Making Mandatory Sustainability Disclosure a Reality

Date01 August 2020
by Rick A. Fleming and Alexandra M. Ledbetter
As we have come to expect from Prof. Jill Fisch, her
recent a rticle entitled Making Sustainability Disclo-
sure Sustainable1 introduces a novel and thoughtf ul
policy proposal on a matter of critical importa nce to inves-
tors. In short, she suggests a new sustainability discussion
and analysis (SD&A) section within the corporate annual
report. In their SD&A, companies would be required to
identify and explain the three sustainability issues most
signicant to their operations.2 She describes her proposal
as a “modest starting point” and “rst step” for sustain-
ability disclosure.3
e appeal of Professor Fisch’s SD&A proposal is that it
could get more companies to speak to ESG topics in a way
that is meaningful to investors while accommodating the
prerogative of boards of directors and executives to man-
age the business as they see t. It also allows for a plurality
of views on the signicance of sust ainability topics. Hav-
ing companies identify and explain the three susta inabil-
ity issues most signicant to their operations is consistent
with an important objective of the Commission’s disclo-
sure framework, as well as t he Commission’s Disclosure
Eectiveness Initiative, which is to allow investors to see
the company through the eyes of management.4 Under
1. See Jill E. Fisch, Making Sustainability Disclosure Sustainable, 107 G. L.J.
923 (2019) [hereinafter Fisch].
2. Id. at 929, 956-58.
3. Id. at 959.
4. See William Hinman, Director, Division of Corporation Finance, SEC,
Applying a Principles-Based Approach to Disclosure Complex, Uncertain
and Evolving Risks, Remarks at the 18th Annual Institute on Securities
Regulation in Europe (Mar. 15, 2019),
hinman-applying-principles-based-approach-disclosure-031519 (describing
Authors’ Note: The Securities and Exchange Commission
disclaims responsibility for any private publication or state-
ment of any SEC employee or Commissioner. The views
expressed herein are our own and do not reflect those of
the Commission, the Commissioners, or other members of
the staff.
Rick A. Fleming is the Investor Advocate at the U.S. Securities and Exchange Commission (SEC). Alexandra
M. Ledbetter is the Senior Corporation Finance Counsel in the SEC’s Office of the Investor Advocate, where
she serves as Mr. Fleming’s principal advisor on issues related to corporate governance and disclosure.
this proposal, if a company did not address a topic in its
SD&A, it might be reasonable to infer that the topic was
not front-of-mind for the company’s management.5
at said, a limitation of the SD&A proposal is that it
might not get a company to speak directly to a particular
issue that is the most signica nt to investors as opposed to
management. An SD&A di sclosure requirement could also
be dicult to enforce because, as a practical matter, the
SEC might be disinclined to chal lenge a company’s subjec-
tive determination as to the most signica nt issues if that
determination were facially plausible.
We agree that Professor Fisch’s proposal represents a
reasonable middle ground between those who favor man-
datory disclosure of environmental, social, and governance
(ESG) information and those who remain skeptical about
whether such information is decision-useful for investors.
Unfortunately, however, investor demand for ESG infor-
mation has become such a polarized politica l issue that a
middle-ground solution strikes us as unlikely to gain trac-
tion. In this environment, a “half-loaf ” compromise is no
more likely to be embraced than a “full-loaf” solution that
investors may prefer. In other words, if we ever reach a
point at which the Commission becomes willing to adopt
an SD&A disclosure requirement, by then the Commis-
sion may be willing to go furt her and mandate ESG dis-
closures that are more fulsome, reliable, and comparable.
In general, we favor policy solutions that are pragmatic
and reect consensus among various stakeholders, such as
the one oered by Professor Fisch. Sweeping changes can
bring unintended consequences, and a wildly sw inging
the utility of exible, principles-based disclosure requirements for address-
ing informational needs that may be rapidly evolving).
5. See Larry Fink, BlackRock Dear CEO Letter 2020, A Fundamental Reshap-
ing of Finance,
larry-nk-ceo-letter [hereinafter BlackRock Dear CEO Letter] (“In the ab-
sence of robust disclosures, investors, including BlackRock, will increasingly
conclude that companies are not adequately managing risk.”).
Copyright © 2020 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®,, 1-800-433-5120.

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