University of St. omas Law Journal
Issue 4 04/01/2013 Article 7
Beyond Sustainability Reporting: Integrated
Reporting is Practiced, Required and More Would
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Ninety-five percent of the Global Fortune 250, along with thousands of
other companies worldwide, voluntarily report on their environmental, so-
cietal, and economic impacts. The practice is variously known as sus-
tainability reporting, corporate responsibility (CR) reporting, corporate
social responsibility (CSR) reporting, citizenship reporting, environmental,
societal, and governance (ESG) reporting, or triple bottom line (TBL) re-
porting. A growing number of countries now mandate or provide guidance
related to this practice to some extent. For example, in the United States,
* The authors would like to thank Linda Lowson, Esq., Founder and CEO of the Global
ESG Regulatory Academy
and CSR Insight
LLC, for contributing her findings regarding SEC
noncompliance on ESG issue SEC reporting requirements.
2013] BEYOND SUSTAINABILITY REPORTING 1061
the Dodd-Frank Wall Street Reform and Consumer Protection Act explicitly
requires publicly traded companies to disclose data related to their supply
chains of certain minerals.
Should greater disclosures be explicitly and specifically required?
Should companies begin greater disclosures for their own benefit? Do the
basic principles of existing laws already require a greater amount of disclo-
sure in our current context? If so, what would be gained from greater and
more explicit guidance from legislators or regulators such as the SEC? We
seek to answer these questions.
This article summarizes the history, current state, and motivations and
impacts of sustainability reporting and regulation-by-disclosure, along with
data on the present needs of investors and recent market trends. It also
reviews the definition of materiality under U.S. securities laws and regula-
tions—the key to understanding what data a company must publicly dis-
close for the benefit of investors. Based on our review of recent history, the
current needs of investors, and the definition of materiality, it is clear that
existing laws and related rules already require greater disclosure of data
on environmental and societal impacts than commonly understood. The ar-
ticle concludes with recommendations for managers, their attorneys, ac-
countants, and policymakers, and provokes further questions for
constructive scholarship in the fields of business and law.
Thousands of companies around the world, including 95 percent of the
Global Fortune 250, voluntarily report on their environmental, societal, and
This practice is known as sustainability reporting, cor-
porate responsibility (CR) reporting, corporate social responsibility (CSR)
reporting, citizenship reporting, environmental, societal, and governance
(ESG) reporting, or triple bottom line (TBL) reporting.
While sustainability reporting has expanded rapidly for a variety of
reasons reviewed here, some debate remains about whether and how a legal
framework should be provided. This article begins with a historical retro-
spective. It then summarizes existing efforts to require and specify how
sustainability reporting is accomplished. The authors go on to review the
definition of materiality and the reasons why, correctly understood, U.S.
law already requires sustainability reporting from publicly traded compa-
nies. The article concludes with a discussion of next steps. The authors
1. See, e.g., Ernst & Young & The Boston College Center for Corporate Citizenship, Value
of Sustainability Reporting, http://www.ey.com/Publication/vwLUAssets/ACM_BC/$FILE/1304-
1061668_ACM_BC_Corporate_Center.pdf (last visited Jan. 11, 2014) (showing the value of sus-
tainability reporting and indicating why many businesses practice it); see also Global Reporting
Initiative, Report or Explain: A Smart EU Policy Approach to Non-financial Information Disclo-
sure (May 2013), https://www.globalreporting.org/resourcelibrary/GRI-non-paper-Report-or-Ex
plain.pdf (indicating why many businesses practice sustainability reporting).
1062 UNIVERSITY OF ST. THOMAS LAW JOURNAL [Vol. 10:4
emphasize that high rates of non-compliance with—and lack of punishment
for—violations of existing SEC disclosure rules signals that, at the very
least, more enforcement efforts are needed. As with financial disclosures,
clear and specific mandatory rules would provide the consistency in disclo-
sure that would serve the interests of the marketplace, investors, and soci-
ety. As with financial disclosure rules, requiring sustainability reporting
through legal mechanisms is analogous to forcing a patient to take a
medicine that ultimately the patient should want to take out of her own
enlightened long-term self-interest (the reasons why most large companies
already see ESG reporting as beneficial are explained below). Managers are
urged to not only embrace best practices in integrated reporting, but to co-
operate with policymakers to create clear, comparable, comprehensive, and
credible guidelines that assist in true, total cost accounting and better
A. A Brief History of Regulation-by-disclosure and Sustainability
The 1929 stock market collapse highlighted the risks of market failure
because of lack of information.
It crystallized acceptance of a view that
both investors and the rest of society would benefit if publicly traded com-
panies issued regular financial disclosures under the auspices of govern-
This led to the passage of the Securities Acts of 1933
and 1934 (hereinafter Securities Acts) and the creation of the Securities and
Exchange Commission (SEC).
In 1984, the release of deadly chemical gas from a factory in Bhopal,
India catalyzed awareness that public disclosure of hazardous chemical
stockpiles could mitigate the risk of calamities.
The accident was among
the factors that led to passage of the Emergency Planning and Community
Right-to-Know Act (EPCRA) of 1986,
which, rather than controlling be-
havior, only requires publication of emergency response plans and the dis-
closure, through the Toxic Release Inventory (TRI), of stockpiles of
2. Allen L. White, Why We Need Global Standards for Corporate Disclosure, 69 L
. 167, 175–76 (2006).
3. Steve Thel, The Original Conception of Section 10(b) of the Securities Exchange Act, 42
. L. R
. 385, 409 (1990).
4. David Monsma and Timothy Olson, Muddling Through Counterfactual Materiality and
Divergent Disclosure: The Necessary Search for a Duty to Disclose Material Non-Financial In-
formation, 26 S
. L.J. 137, 145 (2007).
5. Peter H. Sand, The Right to Know: Freedom of Environmental Information in Compara-
tive and International Law, 20 T
. J. I
. L. 203, 209 (2011). Sand also provides a
fascinating history of how post-9/11 counterterrorism concerns were used to restrict public access
to environmental data about companies gathered by government institutions during the years
2001–2009, though this trend was somewhat reversed in 2009. Id. at 222–26.
6. 42 U.S.C. §§ 11001–50 (2000).
2013] BEYOND SUSTAINABILITY REPORTING 1063
specified dangerous chemicals.
This simple requirement—measurement
and public reporting of hazardous chemical stockpiles—led to dramatic re-
ductions in the amount of dangerous chemicals kept near communities; a
third generation of environmental law, known as informational regulation
or regulation-by-disclosure, was born.
Since then, corporate leaders have accepted that disclosure of a broad
set of measures of social, environmental, and economic impacts serve to
benefit companies and their stakeholders.
By the second decade of the new
millennium, a trend was afoot to merge such disclosures with conventional
financial reporting—a practice dubbed integrated reporting—with the hope
that such a linkage will help managers, investors, and stakeholders see the
synergy between “being good” and “doing well.”
B. Current State of Sustainability Reporting
As of 2011, according to KPMG’s triennial study of the phenomenon,
95 percent of the largest 250 corporations in the world (the Global Fortune
250 or G250) engaged in sustainability reporting.
This fact led KPMG to
assert that such reporting had come of age and become de facto law for
Further supporting this assertion is the fact that 70 percent of
publicly traded companies in a worldwide sample of 3,400 firms (the larg-
est one hundred in each of thirty-four countries) report corporate responsi-
7. See id. §§ 11003, 11022–23.
8. David W. Case, Corporate Environmental Reporting as Informational Regulation: A Law
and Economics Perspective, 76 U. C
. L. R
. 379, 384 (2005).
9. See generally J
(1998) (considering whether holding corporations accountable to a
“triple bottom-line” of economic prosperity, environmental quality, and social justice constitutes
10. See R
11. KPMG, KPMG I
2011 21 (2011), available at http://www.kpmg.com/ES/es/ActualidadyNovedades/ArticulosyPub
licaciones/Documents/CR_Report_2011.pdf [hereinafter KPMG I
ber of companies in the G250 who had engaged in sustainability reporting (either in a stand-alone
report or within the context of an annual report) grew from 64 percent in 2005 to 83 percent in
2008 (or 207 out of the G250). KPMG, KPMG I
2008 15 (2008), available at http://www.kpmg.com/EU/en/Documents/
2008]; KPMG, KPMG I
2005 4 (2005), available at http://www.gppi.net/fileadmin/gppi/kpmg2005.pdf
[hereinafter KPMG I
12. KPMG I
2011, supra note 11, at 2.
