“The burden of regulation is too high” said Kemi Badenoch MP as she set out her case in front of Conservative Party members at their party conference last month.
How short memories can be. Only a month ago, we heard from the final report of the Grenfell Inquiry that a government drive for deregulation meant concerns about the safety of life were “ignored, delayed or disregarded” by officials in the years before the Grenfell Tower fire.
That is not all. For more than a year, we have been hearing about weak regulation by OFWAT, which has failed to prevent the privatised water companies from enriching their shareholders while pouring sewage in our rivers. Another example will soon be hitting the headlines. Government and the energy regulator, OFGEM have between them failed to prevent a the hijacking of public priorities by the long- privatised National Grid. While in Holland and Belgium energy from windfarms is being consolidated in a well planned and publicly controlled offshore grid, in the UK National Grid and OFGEM have presided over an anarchy of piecemeal development proposals (including by the former’s own development subsidiary) which require energy to be transported and consolidated onshore. As campaigners and former Environment Secretary Lord Deben have pointed out, the result will be wasteful onshore construction and the unnecessary and ultimately more costly despoliation of an area of outstanding natural beauty and biodiversity importance. (Perhaps if this onshore vandalism had been proposed in Keir Starmer’s beloved Lake District, and not on the East Coast we would all have heard about it already!)
The problem is not the quantity of regulation but its focus
In the face of the damage caused by these regulatory failures, pleas by politicians – or businesses – for less regulation sound increasingly dated. There is a problem with regulation as it is currently designed. The problem is not that we face too much of it. It is that in setting priorities we have ignored the needs and wellbeing of future generations.
Consider OFWAT. It is described on its website as ‘an economic regulator’. Not a societal one. The focus is on balancing costs and rewards between (today’s) consumers and (today’s) shareholders. There is a mention of the industry’s ‘resilience’ but the needs of future generations are not mentioned. The very last bullet point in the summary on OFWAT’s website is a weakly expressed obligation to ‘contribute to the achievement of sustainable development’.
OFGEM’s duties include the same afterthought about sustainable development and a nod towards the needs of future consumers.
Yet overall the message is clear. For our regulators the needs of future generations are, at best, a footnote. OFGEM and OFWAT’s powers extend to Wales, but at least there the Senedd has now passed a law insisting on the Wellbeing of Future Generations, and, over time, this will have some influence on how regulators in Wales approach their task.
The risks are different now…
In this age of climate and biodiversity crisis, directors of companies need to wake up to the risks that such short-sighted regulation carries.
One by one our major business sectors are discovering that the assumptions on which they have made their plans can no longer be relied on. As the Financial Times reported in June, the insurance and re-insurance industry is one example
Scientists have also been unnerved by an unprecedented stretch of record heat over land and sea over the past year. Global average temperatures surpassed the 1850-1900 average by 1.61C in the 12 months to April. Members of the UK’s Institute and Faculty of Actuaries argued in a recent report with University of Exeter scientists that more attention should be paid to the risk that extreme climate scenarios could be made more likely by a series of atmospheric and physical feedback loops, including the collapse of ice sheets
… more businesses are now demanding regulation
We are now seeing business-led organisations that demand changes in the terms of market competition in order to make business activity to serve the needs of future generations.
Business Declares is one UK example: It reports that many companies are ready to act but want regulation to level the playing field. It urges its members and all businesses to
advocate regulatory reforms that shift corporate priorities from short term profitability and growth to address the climate, biodiversity and social inequality crises
Internationally the We Mean Business Coalition argues that
the shift to a global net zero economy has begun, but strong policies are needed to accelerate the transition and reap the benefits.
This changing mood is reflected in a new paper by Lindsay Hooper and Paul Gilding of Cambridge Institute for Sustainability Leadership.
We cannot do business on a dead planet, and we can be certain that business as usual will not continue… We need to design out the prevailing tension between profitability and sustainability. This can only be addressed by consistent, long-term government commitments and effective delivery plans that drive all businesses to act, creating thriving markets for climate-neutral, nature-positive and circular products, and punishing those who fail to act. Such ambition, with the policy and regulations needed, will only materialise if a critical mass of business leaders actively demand it.
So while party conferences may still be discussing the burden of regulation, the question for boardrooms is how to enhance its impact.
How do we persuade government to regulate better? How do we create the conditions in which our search for profitability is in harmony, not in conflict, with the needs of people and nature now and in future generations?
Is this on your board’s agenda? And if not, why not?
Mark Goyder is Founder of Tomorrow’s Company and Senior Advisor to the Board Intelligence Think Tank. He is co-author, with Ong boon Hwee, of Entrusted: Stewardship for Responsible Wealth Creation.