The Need for SEC Rules on ESG Risk Disclosure

Sustainability disclosure is at an impasse. Today’s environmental, social and governance (ESG) disclosure is not delivering the decision-useful information financial markets need, yet the U.S. Securities and Exchange Commission (SEC) so far has not taken steps to formalize sustainability disclosure. Prof. Jill E. Fisch proposes an innovative and constructive approach to breaking this stalemate by implementing an SEC mandate that would require public companies to provide a sustainability disclosure and analysis (SD&A) section in their annual reports where they disclose the three sustainability issues most significant to their operations. In modeling the SD&A on existing Management’s Discussion and Analysis (MD&A) segments in financial filings, Professor Fisch favors adopting the MD&A’s principles-based approach, requiring SEC to issue guidance on identifying sustainability issues that are likely to be material to investors.