13. See Adam J. Sulkowski et al., Corporate Responsibility Reporting in China, India, Ja-
pan, and the West: One Mantra Does Not Fit All, 42 N
. L. R
. 787, 796–98 (2008)
(explaining that cultural values could color how managers even discussed their motivations, with
Western executives being more inclined to openly state that they engage in sustainability reporting
for the sake of their shareholders).
1064 UNIVERSITY OF ST. THOMAS LAW JOURNAL [Vol. 10:4
The dominant standard for ESG or CR disclosures was developed by
the Global Reporting Initiative (GRI); 80 percent of reporting entities
among the G250 used GRI guidelines in 2011.
The GRI, a multi-stake-
holder network of experts, began as a project of two U.S. non-profit organi-
zations, CERES and Tellus, in the 1990s.
It expanded under the auspices
of the United Nations (U.N.) and in 2002 became an independent non-profit
organization based in Amsterdam.
The GRI guidelines are intended as a
framework for not only reporting but also engaging with external stake-
holder groups and are openly available as a public good.
Since 2010, the
UN Global Compact (UNGC) Secretariat has strongly recommended that
the more than 10,000 (as of early 2013) signatories of the UNGC (many of
them large corporations) use the GRI’s reporting framework in their annu-
ally required Communications on Progress.
Some progressive companies have been adopting the “bleeding edge”
of reporting—moving toward integrated reporting, which means that a com-
pany is blending sustainability-related data into regular financial disclo-
sures. In 2008, only 4 percent of the G250 had adopted this practice; by
2011 over a quarter of the G250—27 percent—were merging sustainability
disclosures into their financial reports.
Integrated reporting is promoted
by the International Integrated Reporting Committee (IIRC), which defines
it as “a concise communication about how an organization’s strategy, gov-
ernance, performance and prospects lead to the creation of value over the
short, medium, and long term.”
The IIRC is a global coalition of major
accounting firms, the GRI, financial and investment institutions, major cor-
porations, business and accounting associations, academics, U.N. agencies,
and other interested parties. Collectively, its members agree that numerous
elements beyond the scope of conventional financial statements, such as
people, natural resources, intellectual capital, market and regulatory control,
competition, and energy security
help determine an organization’s value,
and need to be clearly communicated to stakeholders. Fundamentally, an
integrated report combines the material aspects of ESG reporting with more
traditional financial reporting into a single integrated report. The reality that
more than eighty global businesses (including companies like Coca-Cola,
14. KPMG I
2011, supra note 11, at 16.
15. GRI, Sustainability Reporting 10 Years On 1, available at https://web.archive.org/web/
FBE7862F5C23/0/Sustainability_Reporting_10years.pdf (last visited Jan. 28, 2014).
16. Id. at 2.
18. GRI and UN Global Compact Forge New Alliance, UN G
June 24, 2010, http://www.unglobalcompact.org/news/50-06-24-2010 (last visited Jan. 11, 2014).
19. KPMG I
2011, supra note 11, at 23. KPMG’s description is that integrated
reporting “has exploded onto the CR agenda.” Id.
, http://www.theiirc.org/ (last visited Jan. 11,
2013] BEYOND SUSTAINABILITY REPORTING 1065
Microsoft, Unilever, and Marks and Spencer) and fifty institutional inves-
tors, in addition to major accounting entities and their associations, are in-
volved in developing the integrated reporting framework suggests its long-
term viability as a standard practice.
C. Drivers & Impacts of Sustainability (Market Trends & Investor
The rapid and worldwide spread of sustainability reporting suggests
that companies see value in at least appearing to provide greater trans-
parency. KPMG’s triennial study confirms that managers of reporting enti-
ties concur with this opinion. The growth in sustainability reporting can
also be attributed to pressure from investors, consumers, and activists.
The triennial KPMG study of executives accountable for sustainability
reporting is the best source of data on the drivers of the practice.
the most commonly identified motivations have varied depending on the
year of the study and sampling of companies, executives have regularly
cited maintaining a reputation or brand, stimulating innovation and learn-
ing, employee motivation, and relations with shareholders. Other experts
and academics believe that increased disclosure should foster greater trans-
parency, provide incentives for cleaner technologies,
and facilitate dia-
logue concerning the effects of climate change on the business world.
A. The Legal Theory of Regulation-by-disclosure
As mentioned above, regulation-by-disclosure has been categorized as
the third generation of efforts to curb negative side effects of business.
23. See Sandra Waddock, Building a New Institutional Infrastructure for Corporate Respon-
sibility, 22 A
3, 87–108 (2008).
24. See KPMG I
2011, supra note 11; KPMG I
2008, supra note
11; KPMG I
2005, supra note 11.
25. See Perry E. Wallace, Disclosure of Environmental Liabilities Under the Securities Laws,
. & L
. 1093, 1124–29, 1144 (1993) (illustrating that environmental disclosure
can foster environmental protection by creating an incentive to solve environmental problems to
preserve the market value of securities).
26. See Andrea M. Matwyshyn, Material Vulnerabilities: Data Privacy, Corporate Informa-
tion Security, and Securities Regulation, 3 B
. L.J. 129, 202–03 (2005) (explaining
how, in the context of information security, mandated disclosures increase awareness of problems
and supports systemic adoption of best practices for both corporations and consumers); see also
Adam J. Sulkowski, Cyber-Extortion: Duties and Liabilities Related to the Elephant in the Server
Room, J.L. T
. & P
1, 21–63 (2007) (explaining how cybersecurity breaches, inadequate
preventative measures, and related costs and liabilities are more routine than commonly realized,
and are under-reported).
27. See Case, supra note 8, at 428.
1066 UNIVERSITY OF ST. THOMAS LAW JOURNAL [Vol. 10:4
Within this taxonomy, the first generation consisted of rule-based systems
and the second involved command-and-control regulation.
Some authorities, including KPMG, characterize voluntary disclosure
efforts as some form of de facto law.
The theory of soft law holds that
norms of conduct are enforced by a desire to avoid shame rather than a
desire to avoid sanctions, yet may achieve the ultimate aim of hard law,
which, as Cynthia Williams articulates, is “to coordinate action to a focal
Williams suggests that soft law approaches be taken seriously.
Others agree that increased disclosure of information has great poten-
tial to further regulatory goals but point out that, to be effective, a hard law
framework is needed to assure uniformity and reliability. According to
David Case, a greater abundance of information should allow stakeholders
to more efficiently negotiate with polluters to achieve desired goals.
ever, as of 2009, Case characterized the scholarship of regulation-by-disclo-
sure as “young” and related legal scholarship as in its “infancy.”
Crusto recently concluded the same, stating that there is “little, if any, criti-
cal analysis of increased corporate environmental disclosure in the acad-
Scholarship of sustainability reporting has advanced in recent
years, for example, with a causative link being demonstrated between hav-
ing a green reputation and having satisfied employees,
and between firm
size and age and propensity to disclose ESG information,
but the many
29. See KPMG I
2011, supra note 11, at 2 (claiming that sustainability report-
ing has become “de facto” law for big companies).
30. Cynthia A. Williams, Civil Society Initiatives and “Soft Law” in the Oil and Gas Indus-
try, 36 N.Y.U. J. I
L. & P
. 457, 496 (2004) (citing Anne-Marie Slaughter, Global Govern-
ment Networks, Global Information Agencies, and Disaggregated Democracy, 24 M
. J. I
L. 1041 (2003)).
32. Case, supra note 8, at 415–27.
33. Id. at 427.
34. Mitchell F. Crusto, Endangered Green Reports: “Cumulative Materiality” in Corporate
Environmental Disclosure After Sarbanes-Oxley, 42 H
. J. L
. 483, 486 (2005).
35. See Cassandra Walsh & Adam J. Sulkowski, A Greener Company Makes for Happier
Employees More So Than Does a More Valuable One: A Regression Analysis of Employee Satis-
faction, Perceived Environmental Performance and Firm Financial Value, 11 I
. 4, 274–82 (2010).
