but instead the reasoning behind it, People & Planet argued that the policy was not adopted after proper consideration by HM Treasury in accordance with the Green Book. In particular this contained three sub-grounds, namely that HM Treasury had failed properly to evaluate the arguments for a more interventionalist policy, that it had regard to an irrelevant consideration, specifically the desirability of industry-wide regulation as opposed to a policy focused on just two banks (RBS and Lloyds Banking Group), and there was a misdirection of law by HM Treasury as to the effect of the Companies Act 2006. And thirdly the policy was alleged unlawful on human rights grounds.
Sales J. Rejected the application for permission as he considered that whilst UKFI could seek to influence the RBS board to have regard to environmental considerations in accordance with their
190 HC Deb 6 June 2006 vol 447 col 129. 191 HL Deb 6 February 2006 vol 678 col GC253.
134 | P a g e s.172 duty, it would have been wrong for HM Treasury ‘...to seek to impose its own policy in relation to combating climate change and promoting human rights on the board of RBS, contrary to the judgment of the Board.’ He continued by pointing out that to go beyond this would have cut across the duties of the RBS board as set out in s.172, however he did not go so far as to say that there was an ‘absolute legal bar to the introduction of a different policy.’193
So as a result for those interested in forwarding the interests of the environment it is not a
welcomed decision. It is clear that the courts will not allow environmental interests to be pursued in direct conflict with the general body of shareholder interests. Sales J. repeatedly emphasised the risk of minority shareholder litigation if a company’s share value were to drop because of a directors actions to take into account environmental interests.194 Whilst Copp clearly agrees with the
approach taken by Sales J., in that he believes that ‘[c]ompany law is not the appropriate vehicle for the achievement of environmental or human rights objectives beyond what the law requires generally.’195 It is argued that it goes against the fundamental ideals that were being constructed
when the provision was enacted. It is clear government did not want a free standing right for stakeholders to be able to bring an action on environmental grounds. However they would be expected to be considered by directors when making decisions as under s.172(1)(f) there is a ‘need to act fairly as between members of the company.’ The case of People & Planet simply emphasises the fundamental floors in the drafting of s.172. In having regard to a list of specific factors there is no way to offer any weighting to each of the factors. Or guarantee that all of the factors are to be taken into consideration when a director is making their decisions.