Thursday, March 9, 2017
In 2016, the Securities and Exchange Commission (SEC) for the first time sought public comment on whether financial disclosure reform should address indicators of firms’ sustainability risks and practices. Securities disclosure reform now appears poised to take a deregulatory turn, and innovations at the intersection of sustainability and finance appear unlikely in the face of new policy priorities. Whether the SEC should take any steps to improve how sustainability-related information is disclosed to investors is also deeply contested.
This Article argues that the SEC nonetheless faces a sustainability imperative, first to address this issue in the near term as part of its ongoing review of the reporting framework for financial disclosure, and second, to promote disclosure of material sustainability information within financial reports in furtherance of its core statutory mandate. This conclusion rests on evidence that the current state of sustainability disclosure is inadequate for investment analysis and that these deficiencies are largely problems of comparability and quality, which cannot readily be addressed by private ordering, nor by deference to policymaking at the state level. This Article highlights the costs of agency inaction that have been largely ignored in the debate over the future of financial reporting and concludes by weighing potential avenues for disclosure reform and their alternatives.