Why It Matters for Business, Lawyers, and Investors Alike

For years, corporate compliance has suffered from a bit of an image problem. Among many decision-makers, it’s still seen as a necessary—but ultimately burdensome—cost, a tick-box exercise that dampens productivity and eats into profits. But with the climate crisis, widening social inequality, and corporate scandals from Royal Mail to Thames Water placing businesses under unprecedented scrutiny, it’s becoming clear that this perception no longer holds up.

Now, there’s a growing call for a fundamental rethink of what corporate governance should achieve—and what role the law should play in getting us there.

The Case for Reform

At the centre of this shift is a proposed amendment to Section 172 of the Companies Act 2006, a core provision that sets out a director’s duty to promote the success of the company. As it stands, the law encourages directors to prioritise shareholders above all else—a model of shareholder primacy that, in practice, can sideline wider responsibilities to employees, communities, and the environment.

The Better Business Act campaign is seeking to change this. The proposed reform would replace the current version of section 172 with a new statutory duty: one that asks directors not only to act in good faith to advance the company’s purpose, but to do so in a way that also:

· Benefits wider society and the environment,

· Reduces harm caused by the company’s operations, and

· Aligns the interests of shareholders with those of employees, customers, suppliers and communities.

Under the draft reform, directors would still be answerable to the company alone, preserving the principle of unitary board responsibility. But the scope of what “advancing the company’s purpose” means would widen significantly—giving legal backing to what many businesses are already trying to achieve through environmental, social and governance (ESG) initiatives.

Why This Matters Now

Whether or not this amendment is enacted in the near term, the momentum behind it reflects a broader change in how businesses are expected to operate.

According to the 2025 PwC Global CEO Survey, 33% of CEOs reported that their climate-related initiatives have already improved revenue performance—compared to just 5% who saw any downside. Nearly two-thirds of respondents said sustainability efforts had either reduced costs or had no material impact.

The takeaway? ESG compliance, far from being a drag on the bottom line, can actually enhance it—particularly when aligned with long-term strategy and value creation.

We’re also seeing strong performance metrics from purpose-led businesses. The UK now hosts the world’s largest B Corp community, with SMEs in this group reporting average revenue growth of 23.2%, well above the national SME average of 16.8%. These organisations also report stronger employee engagement, better talent acquisition, and greater resilience in volatile market conditions.

What It Means for Corporate Lawyers

For legal professionals in corporate finance and governance, these developments carry important implications.

We’re increasingly advising clients on how to frame purpose and sustainability within existing legal duties—and preparing them for a future where multi-stakeholder governance could become a legal norm. If section 172 is reformed, corporate lawyers will play a key role in redrafting articles of association, adapting board processes, and embedding the new duties into day-to-day operations and strategic reporting.

Section 414CZA—relating to the “section 172 statement” in strategic reports—would also be overhauled. Instead of simply stating how directors have “had regard” to certain stakeholder interests, companies would need to explain how they have actively advanced the company’s purpose in a way that is compatible with environmental and societal wellbeing.

This will demand more than a superficial approach to compliance. It means working closely with clients to translate sustainability goals into board-level accountability, ensure decision-making frameworks are fit for purpose, and demonstrate this effectively to regulators and investors alike.

For Clients and Investors: Opportunity, Not Burden

For clients, especially growth-focused businesses seeking capital or planning a transaction, this evolution in governance is also an opportunity to differentiate. Investors are paying closer attention than ever to ESG credentials and purpose-led governance—and not just from a reputational standpoint. Increasingly, these factors are viewed as indicators of long-term viability and risk management.

Embedding sustainability into the business model, backed by a supportive governance framework, can attract capital, open up new markets, and build resilience against future shocks—whether economic, environmental or social.

A Strategic Shift

This isn’t just about staying ahead of regulation. It’s about rethinking how businesses create value—and who they create it for. In a world of rising expectations and growing instability, long-term success will increasingly belong to those who understand that profit and purpose are not mutually exclusive.

In fact, they may soon be legally inseparable.

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If you’d like to discuss how this potential reform could affect your business, board duties, or reporting obligations, please don’t hesitate to get in touch.