The OFR is considered to contain the first significant legal requirements for quoted companies to report on their social, community and environmental impacts, and the new consultation will determine if the OFR provisions will be included in the draft Company Law Reform Bill, currently in its first reading in the Lords.

Commenting on the announcement of the new consultation, Peter Montagnon, director of investment affairs at the Association of British Insurers said: “There is now, above all for companies who have to make these reports, a great need for certainty. The consultation process should be expedited but it must be thorough. The government should not prejudge the result but should listen carefully to the views expressed by the respondents.” 

The government u-turn follows legal action taken by Friends of the Earth, which had launched judicial review proceedings against Gordon Brown and secretary of state for trade and industry, Alan Johnson. When it launched the proceedings, Friends of the Earth said it believed the Chancellor had been seeking to prove his pro-business credentials and had rushed through a radical policy reversal without following proper procedures or the government’s own consultation policy.

The Treasury, in addition to agreeing to the consultation, has also agreed to pay Friends of the Earth’s legal costs.

Friends of the Earth executive director, Tony Juniper, said: "We hope that this experience will help the Chancellor understand that big business is not the only stakeholder he has to represent. He cannot continue to sideline the environment just because the CBI has told him to."