Legal Frontiers Of Sustainability, Part Two

Will Integrated Financial And Sustainability Reporting Become A Legal Mandate?

Linked with Corporate Social Responsibility Newswire CSRwire – Published on CRSwire, by Sanford Lewis, April 21, 2010.

Much of what we think of as corporate sustainability reporting is currently done on a voluntary basis.  But most observers believe it is only a matter of time until sustainability disclosure will be a legal requirement just as financial disclosure is today … //

… Shareholders monitoring the gas companies remain concerned about poor disclosure. New York State Comptroller Thomas DiNapoli,  Green Century Funds and numerous other investors are attempting to fill the natural gas sector’s disclosure gap through a series of shareholder resolutions requesting reports on this issue by energy companies. 

Beyond the disclosure gaps on this specific issue, it is obvious that additional SEC guidance and enforcement could enhance disclosure of an array of issues in SEC filings.

On the other hand, better enforcement or single issue approaches like the climate guidance, are not the end-all and be-all of sustainability disclosure. Arguably, fully integrating current financial reporting to the SEC with data associated with impacts of the corporation on society could be far more useful.  The Social Investment Forum submitted a proposal to the SEC last summer calling for movement in the direction of an integrated disclosure requirement, such as that suggested by Harvard business professor Robert G. Eccles and Michael P. Krzus of Grant Thornton LLP in their new book, One Report: Integrated Reporting for a Sustainable Strategy.

The SIF proposal had two elements. First it requested that the SEC require issuers to report annually on a comprehensive, uniform set of sustainability indicators. The letter suggested that the Global Reporting Initiative (GRI) reporting guidelines would be a reasonable starting point.  Secondly, it asked that the SEC issue a guidance to ensure disclosure of short- and long-term sustainability risks in the Management Discussion and Analysis section of the 10-K (MD&A).   The latter proposal would reduce the subjectivity of a company’s decisions to disclose by providing more objective thresholds to trigger disclosure obligations, such as disclosing the emergence of peer-reviewed studies indicating potential hazards of a company’s products or activities.

Such changes would go much further in ensuring that investors and other stakeholders have ready access to the information needed for an integrated examination of where and how finances and sustainability converge. (full text).

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