36. See Christopher Hughey & Adam J. Sulkowski, More Disclosure = Better CSR Reputa-
tion? An Examination of CSR Reputation Leaders and Laggards in the Global Oil & Gas Indus-
try, 12 J. A
. & E
. 2, 24–34 (2012); Jia Wu, Linxiao Liu & Adam J. Sulkowski,
Environmental Disclosure, Firm Performance, and Firm Characteristics: An Analysis of S&P 100
Firms, 10 J. A
. & E
. 4, 73–84 (2011); Lu Wei, Wang Wenjun, Adam J. Sulkowski &
Jia Wu, The Relationships Among Environmental Management, Firm Value and Other Firm At-
tributes: Evidence from Chinese Manufacturing Industry, 10 I
. & S
78–95 (2011); Adam J. Sulkowski & D. Steven White, Financial Performance, Pollution Mea-
sures and the Propensity to Use Corporate Responsibility Reporting: Implications for Business
and Legal Scholarship, 21 C
. J. I
. L. & P
3, 491–514 (2009). For examples of
how sustainability data can help identify business opportunities or reveal problems worth cor-
recting, see Adam J. Sulkowski & Nicholas Vardaro, Sid Wainer & Son: A Growing Realization,
2013] BEYOND SUSTAINABILITY REPORTING 1067
questions related to the drivers and benefits of sustainability reporting still
B. Within the United States
1. Securities Laws
In the United States, securities laws—either explicitly or by interpreta-
tion—require sustainability-related disclosures inasmuch as such informa-
tion is relevant to financial performance and meets the threshold standard of
materiality, as elaborated below. Some assert that SEC guidelines have al-
ready improved transparency (and hence, comparability of corporate per-
formance), with regard to corporate greenhouse gas emissions.
indicated by statistics cited later in this article, companies often ignore even
explicit rules and guidance.
In addition to financial data,
the regulations required by the Securi-
ties Acts also mandate that companies publish non-financial information,
including data related to market conditions,
and trends and
events likely to affect financial results.
Since 1971, the SEC has required
the filing of environmental information as part of mandatory annual reports
under Form 10-K.
Relevant guidance includes:
ROCEEDINGS OF THE
2011, available at http://
alsb.roundtablelive.org/Default.aspx?pageId=1175951 (last visited Jan. 11, 2014); Adam J. Sul-
kowski et al., What Aspects of CSR Really Matter: An Exploratory Study Using Workplace Mor-
tality Data, I
J. Sulkowski, Helping the Beast See the Carrot: A Research Agenda Concerning Corporate Re-
sponsibility Reporting,in I
Wankel, Peter Odrakiewicz & William Strnad eds., 2010).
37. See Elizabeth E. Hancock, Note, Red Dawn, Blue Thunder, Purple Rain: Corporate Risk
of Liability for Global Climate Change and the SEC Disclosure Dilemma, 17 G
. 233, 233–34 (2005); Jeffrey M. McFarland, Warming Up to Climate Change Risk Disclo-
sure, 14 F
. & F
. L. 281, 281–301 (2009); Perry E. Wallace, Climate Change,
Fiduciary Duty, and Corporate Disclosure: Are Things Heating Up in the Boardroom?, 26 V
. L.J. 293, 293–99 (2008).
38. Item 301 of Regulation S-K, 17 C.F.R. § 229.301 n.2 (2006).
39. See Regulation S-K, 17 C.F.R. § 229.301 (2006).
40. Id. § 229.103.
41. Id. § 229.303.
42. For the latest in SEC guidance on disclosure issues, see Researching the Federal Securi-
ties Laws Through the SEC Website, U.S. S
. & E
pubs/securitieslaws.htm (last visited Oct. 8, 2012). See Elizabeth Anne Glass Geltman, Disclosure
of Contingent Environmental Liabilities by Public Companies Under the Federal Securities Laws,
. L. R
., 129, 129–30 (1992); Perry E. Wallace, Disclosure of Environmental
Liabilities Under the Securities Laws: The Potential of Securities-Market-Based Incentives for
Pollution Control, 50 W
. & L
. 1093, 1093 (1993); M
RIENDS OF THE
USTAINABILITY AND THE
34 (2003); R
EPETTO ET AL
MENTS IN THE
EXICO AND THE
iv (2002); Robert H. Feller, Environmental Disclosure and the
Securities Laws, 22 B.C. E
. L. R
. 225, 225–39 (1995).
1068 UNIVERSITY OF ST. THOMAS LAW JOURNAL [Vol. 10:4
Appropriate disclosure shall also be made as to the material ef-
fects that compliance with federal, state, and local provisions
which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the pro-
tection of the environment, may have upon the capital expendi-
tures, earnings, and competitive position of the registrant and its
Arguably, other provisions, by requiring mention of managerial train-
ing related to legal standards, by extension require the mention of foreign
minimum mandated disclosures.
Disclosures are mandated by the SEC in at least one context related to
human rights: companies must publish whether they are active in operations
against which the United States has imposed sanctions.
On January 27, 2010, the SEC provided public companies with inter-
pretive guidance for climate-change-related disclosure requirements.
clarified that businesses should disclose to investors any serious risks due to
climate change or related policies, regulations, legislation, international ac-
cords, or business trends.
Existing rules have mandated reporting on the
“reasonably likely material costs” of complying with environmental statutes
Interpretive guidance does not add new requirements, but
43. 17 C.F.R. § 229.101(c)(xii) (2010). See Gerard A. Caron, Comment, SEC Disclosure
Requirements for Contingent Environmental Liability, 14 B.C. E
. L. R
. 729 (1987);
Michael A. Neloy, Disclosure of Environmental Liability in SEC Filings, Financial Statements,
and Debt Instruments: An Introduction, 5 V
. L.J. 315 (1994); Mark A. White, SEC
Disclosure of Environmental Matters,in T
F.P. Sullivan ed., 1992).
44. Peter H. Sand, The Right to Know: Freedom of Environmental Information in Compara-
tive and International Law, 20 T
. J. I
. L. 203, 227 n.144 (2011).
45. Eric Engle, What You Don’t Know Can Hurt You: Human Rights, Shareholder Activism
and SEC Reporting Requirements, 57 S
. 63, 84 n.135 (2006).
46. Press Release, U.S. Sec. & Exch. Comm’n, SEC Issues Interpretive Guidance on Disclo-
sure Related to Business or Legal Developments Regarding Climate Change (Jan. 27, 2010),
available at http://www.sec.gov/news/press/2010/2010-15.htm (last visited Jan. 18, 2014).
47. Comm’r Mary Schapiro, SEC Chairperson, Statement Before the Open Commission
Meeting on Disclosure Related to Business or Legislative Events on the Issue of Climate Change
(Jan. 27, 2010); Nickolas M. Boecher, SEC Interpretive Guidance for Climate-Related Disclo-
sures, 10 S
. L. & P
43, 43 (2010); see Jeffrey A. Smith et al., The SEC’s
Interpretive Release on Climate Change Disclosure, 4 C
. 147, 147
(2010); see also B
OUNG ET AL
iv (2009); Camden D. Burton, Recent Development, An
Inconvenient Risk: Climate Change Disclosure and the Burden on Corporations, 62 A
. 1287, 1287–89 (2010).
48. Comm’n Guidance Regarding Disclosure Related to Climate Change, 75 Fed. Reg.
6,295–97 (Feb. 8, 2010) (to be codified at 17 C.F.R. pt. 211, 231, 241) [hereinafter Comm’n
Guidance]. The four areas in which climate change may result in disclosure obligations: Legisla-
tion and Regulation; International Accords; Indirect Consequences of Regulation or Business
Trends; and Physical Impacts of Climate Change.
2013] BEYOND SUSTAINABILITY REPORTING 1069
rather clarifies expectations.
Only one commissioner objected to this clar-
ification, arguing that climate risks are beyond the expertise of the SEC.
2. Environmental Protection Agency
Some steps by the Environmental Protection Agency (EPA), in coop-
eration with the SEC, have been characterized as steps forward in regula-
tion-by-information, but they do not mandate disclosures by companies. For
example, the EPA has shared information with the SEC about enforcement
with the aim of identifying companies that fail to report actions against
them. The effort fell short of expectations because the EPA tracks violators
by facility while the SEC tracks registrants by company.
The EPA has been taking steps to mandate the measurement and re-
porting of greenhouse gas emissions. On January 1, 2010, it began, for the
first time, to require large emitters of greenhouse gases to collect and report
data with respect to their greenhouse gas emissions.
This reporting re-
quirement is expected to cover 85 percent of the nation’s greenhouse gas
emissions generated by roughly 10,000 facilities.
