COULD MANDATORY SUSTAINABILITY REPORTING BECOME REALITY?

 

Sustainability

As the comment period for the Securities and Exchange Commission’s Regulation S-K concept release closes today, many are asking that question.

As part of its ongoing Disclosure Effectiveness Initiative, the SEC issued the concept release April 13 to seek input on “modernizing certain business and financial disclosure requirements in Regulation S-K.”  In that release, the SEC specifically asked for input on the importance of sustainability-related disclosures.

The comment letters show a large number of investor advocates calling for mandatory disclosure of companies’ sustainability efforts.

Sustainability disclosure is currently required, of course, where it has a material impact on a company’s financial results or operations.  But investor advocates have long called for the SEC to go further.

In a speech last month, SEC Chairman Mary Jo White acknowledged “that there are those who do not believe that our materiality-based approach to sustainability disclosure goes far enough.”

However, in the same speech, Chairman White also indicated that, while the issue has the agency’s attention, mandatory disclosure alone would not be an adequate solution:

I urge investors who are seeking to alter corporate behavior on sustainability to continue to use your stewardship and influence to bring about the strategic, supply chain and business model changes you think need to be made by companies to address the underlying risks and priorities.  Encourage and prod companies to acknowledge sustainability objectives that are in line with what makes the most sense for their businesses, demand that they describe what they are doing to achieve those objectives and how they are doing against your expectations.

Not exactly a ringing endorsement for mandatory disclosure.  Still, the issue did not appear in the Reg S-K concept release by accident.  Sustainability is clearly on the SEC’s radar, so stay tuned for any further developments from the Disclosure Effectiveness Review.

Information on other recent developments in the SEC’s Disclosure Effectiveness Initiative is available here.