Volume 107
Issue 4
April '19

Making Sustainability Disclosure Sustainable

Written By: Jill E. Fisch

Abstract

Sustainability is receiving increasing attention from issuers, investors, and regulators. The desire to understand issuer sustainability practices and their relationship to economic performance has resulted in a proliferation of sustainability disclosure regimes and standards. The range of approaches to disclosure, however, limits the comparability and reliability of the information disclosed. The Securities and Exchange Commission (SEC)’s longstanding policy that sustainability is not properly part of financial disclosure has contributed to the current regime. Although the SEC has solicited comment on whether to reverse this policy and require expanded sustainability disclosures in issuers’ periodic financial reporting, and investors have communicated broad-based support for such expanded disclosures, the SEC to date still has not required general sustainability disclosure.

This Article argues that claims about the relationship between issuer sustainability practices and risk management, business plans, and economic vulnerability warrant incorporating sustainability information into SEC-mandated financial reporting. Perhaps even more important, in light of the growing pressure for issuers to adopt sustainable business practices and the responsiveness of many issuers to this pressure, is the need for issuers, investors, and regulators to obtain the in-formation necessary to evaluate claims about the economic impact of sustainability initiatives.

Drawing upon the existing narrative disclosure frameworks in SEC-mandated reporting requirements, this Article offers an innovative proposal for sustainability disclosure—a sustainability discussion and analysis, or “SD&A,” section of the annual report. This Article identifies the critical components necessary to make mandated sustainability disclosure both practical and cost-effective and offers a workable first step for integrating sustainability disclosure into issuer financial reporting.

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