Nonfinancial Risk Disclosure and the Costs of Private Ordering

2017 was a year of major developments that are changing how companies disclose nonfinancial environmental, social, and governance (ESG) risk to investors.  In January, regulations implementing the European Union’s 2014 Nonfinancial Reporting Directive took effect for certain large companies operating in Europe and the U.K.  Under these rules, affected companies must prepare a non-financial statement disclosing material environmental, social, human rights, anti-bribery, and diversity matters.  In March, Nasdaq’s Nordic and Baltic stock exchanges introduced voluntary ESG reporting guidelines as part of their contribution to the United Nation’s Sustainable Stock Exchanges initiative on nonfinancial disclosure reform.  And in June, the Task … Read more

How a “Comply or Explain” Rule Would Improve Nonfinancial Disclosure

In 2016, the Securities and Exchange Commission (SEC) issued a Concept Release on Regulation S-K as part of its comprehensive review of the effectiveness of federal disclosure rules. The release included for the first time a request for comment on whether and how sustainability information should be incorporated into periodic reporting under federal securities law.  The SEC previously issued guidance in 2010 showing how information on material climate-related risks should be disclosed in companies’ financial reports. Other studies have also shown that nonfinancial information (referred to generally as “environmental, social, and governance” (ESG) disclosure) is material to firms, depending on … Read more

The Risk Hypothesis of Shareholder Activism

The following post comes to us from Virginia Harper Ho, Associate Professor of Law and Docking Faculty Scholar at the University of Kansas School of Law. It is based on her recent paper, “Shareholder Activism & the Risk Hypothesis,” which is available here.

Over the past decade, a seismic shift in U.S. corporate governance toward shareholder empowerment has occurred at the same time as new regulatory mandates focused on risk management and risk oversight. Many of these reforms have been motivated in part by the risk hypothesis of shareholder activism – the view that shareholder empowerment promotes greater corporate … Read more