In December 2009, the
EPA issued an “endangerment and cause or contribute finding” for green-
house gases under the Clean Air Act, which will allow the EPA to craft
rules that directly regulate greenhouse gas emissions.
3. Dodd-Frank Wall Street Reform and Consumer Protection Act
While the Dodd-Frank Wall Street Reform and Consumer Protection
Act (hereinafter the Dodd-Frank Act) primarily regulates the financial sec-
tor, its Title XV or “Miscellaneous Provisions” contain specialized disclo-
sure requirements intended to improve the behavior of companies.
1502 requires an annual audited-and-certified disclosure of the use of—and
49. Schapiro, Statement Before Open Commission, supra note 47.
50. Nickolas M. Boecher, SEC Interpretive Guidance for Climate-Related Disclosures, Fea-
ture, 10 S
. L. & P
43, 43 (2010).
51. Michael J. Viscuso, Note, Scrubbing the Books Green: A Temporal Evaluation of Corpo-
rate Environmental Disclosure Requirements, 32 D
. J. C
. L. 879, 891 (2007).
52. See Mandatory Reporting of Greenhouse Gases, 74 Fed. Reg. 56260 (Oct. 30, 2009).
53. See Press Release, EPA, EPA Finalizes the Nation’s First Greenhouse Gas Reporting
System/Monitoring to begin in 2010 (Sept. 22, 2009), available at http://yosemite.epa.gov/opa/
54. Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section
202(a) of the Clean Air Act, 74 Fed. Reg. 66496 (Dec. 15, 2009). The Clean Air Act is codified at
U.S.C. § 7401 et seq.
55. The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No.
111–203, 124 Stat. 1376 (2010) [hereinafter The Dodd-Frank Act]. For an overview and discus-
sion of the law, see David M. Lynn, The Dodd-Frank Act’s Specialized Corporate Disclosure:
Using the Securities Laws to Address Public Policy Issues, 6 J. B
. & T
. L. 327 (2011). See
Emily Veale, Is There Blood On Your Hands-Free Device?: Examining Legislative Approaches to
the Conflict Minerals Problem in the Democratic Republic of Congo, 21 C
. L. 503, 544 (2013).
1070 UNIVERSITY OF ST. THOMAS LAW JOURNAL [Vol. 10:4
due diligence related to—“conflict minerals” extracted from the Democratic
Republic of the Congo or an adjoining country.
Section 1503 requires
disclosure in each periodic report filed with the SEC information related to
any mining health and safety violations, including their number, related or-
ders, and citations received from the Mine Safety and Health Administra-
tion (MSHA), in addition to findings of patterns of violations.
1504 requires companies involved in mining and oil and gas development
to disclose payments to governments.
Dodd-Frank also requires the SEC
to make available online a collection of such disclosed information.
4. The Materiality Principle
The materiality principle, correctly understood from both a historical
and contemporary perspective, further compels publicly traded companies
to disclose information related to sustainability. The SEC defines material-
ity as information related to “those matters about which an average prudent
investor ought reasonably to be informed.”
This is consistent with the
Supreme Court’s seminal ruling on the issue in TSC Industries v. Norway,
Inc., in which the Court stated that a fact is material if there is “a substantial
likelihood that the . . . fact would have been viewed by the reasonable in-
vestor as having significantly altered the ‘total mix’ of information availa-
The standard of “reasonableness” is the focus of an inquiry by Steve
Lydenberg who points out that, in the context of torts, a reasonable person
is careful with respect to creating risks of harm, and a reasonable investor
(as opposed to a profit-maximizing investor) has these same concerns.
The key point with respect to investors, however, is that unless the relevant
information is available to them, they may well be unable to make a reason-
able assessment of their investments.
56. Specialized Corporate Disclosure, U.S. S
spotlight/dodd-frank/speccorpdisclosure.shtml; see also The Dodd-Frank Act, § 1502, 124 Stat. at
2213–18 (discussing conflict minerals).
57. Specialized Corporate Disclosure,supra note 56; see also The Dodd-Frank Act, § 1503,
124 Stat. at 2218–20. Section 1503 of the Dodd-Frank Act is entitled “Reporting Requirements
Regarding Coal or Other Mine Safety.”
58. Specialized Corporate Disclosure,supra note 56; The Dodd-Frank Act § 1504, 124 Stat.
at 2220–22. Section 1504 of the Dodd-Frank Act is entitled “Disclosure of Payments by Resource
59. Specialized Corporate Disclosure,supra note 56 (“Information must be provided in an
interactive data format [to permit the SEC to compile the information electronically and provide
the information online].”). See also The Dodd-Frank Act, § 1504(q)(3), 124 Stat. at 2221–22 (“To
the extent practicable, the Commission shall make available online, to the public, a compilation of
the information required to be submitted under the rules issued under paragraph (2)(A).”).
12, available at http://www.sasb.org/wp-content/uploads/2012/10/On-
Materiality-and-Sustainability.pdf (last visited Feb. 5, 2014).
62. Id. at 13.
2013] BEYOND SUSTAINABILITY REPORTING 1071
Rule 10b-5 is also critically relevant.
As explained by Rachel Cher-
ington, “Rule 10b-5 requires veracity in corporate statements, even when
there is no affirmative duty to disclose such information, the rule reaches a
broader cross-section of corporate statements than those required in the pe-
riodic and annual statements.”
Misstatements or major omissions, even
with regard to information that is voluntarily proffered, can potentially
amount to a fraud upon investors.
Beyond academia and the SEC, practi-
tioners have also gone on record that environmental risks are material.
Some have focused more on the question of what existing regulatory
structures require. Perry Wallace has argued that, given the likely cata-
strophic consequences of climate change and existing fiduciary duties of
managers, companies should, given existing rules and principles, make
greater non-financial disclosures.
This line of reasoning, agreed upon by
David Monsma and Timothy Olson, holds that company responses to cli-
mate change are material knowledge to investors and that regulation S-K,
correctly interpreted, requires related disclosures.
agrees with this logic, stating that U.S. securities laws should be interpreted
as requiring at least a disclosure of liability exposure, including amounts of
63. See 17 C.F.R. 240.10b-5 (“It shall be unlawful for any person, directly or indirectly, by
the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of
any national securities exchange, (a) to employ any device, scheme, or artifice to defraud, (b) to
make any untrue statement of a material fact or to omit to state a material fact necessary in order
to make the statements made, in the light of the circumstances under which they were made, not
misleading, or (c) to engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any person in connection with the purchase or sale of any
64. See Rachel Cherington, Securities Laws and Corporate Social Responsibility: Toward an
Expanded Use of Rule 10b-5, 25 U. P
. J. I
. L. 1439, 1448 (2004).
65. This strong possibility—at least in theory—of eventually being accused of defrauding
investors for withholding or misrepresenting data on ESG and sustainability performance stands in
strong contraposition to an apparent lack of consequences (to date) for constructing LEED-certi-
fied buildings that may not actually perform as expected. Adam J. Sulkowski, LEEDigation: The
Risks, Why We Don’t See More, and Practical Guidance Related to Green Building Contracts, 39
. L.J. 192, 201–02 (2010).
66. Eric Engle, What You Don’t Know Can Hurt You: Human Rights, Shareholder Activism,
and SEC Reporting Requirements, 57 S
. 63, 89 n.60 (2006) (citing to a letter from
the Honorable John B. Stephenson, Ranking Minority Member, Committee on Environment and
Public Works, to Senator Jon S. Corzine (D.-N.J.) (July 14, 2004) reprinted in GAO-04-808,
Environmental Disclosure: SEC Should Explore Ways to Improve Tracking and Transparency of
Information (2004) (“Environmental risks and liabilities are among the conditions that, if undis-
closed, could impair the public’s ability to make sound investment decisions. For example, the
discovery of extensive hazardous waste contamination . . . [or] impending environmental regula-
tions could affect a company’s future financial position.”)).
67. Perry E. Wallace, Climate Change, Fiduciary Duty, and Corporate Disclosure: Are
Things Heating Up in the Boardroom?, 26 V
. L.J. 293 (2008).
68. David Monsma & Timothy Olson, Muddling Through Counterfactual Materiality and
Divergent Disclosure: The Necessary Search For a Duty to Disclose Material Non-Financial
Information, 26 S
. L.J. 137, 147–61 (2007).
1072 UNIVERSITY OF ST. THOMAS LAW JOURNAL [Vol. 10:4
emissions and actions taken to reduce the risk of related possible losses.
