An s.172 Statement, required under the UK Companies Act, mandates that directors explain how they have fulfilled their duty to promote the success of the company while considering the interests of stakeholders, including employees, customers, suppliers, and the environment. This statement must be published on a stand-alone web page and should include a materiality assessment and relevant case studies. Many UK corporations, however, are failing to provide the necessary detail, leaving them vulnerable to ESG-related litigation.

Understanding the s.172 Statement

What is an s.172 Statement?

The s.172 Statement is a requirement under Section 172 of the UK Companies Act 2006, which obligates directors of UK companies to act in a way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders as a whole. This duty includes considering the impact of the company’s operations on various stakeholders, such as employees, customers, suppliers, the community, and the environment.

The s.172 Statement is a formal disclosure that requires directors to explain how they have considered these stakeholder interests in their decision-making processes. The statement is intended to provide transparency around how the company’s governance aligns with its broader social and environmental responsibilities, thereby enhancing accountability to shareholders and other stakeholders.

Key Requirements of the s.172 Statement

Stand-Alone Web Page Publication

One of the critical requirements of the s.172 Statement is that it must be published on a stand-alone web page on the company’s website. This is to ensure that the information is easily accessible to stakeholders, including shareholders, employees, and the public. The stand-alone web page allows for greater transparency, as it ensures that the s.172 Statement is not buried within broader corporate reports or difficult to find.

For UK companies, this means dedicating a specific section of their website to the s.172 Statement, where stakeholders can readily access the information. The statement should be clearly linked from relevant sections of the website, such as the governance or investor relations pages, to ensure visibility and accessibility.

Materiality Assessment

A materiality assessment is another key component of the s.172 Statement. This assessment involves identifying and prioritising the issues that are most significant to the company’s stakeholders and that have the greatest potential impact on the company’s long-term success. The materiality assessment ensures that the s.172 Statement is focused on the most relevant and significant issues, providing a more meaningful and targeted disclosure.

For example, a UK manufacturing company might conduct a materiality assessment to identify key issues such as employee health and safety, environmental impact, and supplier relationships. These issues would then be addressed in the s.172 Statement, with the company explaining how these considerations influenced the board’s decisions and strategies.

Case Study Inclusion

To provide context and demonstrate how the s.172 duty is put into practice, the statement should include a case study or examples of specific decisions where the board actively considered stakeholder interests. This helps to illustrate the real-world application of the s.172 duty and shows stakeholders how the company is integrating these considerations into its governance processes.

For instance, a UK retailer might include a case study in its s.172 Statement that describes how the board considered the environmental impact of its packaging materials. The case study could detail the decision-making process, the stakeholders involved, and the outcome, such as the adoption of more sustainable packaging solutions.

The Risks of Inadequate s.172 Statements

Exposure to ESG-Related Litigation

Many UK corporations are failing to provide the required detail in their s.172 Statements, which leaves them exposed to potential ESG-related litigation. Inadequate disclosures that lack transparency, fail to consider all material issues, or do not provide concrete examples of stakeholder engagement can be seen as insufficient by regulators, investors, and other stakeholders.

As ESG considerations become increasingly important in the corporate governance landscape, companies that do not adequately address these issues in their s.172 Statements may face legal challenges. For example, shareholders or activist groups could argue that the company has not properly fulfilled its s.172 duties, leading to lawsuits or regulatory scrutiny.

Reputational Damage

Beyond legal risks, inadequate s.172 Statements can also result in reputational damage. Stakeholders, including customers, employees, and investors, are increasingly demanding greater transparency and accountability from companies, particularly regarding their social and environmental impact. Companies that fail to provide detailed and meaningful s.172 Statements may be perceived as lacking commitment to their stakeholders, which can harm their reputation and erode trust.

For example, a company that publishes a vague or generic s.172 Statement, without addressing specific stakeholder concerns or providing clear examples of decision-making, may be viewed as not taking its ESG responsibilities seriously. This could lead to negative media coverage, loss of investor confidence, and decreased customer loyalty.

Missed Opportunities for Stakeholder Engagement

A well-prepared s.172 Statement is not just a compliance exercise; it is an opportunity for engagement with stakeholders. By providing detailed disclosures that reflect a genuine commitment to stakeholder interests, companies can strengthen relationships with key stakeholders and enhance their overall corporate governance.

For instance, a UK financial institution that uses its s.172 Statement to highlight how it has engaged with customers to improve service delivery or how it has worked with suppliers to ensure ethical sourcing can build stronger, more trust-based relationships. Failing to seize this opportunity by providing an inadequate s.172 Statement means missing out on the chance to positively engage with stakeholders and reinforce the company’s commitment to responsible governance.

How to Improve Your s.172 Statement

Conduct a Comprehensive Materiality Assessment

To ensure that your s.172 Statement is relevant and focused, it is essential to conduct a comprehensive materiality assessment. This involves engaging with stakeholders to identify the issues that are most important to them and that have the greatest impact on your business. By prioritising these issues, you can ensure that your s.172 Statement addresses the topics that matter most and provides meaningful insights into your decision-making processes.

For example, a UK technology company might engage with stakeholders through surveys, interviews, or focus groups to identify key issues such as data privacy, employee diversity, and environmental sustainability. These issues would then form the basis of the materiality assessment and be prominently addressed in the s.172 Statement.

Include Detailed Case Studies

To demonstrate the practical application of your s.172 duties, include detailed case studies in your statement. These case studies should provide specific examples of how the board considered stakeholder interests in its decision-making, what actions were taken, and what outcomes were achieved. By providing concrete examples, you can give stakeholders a clearer understanding of how your company is fulfilling its s.172 obligations.

For instance, a UK energy company might include a case study on how it engaged with local communities during the development of a new renewable energy project. The case study could describe the consultation process, how community feedback was incorporated into the project design, and the benefits delivered to both the company and the community.

Ensure Transparency and Accessibility

Finally, make sure that your s.172 Statement is transparent and easily accessible. Publish the statement on a stand-alone web page on your company’s website, and ensure that it is linked from relevant sections of the site, such as the governance or investor relations pages. The statement should be written in clear, accessible language, and provide enough detail to give stakeholders a thorough understanding of your company’s approach to fulfilling its s.172 duties.

For example, a UK pharmaceutical company might create a dedicated web page for its s.172 Statement, with sections that clearly outline the company’s governance framework, stakeholder engagement efforts, and specific case studies. By making the statement easily accessible and well-organised, the company can enhance transparency and build trust with its stakeholders.

Why Choose ESG Pro Limited?

At ESG Pro Limited, we specialise in helping companies develop comprehensive and compliant s.172 Statements. Our team of expert ESG consultants provides the support you need to conduct materiality assessments, develop detailed case studies, and ensure your statement meets all regulatory requirements.

• Expertise in materiality assessments and stakeholder engagement
• Tailored solutions to ensure full compliance with the UK Companies Act requirements
• Strategic guidance to enhance transparency and stakeholder trust

Our team at ESG Pro Limited is committed to helping businesses of all sizes improve their s.172 Statements, strengthen their corporate governance, and mitigate the risks of ESG-related litigation. With our support, you can ensure that your s.172 Statement is not only compliant but also a powerful tool for stakeholder engagement and corporate accountability.

• Proven track record in delivering successful ESG strategies
• Strategic guidance to align your business with UK corporate governance standards
• Ongoing support to ensure continuous improvement in stakeholder engagement and transparency