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Making Mandatory Sustainability Disclosure a Reality

August 2020

Citation: ELR 10647

Author: Rick A. Fleming and Alexandra M. Ledbetter

As we have come to expect from Prof. Jill Fisch, her recent article entitled Making Sustainability Disclosure Sustainable introduces a novel and thoughtful policy proposal on a matter of critical importance to investors. 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 significant to their operations. She describes her proposal as a “modest starting point” and “first step” for sustainability disclosure. The 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 manage the business as they see fit. It also allows for a plurality of views on the significance of sustainability topics. That 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 significant to investors as opposed to management. An SD&A disclosure requirement could also be difficult to enforce because, as a practical matter, the SEC might be disinclined to challenge a company’s subjective determination as to the most significant issues if that determination were facially plausible. 

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.

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