As further evidence that U.S. securities laws—correctly interpreted—re-
quire extensive reporting on the side effects of doing business, some point
to instances where disclosures in the U.S. were greater than in countries that
have explicitly stipulated what must be reported
to such an extent that
some think that—again correctly interpreted and applied—U.S. standards
are even worthy of emulation.
5. Investor Demands: Proof That Materiality Behooves Disclosures
Perhaps most persuasively, the argument that the materiality principle
behooves greater ESG reporting is supported by the amount of demand for
such disclosures by investors. Seven hundred twenty-two investors control-
ling $87 trillion in assets have expressed a desire through the Carbon Dis-
closure Project for greater climate-related disclosure, and the amount of
investments represented continues to grow.
Investors have submitted re-
ports suggesting that current climate-related disclosure is insufficient.
Over 1,000 financial firms with assets under management of approxi-
mately $33 trillion had signed on to the U.N.’s six Principles for Responsi-
ble Investment (PRI) as of 2012.
Among other things, the signatories
committed to incorporate environmental, social, and governance (ESG) is-
sues into their investment analyses and decision making, be active owners
around these issues, seek appropriate ESG disclosure by companies in
which they invest, and collaborate to promulgate the PRI broadly, while
reporting on their own activities.
Twelve percent of managed assets are invested in stocks that are cur-
rently screened based on ethical criteria.
The U.S. SIF (Social Investment
Forum) reported in its 2012 Trends Report that some $3.74 trillion is now
under the responsible investment umbrella, with $3.3 trillion (out of a total
69. Jeffrey M. McFarland, Warming Up to Climate Change Risk Disclosure, 14 F
. & F
. L. 281, 285–92 (2009).
70. See C
36 (2004) (citing British Petroleum’s 1998 report to
the SEC on potential impacts of the Kyoto Protocol).
71. For a proposal to “globalize” the SEC disclosure rules, see Patricia Romano, Sustainable
Development: A Strategy That Reflects the Effects of Globalization on the International Power
Structure, 23 H
. J. I
L. 91, 108 (2000). For potential recourse to the Aarhus Convention
see Nikzad Oraee-Mirzamani & Zen Makuch, Corporate Environmental Disclosure Law, Fiduci-
ary Duties and the Aarhus Convention, 20 E
. L. R
. 18–22 (2010).
REPARED FOR THE
? 6 (2013), available at http://www.pwc.co.uk/en_UK/uk/assets/
pdf/cdp-ftse350-climate-change-2013.pdf (last visited Jan. 19, 2014).
73. UNEP F
2012, 4, available at http://www.unpri.org/viewer/?file=files/Annual%20report%20
2012.pdf (last visited Jan. 19, 2014).
74. Id. at 24.
75. Jeroen Derwall et al., The Eco-Efficiency Premium Puzzle, 61 F
J. 3, 3
2013] BEYOND SUSTAINABILITY REPORTING 1073
of $33.3 trillion total investment) incorporating ESG data.
and fund managers associated with these funds, and with the PRI, are now
at least in theory making investment decisions partially based on non-finan-
cial but potentially material disclosures, and firms may be responding to
this market demand for more information. Such investors are becoming
more vocal—of 600 shareholder resolutions being tracked by Ernst &
Young in 2013, 44 percent related to environmental and societal issues.
One measure that investors are taking ESG disclosures seriously is that
a large and growing share of G250 companies goes further than investing in
measuring and publishing such data. Almost half pay for third-party verifi-
cation, with a majority of these engaging one of the major international
One-third of the G250 issued restatements regarding
their ESG data, indicating that they perceived a critical mass of stakehold-
ers—including shareholders—follow and actually pay attention to the ve-
racity and reliability of this information.
Another indicator that companies
realize there is a demand for this data is the widespread drive to make it
more accessible across multiple communications media; only 20 percent
communicate their sustainability data solely through stand-alone sus-
Forty-seven percent of the G250 companies report financial gains from
their ESG activities, most often citing improvements in revenue and cost
savings as the underlying factors.
Perhaps the biggest indicator that inves-
tors care—and are one of the biggest drivers of the sustainability reporting
movement—is that companies listed on stock exchanges are the most likely
to report such data (as opposed to state- or foundation-controlled or pri-
vately-held or family-owned companies or co-operatives). Investors have
spoken, experts and authorities have opined, and company actions have re-
flected that ESG data is material—to such an extent that it appears on
Bloomberg screens. Reasonable investors consider it essential to the mix of
information upon which they rely.
, 2010 R
RENDS IN THE
10 (2010); see also Socially Responsible Investing Facts, US SIF, https://web.arch
ive.org/web/20111011143540/http://ussif.org/resources/sriguide/srifacts.cfm (last visited Feb. 12,
2014). US SIF, 2012 T
77. Avery Fellow, Investors Demand Climate-Risk Disclosure in 2013 Proxies, B
Feb. 25, 2013, http://www.bloomberg.com/news/2013-02-25/investors-demand-climate-risk-dis
78. KPMG, KPMG I
81. Id. Sustainability reporting, for example, helps managers identify and eliminate waste
and track the returns on investments in efficiency and improved products and services. See Adam
J. Sulkowski, There’s Gold in Them Thar Brownfields: The Legal Framework of Brownfield Rede-
velopment and Some Tips for Getting Started, 39 R
. L.J. 100, 111–12 (2010).
1074 UNIVERSITY OF ST. THOMAS LAW JOURNAL [Vol. 10:4
C. Outside the United States
Since 1995 Denmark has required corporations to disclose societal and
environmental impacts. Since then, listed corporations have been required
to disclose environmental impact information in France, the Netherlands,
Norway, Spain, Sweden, and the United Kingdom.
Germany has also be-
gun to require disclosure of societal and environmental impacts, and Swe-
den requires state-owned enterprises to publish company reports in
accordance with the GRI.
South Africa now requires integrated reporting,
which combines ESG data in required financial reports.
mental disclosure requirements are considered to be the most effective
“multiplier” instruments because they affect all public companies.
Directive 90/313/EEC on Freedom of Access to Information on the
Environment requires national transparency legislation in all EU countries.
The recommendation of the EU Commission in 2001,
and the EU Ac-
counts Modernisation Directive of 2003,
indicate that more precise envi-
ronmental disclosure standards for financial accounting are anticipated,
especially in the context of future EU emissions trading for greenhouse
An intergovernmental working group of experts on International
Standards of Accounting and Reporting (ISAR which is under the auspices
of the U.N. Conference on Trade and Development in Geneva) started in
1990 to integrate environmental costs and liabilities into traditional ac-
counting and auditing methods.
82. For comparative overviews, see U.N. Econ. Comm’n for Europe, Supporting
Frameworks for Corporate Environmental Reporting, U.N. Doc. ECE/CEP/AC.10/2009/7 (June
19, 2009), and T
2 (2002). See also Thomas P. Lyon &
John W. Maxwell, Greenwash: Corporate Environmental Disclosure Under Threat of Audit, 20 J.
. & M
3–4 (2011). However, the French rules have been criticized as rela-
tively lacking in environmental disclosure requirements, and no penalties have been established
for non-compliance. Lucien J. Dhooge, Beyond Volunteerism: Social Disclosure and France’s
Nouvelles R´egulations ´
Economiques, 21 A
. J. I
. L. 441, 445 (2004).
83. Carlos Noronha, Si Tou, M.I. Cynthia & Jenny J. Guan, Corporate Social Responsibility
Reporting in China: An Overview and Comparison with Major Trends, 20 C
. 30 (2012).
84. Jem Bendell et al., Public Policies for Scaling Corporate Responsibility Standards: Ex-
panding Collaborative Governance for Sustainable Development, 2 S
. & P
J. 263, 280 (2011).
85. See Mark D. Abkowitz et al., Environmental Information Disclosure and Stakeholder
Involvement: Searching for Common Ground, 6 C
415, 415–16 (1999).
86. Commission Recommendation 2001/453/EC, on the Recognition, Measurement, and Dis-
closure of Environmental Issues in the Annual Accounts and Annual Reports of Companies, 2001
O.J. (L 156) 33 (EC).
87. Council Directive 2003/51/EC, on the Annual and Consolidated Accounts of Certain
Types of Companies, Banks and Other Financial Institutions and Insurance Undertakings, 2003
O.J. (L 178) 16–17 (EC).
