Law and Policy of Corporate Sustainability Disclosures

Abstract

On February 2, 2010, the Securities and Exchange Commission (SEC) issued interpretive guidance regarding public companies’ existing disclosure requirements for climate change matters. The interpretive guidance was adopted by a vote of three to two. According to Schwartz et al. (2010), the interpretive guidance “sends a clear signal that the SEC expects public companies to pay closer attention to the evaluation of both climate change risks and opportunities when determining whether, how much and what kind of disclosure is warranted” (para. 13). According to Bryan (1997) and Clarkson et al. (1999), management’s discussion and analysis (MD&A) is potentially “a useful source of information for investors” (as cited in Cohen, Gaynor, Krishnamoorthy, & Wright, 2007, p. 181). This includes climate change related data.However, “[s]ome information is of such dubious significance that insistence on its disclosure may accomplish more harm than good” (TSC Industries, Inc. v. Northway, Inc., 1976, p. 448). “Management’s fear of exposing itself to substantial liability may cause it simply to bury the shareholders in an avalanche of trivial information a result that is hardly conducive to informed decisionmaking” (TSC Industries, Inc. v. Northway, Inc., 1976, p. 448-449). According to Commissioner Elisse Walter (2010), “company analyses and determinations whether information is material and required to be disclosed involve judgment” (para. 9).The regulatory system’s goal “should be to guide corporations in being responsive to the expectations and demands of its stakeholders” (Hess, 2001, p. 324). “[M]ost socio-economic decisions have different impacts on various groups and individuals” (Tinker & Lowe, 1980, p. 2). Therefore, a “value-free” method of weighing the stakeholders’ respective interests does not exist (Tinker & Lowe, 1980). In any judgment about a corporation’s overall performance, assigning a weighting to various stakeholder interests is inescapable (Tinker & Lowe, 1980). According to Commissioner Kathleen Casey (2010), the interpretive guidance goes beyond the SEC’s “fundamental investor protection mission” (para. 8). Since reporting framework and audit problems exist and companies are voluntarily making climate change related disclosures, I agree.