88. See A
ISIKEN IN DIE
12 (2d ed. 2004).
89. See P
864 (2d ed.
2003); Ted L. McDorman, Access to Information Under Article 9 of the OSPAR Convention (Ire-
2013] BEYOND SUSTAINABILITY REPORTING 1075
The World Bank has also moved away from its inclination toward se-
crecy, opting for a more transparent approach similar to that of other multi-
lateral development banks.
International institutions now see information
disclosure as a legal instrument that helps to anticipate and control environ-
mental risks, “inevitably whittling down traditional business secrecy de-
fenses in the process.”
Disclosure of environmental risks to the public
became part of the information policies of multilateral development banks
in the 1990s.
Simultaneously, the United Nations Environment Pro-
gramme’s (UNEP) “Finance Initiative” launched a global partnership with
the private financial sector to promote best practices related to environmen-
tal credit risks.
More than 190 financial institutions (including banks, in-
surers, and fund managers) have joined the initiative worldwide, within the
land v. United Kingdom), 98 A
. J. I
L. 330, 330–31 (2004). Regarding an earlier UNEP
survey of various multinational companies’ environmental auditing practices, see Survey, Envi-
ronmental Auditing, I
, Oct.–Dec. 1988, at 3–21; P
33–34 (1990). On further recent develop-
ments, see Andreas N¨olke, International Accounting Standards Board,in H
66, 66–70 (Thomas Hale & David Held
1–2 (2009), availa-
ble at http://siteresources.worldbank.org/EXTINFODISCLOSURE/Resources/R2009-0259-2.pdf.
See Paul J. Nelson, Transparency Mechanisms at the Multilateral Development Banks, 29 W
. 1835, 1835 (2001); Graham Saul, Transparency and Accountability in International Finan-
cial Institutions,in T
127, 127–37 (Richard Calland & Alison Tilley eds., 2002); Cf. T
OMMENTS ON THE
2009 (2009), available at http://www.eib.org/attachments/consultations/ti-com
ments-23072009.pdf; Reza Moghadam, Freedom of IMFormation, I
(Sept. 17, 2009), available at http://blog-imfdirect.imf.org/2009/09/17/freedom-of-
91. Peter H. Sand, The Right to Know: Freedom of Environmental Information in Compara-
tive and International Law, 20 T
. J. I
. L. 203, 231 (2011).
92. See G
(2001); Saul, supra note 90, at 127–37 (discussing environmental disclosures as an important
aspect of transparency). The World Bank Group’s International Finance Corporation (IFC) has
since 1998 required public disclosure of investment-related environmental information as part of
its Environmental and Social Review Summaries (ESRS). See IFC, I
93. The “Principles for Responsible Investment” (PRI) developed and institutionalized in this
context include observance of Impact Reporting and Investment Standards (IRIS) for measuring
and reporting social and environmental performance. See P
3 (A. Garfunkel ed., 2010). For criticism, see Surya Deva, Global Compact: A Critique of
the U.N.’s “Public-Private” Partnership for Promoting Corporate Citizenship, 34 S
L. & C
. 107 (2006); Evaristus Oshionebe, The U.N. Global Compact and Accountability
of Transnational Corporations: Separating Myth from Realities, 19 F
. J. I
L. 1, 13–30
1076 UNIVERSITY OF ST. THOMAS LAW JOURNAL [Vol. 10:4
framework of the U.N. Global Compact.
Finally, the Basel Committee on
Banking Supervision (originally established by the central bank governors
of the G-10 countries and currently composed of representatives of twenty-
seven central banks) now requires all banks in its member countries to
“monitor the risk of environmental liability arising in respect of the collat-
eral, such as the presence of toxic material on a property.”
The growing importance and materiality of climate change, sus-
tainability, and corporate responsibility issues, combined with calls from a
wide range of stakeholders for greater transparency, mean that companies
increasingly will be expected to disclose material aspects of ESG along
with their financial reports. Doing that effectively may well mean that “un-
derstanding the links between financial results and sustainability impacts is
critical for business managers, and increasingly connected to long- and
short-term business success.”
Almost of necessity, that speaks to the need
for integrated reporting.
TEPS IN THE
A. So If Integrated Reporting Is Already to Some Extent Required By
Law and Demanded by Markets, What is the Problem?
1. Widespread Violations, Lack of Enforcement
Over two decades of data document a consistently high rate of non-
compliance with minimal and clear guidelines on what must be reported
with regard to financial repercussions related to ESG issues.
studies by governments, academia, and the private sector, it appears that
companies routinely ignore SEC guidance.
A 1992 Price Waterhouse sur-
vey found that 62 percent of respondents’ financial statements failed to fol-
low SEC rules requiring the reporting of environmental fines in excess of
The same study found that a majority of companies failed to
report material considerations with respect to climate change and other ESG
94. See About UNEP FI, UNEPFI.
, http://www.unepfi.org/about/index.html (last visited
Jan. 10, 2014); About the PRI Intiative, UNPRI.
(last visited Jan. 10, 2014).
: A R
112 (2006), available at http://www.bis.org/
publ/bcbs128.pdf. On further action by the Basel Committee on Banking Supervision (“Basel III
Framework”), see Kevin Young, Basel Committee on Banking Supervision, in H
,supra note 89, at 39–45.
96. Integrated Reporting, G
information/current-priorities/integrated-reporting/Pages/default.aspx (last visited Jan. 13, 2014).
97. Sulkowski & White, supra note 36, at 504–05.
2013] BEYOND SUSTAINABILITY REPORTING 1077
A 1996 academic study found that 54 percent of companies with
potential liabilities for hazardous waste sites failed to disclose this in their
initial public offering registration statements, and 61 percent of currently
registered companies known to have potential liabilities for hazardous
waste sites failed to disclose this fact.
A governmental study found that
74 percent of corporations in its sample fail to comply with disclosure
This pattern of uneven compliance with specific SEC guidance contin-
ues. One recent study concluded that “60% or more of large public compa-
nies, including those that make up the S&P 500 and the FT 100, may be
failing to comply with one or more SEC requirements in Regulation S-K
A 2008 report, submitted by an institutional investor, surveyed
over six thousand annual filings by Standard & Poor’s 500 companies and
found that 76.3 percent of 2008 filings failed to mention climate change.
The SEC has reportedly not made significant efforts to investigate or penal-
ize such rampant violations of its rules and guidance.
The SEC even
failed to investigate when fines of $270–300 million related to hazardous
waste sites were not mentioned in Viacom’s 10-K report.
2. Misleading Practices
Even if the letter of the law is followed and appropriate ESG disclo-
sures are made, some complain that sustainability reporting often amounts
to propaganda best characterized as greenwashing. Speaking on the condi-
100. Case, supra note 8, at 410 (citing to Memorandum from Mary Kay Lynch, Director, EPA
Office of Planning and Policy Analysis, and Eric V. Schaeffer, Director, EPA Office of Regula-
tory Enforcement, to Office of Enforcement and Compliance Assurance Directors, et al. (Jan. 19,
available at www.epa.gov/compliance/resources/policies/incentives/programs/sec-
103. See Linda M. Lowson, SEC ESG Noncompliance: Where the Rubber Meets the Road,
CSR Insight, 24 J. A
. 57, 57–64 (2012) (“According to the findings of the
landmark CSR Insight
Study, an estimated 75% of large public company U.S. and non-U.S.
SEC filers are in violation of one or more SEC disclosure requirements on ESG issues, causing
many SEC filings currently to be materially misleading, inaccurate, or even fraudulent. A second
key finding of this study was that this corporate SEC noncompliance on ESG issues triggers
serious liabilities and risks not only for the C-Suite, but also for the Board, the Independent Audi-
tor, the Asset Manager, and a broad range of capital market transactions.”) (quote from unpub-
lished portion of the study on file with Governance & Accountability Institute, Inc.).
104. Kevin L. Doran et al., R
RANSPARENCY IN A
ISCLOSURE BY THE
1 (2009), availa-
ble at http://www.ceres.org/resources/reports/reclaiming-transparency-in-a-changing-climate-1/
105. Case, supra note 8, at 410–11.
106. Id. Potentially more worrisome are the illegalities themselves and the admissions by a
majority of corporate legal counsels that their corporate clients have been in violation of environ-
mental laws. See, e.g., Marianne Lavelle, Environmental Vise: Law, Compliance, N
Aug. 30, 1993, at S1.
1078 UNIVERSITY OF ST. THOMAS LAW JOURNAL [Vol. 10:4
tion of anonymity, one spokesperson for a company whose brand is built on
sustainable products rhetorically asked, “How many pictures of smiling
brown babies can you look at before you realize this [sustainability report-
ing] is bullshit?”
Putting aside the most egregious examples where pho-
tographic displays overshadow data to the point of self-parody, data can
still be selectively emphasized or deemphasized. Charts, graphs, and other
visual representations of data can be deliberately drafted to convey a false
narrative rather than objectively portray reality. Another phenomenon could
be characterized as “over-reporting”—the practice of disclosing many doz-
ens or hundreds of pages of data so as to effectively conceal the most essen-
tial material risks and liabilities. As with financial disclosures, best
practices can be codified to protect investors, improve the functioning of
the marketplace, and serve the public interest.
B. Why Should More Disclosure Be Encouraged or Required?
As mentioned above, David Case provides a review of the economic
and legal theories that suggest that greater disclosure of non-financial data
should bring about the same outcomes as traditional regulatory ap-
Companies manage what they measure. And markets with bet-
ter information more efficiently lead to either constructive negotiated
solutions or punishment of bad actors by investors and consumers for creat-
ing risks and liabilities.
Shortcomings of environmental policies are directly attributable to in-
formation gaps, according to authors like Daniel Esty.
He points out that,
rather than taking the precautionary approach, the U.S. regulatory approach
allows activities until they are proven to be harmful.
It logically follows
that, in some contexts, there may be a counterincentive to even measuring
negative impacts of products and processes.
Esty is among those who
point out that even unambiguous guidance from the Federal Accounting
Standards Board and the SEC are not rigorously enforced, and are often
One of Esty’s main points, therefore, is that information can
assist stakeholders in negotiating acceptable solutions and tolerable com-
promises with companies that pollute, but only if regulation of disclosures
becomes more stringent and demanding.
David Case has also argued that external CR reporting has the greatest
potential to reduce the environmental harms related to corporate activity
107. Telephone Interview (May 2006).
108. See Case, supra note 8, at 415–27.
109. Daniel C. Esty, Environmental Protection in the Information Age, 79 N.Y.U. L. R
115, 115 (2004).
110. Id. at 203.
111. Id. at 204.
112. Id. at 205–06.
113. Id. at 210.
2013] BEYOND SUSTAINABILITY REPORTING 1079
when it is deployed in tandem with internal environmental management
This makes intuitive sense: Measuring and generating reports
with data is a useful step, but the data, as in any context, must be acted upon
to change behaviors and outcomes.
Informational regulation has also
been shown to help consumers make decisions to avoid exposing them-
selves to risk, especially when other governmental intervention has been
Finally, a key means through which CR reporting is intended to
ameliorate negative externalities is by catalyzing more dialogue with stake-
holders; there is evidence that CR reporting can indeed facilitate this dia-
This evidence supports the economic theories mentioned above
that hold that CR reporting should lead to more efficiently-negotiated
agreements between companies and stakeholders.
In 2005, the law firm of Freshfields Bruckhaus Deringer produced a
report (the Freshfields report) for UNEP’s Finance Program that addressed
the legal framework for the integration of ESG issues into institutional in-
The report was meant to counter resistance to incorporating
ESG issues into financial reports because of a belief that institutional inves-
tors were legally prohibited from doing so. The firm was asked to examine
seven countries (France, Germany, Italy, Japan, Spain, the United King-
dom, and the United States), and extended their study to Australia and
Acknowledging the dominance of modern portfolio theory fueled by
neoclassical economics, the report argued that fiduciary duties (primarily
prudence and loyalty to purpose) imposed on decision makers represent the
main limitation on investment discretion in common law jurisdictions, in-
cluding the United States. According to the report, the modern prudent in-
vestor rule within a context of modern portfolio theory provides, among
other things, that “there is no duty to ‘maximize’ the return of individual
investments, but instead a duty to implement an overall investment strategy
that is rational and appropriate to the fund.”
114. David W. Case, Changing Corporate Behavior Through Environmental Management
Systems, 31 W
. & M
. L. & P
. 75, 111 (2006).
115. See Adam J. Sulkowski, The Growing Trend of Voluntary Corporate Responsibility Dis-
closure and Its Implications for Real Estate Attorneys, 38 R
. L.J. 475, 475–81 (2010).
116. See Katherine Renshaw, Note, Sounding Alarms: Does Informational Regulation Help or
Hinder Environmentalism?, 14 N.Y.U. E
. L.J. 654 (2006) (discussing regulation of mercury-
117. See Timothy Riley, Unmasking Chinese Business Enterprises: Using Information Disclo-
sure Law to Enhance Public Participation in Corporate Environmental Decision Making, 33
. L. R
. 177, 189 (2009).
118. See F
, UNEP F
, A L
WORK FOR THE
(2005), available at http://www.unepfi.org/fileadmin/documents/fresh
119. Id. at 8.
1080 UNIVERSITY OF ST. THOMAS LAW JOURNAL [Vol. 10:4
Importantly, the report concludes (with respect to U.S. institutional in-
vestors) that there is not only no prohibition against incorporating ESG con-
siderations into investment decisions, but also that “as with all
considerations, ESG considerations must be taken into account wherever
they are relevant to any aspect of the investment strategy.”
This takes us
back to the materiality issue posed by Lydenberg’s discussion of the reason-
able investor who would presumably want to know about issues of material
concern to the firm. Indeed, the Freshfields report, making a distinction
between value (following the correct process) and values (pursuing a proper
objective) concludes that “decision makers are required to have regard (at
some level) to ESG considerations in every decision they make” because of
the growing evidence of the materiality of such criteria to investment
Despite these arguments, however, there is still no unanimity that more
mandated disclosure, on its own, will lead to better behavior.
Snyder suggests that informational regulation alone will be inadequate to
improve corporate societal and environmental performance and that more
conventional enforcement mechanisms will be required to either reduce
negative externalities or generate positive externalities.
and clearer requirements would be better since they allow for less manipu-
lation, and research shows that voluntary reporting works better against a
backdrop of stronger mandates.
C. Solutions and Next Steps
As explained above, materiality reporting requirements, if correctly
understood and fully enforced, could potentially increase transparency
around ESG matters in companies and enhance the ability of investors to
make better decisions. However, even existing explicit guidelines are insuf-
ficiently enforced. Extant explicit disclosure rules are also distributed
among a variety of different statutes that lack standardization and coher-
ence. Below we articulate several steps and supporting rationale for how to
improve upon the current situation.
121. Id. at 10–11.
122. See Allison M. Snyder, Survey, Holding Multinational Corporations Accountable: Is
Non-Financial Disclosure the Answer?, 2007 C
. L. R
. 565, 611 (2007).
123. Id. at 611–13.
124. Issachar Rosen-Zvi, You Are Too Soft!: What Can Corporate Social Responsibility Do
For Climate Change?, 12 M
. J. L. S
. & T
. 527, 557–58 (2011).
2013] BEYOND SUSTAINABILITY REPORTING 1081
1. Steps for Policymakers
i. Enforce Existing Rules
An uncontroversial first step would be enforcing already-existing dis-
closure laws, regulations, and guidance, since failure to do so is unfair to
companies that follow legal obligations and leads to investors and fund
managers being misled when large liabilities and risks are assumed to have
been disclosed but are actually kept secret. One could argue that failure to
enforce disclosure rules amounts to being complicit in defrauding investors.
It has been long since proven and accepted that inadequate information
leads to the failure of markets to function as expected and can result in
economic collapse as witnessed in the 1930s and 2008. One scholar writing
about the Dodd-Frank Act stated that the Great Recession of 2008 stemmed
from four information failures: (1) the dissemination of information that is
false or misleading; (2) the ability to abuse regulatory gaps; (3) the willing-
ness to exploit credulous consumers; and (4) the use of corporate size to
privatize profits and socialize losses.
These problems are compounded if
there are false assurances from authorities and a groundless sense of secur-
ity on the part of market participants that certain specific and significant
risks and liabilities will be disclosed if they exist.
ii. Interpret and Enforce the Correct and Contemporary
Meaning of Materiality
As explained above, markets, investors, corporate leaders, and expert
authorities have already essentially declared, started conducting themselves,
or at least are making extensive efforts to appear to conduct themselves as if
ESG data was material. Consistent with a proper understanding of material-
ity, one important step for policy makers would be to recognize the need to
interpret and enforce existing disclosure laws and regulations to level the
playing field. This would be fairer to regulated entities and protect inves-
tors, particularly in the case of massive—and clearly material—risks that
can be estimated, such as the potential for increasingly intense weather pat-
terns that result in costly damage that affects insurers, or cleanup costs asso-
ciated with risky practices like deep ocean drilling or extended high-
pressure pipelines for oil companies. Trust in markets is contingent upon
policymakers establishing and upholding rules of the game by which com-
iii. Mandate More ESG Reporting to Deal with Outliers
As described above, sustainability reporting has become a de rigeur
mainstream corporate practice—de facto law according to KPMG. Some
might ask why, if a practice is adopted by 95 percent of a given population,
125. Reza Dibadj, Dodd-Frank: Toward First Principles?, 15 C
. L. R
. 79, 79 (2011).
1082 UNIVERSITY OF ST. THOMAS LAW JOURNAL [Vol. 10:4
that group of entities should be forced by law to do something that they
practically all already do. For one thing, while 95 percent of the G250 may
be issuing sustainability reports, not all publicly traded companies are. And
beyond that universe, there are an estimated 75,000 or more transnational
corporations, plus hundreds of thousands of subsidiaries and millions of
small-and medium-sized enterprises that are not yet reporting in the ways
that their larger and more visible counterparts are.
However, even if 95 percent of all businesses are already doing some-
thing good for investors, themselves, and the world, the question of “why
mandate” goes to the core philosophical question of why and whether to
have codified law. Even if more than 99 percent of a population does not
commit murder, rape, or theft, no one would seriously suggest removing
criminal sanctions applicable to those who do. Laws exist in some cases
solely to punish and coerce outliers rather than to guide the majority. Laws
often reflect the cultural mores already embraced by a majority of regulated
beings (whether in the sphere of humans or business entities). Therefore,
specifically mandating certain ESG disclosures is needed to make outliers
play by the same rules that the vast majority of mainstream companies al-
ready see as pragmatic (for whatever reasons). Mandating integrated reports
is also needed to avoid putting reporters at a competitive disadvantage, es-
pecially given that proper disclosure can negatively affect stock price in
cases where there is negative information to share.
iv. Mandate Integrated Reporting with Specificity to Protect
The current system of voluntary disclosures has created an uneven
playing field, with, as mentioned above, some companies vigorously and
clearly informing investors and others under-reporting, over-reporting (in a
way that drowns out salient information in a sea of gratuitous data), green-
washing, or otherwise producing misleading propaganda rather than
straightforward information that communicates progress and alleviates
problems of concern to stakeholders. The next logical step would therefore
be to follow the lead of other countries that specify what ESG data must be
disclosed. This would further protect investors from effectively being mis-
led by the failure to report, by under-reporting, or by over-reporting in a
way that hides material risks and liabilities.
Further, given the growing global interest in creating a single report
that combines financial and ESG disclosures, it may be time to consider
requiring integrated reports of all companies, or perhaps of all companies
beyond a certain size, and therefore impact, as measured by revenue or
126. This statement is partly logical deduction—whatever statistic can be located for the total
number of companies in the world would be fine—the point is: 4,000 organizations (using GRI) is
a small minority of all organizations globally.
2013] BEYOND SUSTAINABILITY REPORTING 1083
number of employees. Such a move would recognize the increased attention
that investors and other stakeholders are already placing on ESG disclo-
sures. Given that all of the large U.S. accounting firms, the GRI, numerous
major companies, and global accounting bodies of all sorts are involved in
developing integrating reporting, it makes sense to harmonize and create
certainty about the direction and outcomes of this movement. Encouraging
harmonization of standards with those of other countries would enhance
comparability across companies in global markets. From the point of view
of companies, the certainty provided by regulatory guidelines may be
highly preferable to the current state of flux and ambiguity.
3. Steps for Managers, Attorneys, and Accountants
i. Implement Integrated Reporting
For several reasons, managers (with the help of their attorneys and
accountants) could benefit in several ways from implementing integrated
reporting before their competitors or before it becomes mandatory. First,
there are typical first-mover advantages including the (ideally, rightfully
earned) perception that the company is transparent, cognizant of stakeholder
concerns, innovative, and cutting-edge. Other benefits include the expertise
and efficiency that naturally accrues with adopting and practicing a method-
ology every year.
In the future, companies that fail to report on material ESG considera-
tions may find themselves at a competitive disadvantage in their relation-
ships with key stakeholders, particularly so-called socially responsible
investors, over 11 percent of the present investment population.
stakeholders, including activists, community members, employees, and cus-
tomers may—with increasing efficiency thanks in part to mobile technol-
ogy and social media—target, protest, and boycott companies that fail to be
transparent with respect to ESG issues. For those companies that are violat-
ing existing clear reporting guidance, it would be especially advisable to
start respecting minimum mandates to avoid embarrassing and potentially
costly legal action on the part of shareholders to force such disclosure.
Further, mandating integrated reporting may be forestalled if enough
companies voluntarily adopt integrated reporting. To retain credibility and
investor trust, companies should adhere to the best available standards. To-
day those standards include those of the GRI. In the future, they will likely
include the reporting criteria now in development by the Integrated Report-
ing Committee and another new entity, the Sustainability Accounting Stan-
dards Board (SASB), which is developing industry-specific sustainability
127. SRI Basics, USSIF.
, http://www.ussif.org/sribasics (last visited Jan. 13, 2014).
128. See Adam J. Sulkowski, Ultra Vires Statutes: Alive, Kicking, and a Means of Circum-
venting the Scalia Standing Gauntlet in Environmental Litigation, 24 J.
L. & L
75–118 (2009) (discussing corporate liability under ultra vires suits brought by shareholders).
1084 UNIVERSITY OF ST. THOMAS LAW JOURNAL [Vol. 10:4
accounting standards in the U.S. SASB hopes to create standards that can
be used in standard financial disclosures, including the 10-K and 20F forms,
and that can ultimately standardize integrated reporting for all publicly
listed U.S. companies.
ii. Constructively Engage Regulators to Codify Best Practices
The final recommendation for managers and their lawyers and ac-
countants is to actively and constructively engage with the SEC and any
other governmental bodies in the development of specific and mandatory
minimum ESG disclosure guidelines. Expertise about best practices already
exists, and more is being developed by companies at the leading edge of
integrated reporting. Rather than resisting regulation and having something
imposed that potentially is suboptimal, these leading companies could as-
sure that the most effective and efficient practices become standard.
Sustainability reporting is well-established. It is a mainstream practice
of most large corporations around the world and is spreading beyond the
world of business into public sector management and the world of
academia. Researchers still have many questions related to the motivations
and effects of this phenomenon, but it clearly has many benefits beyond
branding. It is now expected by stakeholders as diverse as investors, cus-
tomers, employees, communities, and policymakers. Indisputably, a critical
mass of managers and investors already consider sustainability reporting
The next step—integrated reporting—is already required in various
countries. In the United States, several rules, laws, and items of guidance
are beginning to stipulate that various pieces of information related to sus-
tainability be disclosed in annual financial reports. Correctly understood,
the materiality principle of existing U.S. disclosure laws already requires
integrated reporting. This disclosure is important both because of the clear
demand for sustainability information from investors and the compelling
public policy benefits of companies disclosing this data.
But integrated reporting is not yet uniformly adopted and practiced. To
maximize benefits to investors and the larger society—including steward-
ship of our natural life support systems—integrated reporting must be com-
prehensible, credible, and comparable. No one would seriously suggest that
publicly-traded companies should not be mandated to disclose their finan-
cial performance; the same argument is salient in the context of requiring
disclosures related to sustainability.
129. Why is it Important?, SASB.org, http://www.sasb.org/materiality/important/ (last visited
Jan. 13, 2014).
2013] BEYOND SUSTAINABILITY REPORTING 1085
More explicit standards are needed in the form of laws that codify and
standardize what some 95 percent of the G250 companies already do. Just
as the investing and business communities support penalties for violators in
other contexts, clear penalties are needed to keep outliers from breaking
accepted norms and defrauding or misleading investors by withholding or
misrepresenting information. For regulated entities, cooperation is the best
approach to codifying what the mainstream already does. Guidelines based
on best practices and consequences for violations of commonly-accepted
norms would be the most constructive way forward.