Transparency and Disclosure

As interest in CSR and corporate sustainability has grown, companies have found that they are subject to heightened scrutiny and that the traditional disclosure practices that focused primarily, if not exclusively, on financial information and performance and related risks are no longer adequate.  Companies must now be prepared to provide disclosures that address the specific concerns and expectations of multiple stakeholders beyond investors including customers, employees, business partners, regulators and activists.  This means that the board of directors must understand existing and emerging disclosure requirements and ensure that the company has the necessary resources to collect and analyze the required information and present it in a manner that is clear and understandable.  At the same time, however, the directors need to be mindful of the risks of expanded disclosure include the possibility of providing too much strategic information, exposing the company to heightened risk of litigation from stakeholders that believe the company has not vigorously pursued its promised CSR and corporate sustainability goals and the need to invest additional time and resources in creating and maintaining the internal reporting process necessary to support CSR and corporate sustainability disclosures.[1]

While, as discussed below, certain CSR and corporate sustainability disclosures have now become minimum legal requirements in some jurisdictions, in general such disclosures are still a voluntary matter and directors have some leeway as to the scope of the disclosure made by their companies and how they are presented to investors and other stakeholders. Some companies continue to limit their disclosures to those are specifically required by regulators; however, most companies have realized that they need to pay attention to the issues raised by institutional investors and other key stakeholders and make sure that they are covered in the disclosure program.  At the other extreme, there are companies that have embraced sustainability as integral to their brands and have elected to demonstrate their commitment by preparing and disseminating additional disclosures that illustrate how they have woven sustainability into their long-term strategies and day-to-day operational activities.  These companies understand that not only are investors paying more attention but that more and more people everywhere are considering ESG performance when deciding whether to buy a company’s products and/or work for a particular company and that it is therefore essential to lay out their specific CSR and corporate sustainability goals and the metrics used to track performance and provide regular reports to all of the company’s stakeholders on how well they are doing against those goals.[2]

Williams noted that to the extent that governments have regulated corporate responsibility per se, such regulation has focused on disclosure and during the period 2000-2015 over 20 countries enacted legislation to require public companies to issue reports including environmental and/or social information.[3]  Many of these countries are in Europe and the EU has implemented a directive that requires approximately 6,000 large companies and “public interest organizations,” such as banks and insurance companies, to “prepare a nonfinancial statement containing information relating to at least environmental matters, social and employee-related matters, respect for human rights, anti-corruption and bribery matters.”[4]  In addition, several stock exchanges around the world require social and/or environmental disclosure as part of their listing requirements including exchanges in Australia, Brazil, India, South Africa and the London Stock Exchange.[5]  Also, pension funds in countries such as Australia, Belgium, Canada, France, Germany, Italy, Japan, Sweden and the UK are required to disclose the extent to which the fund incorporates social and environmental information into their investment decisions.[6]  All things considered, surveys show that more and more jurisdictions are implementing mandatory ESG disclosure requirements and that “there is a clear trend towards an increasing number of environmental and social disclosure requirements around the world”.[7]

As of 2013, over 90% of the Global 250 companies had decided to voluntarily disclose more environmental, social and governance information than required by law[8] and Williams noted in 2016 that “[v]oluntary, transnational standards of best social and environmental practices are proliferating in virtually every industry, many with associated certification schemes and requirements for third-party attestation or auditing … [and] … [t]hese voluntary initiatives are increasingly being supplemented by domestic and multilateral government actions to encourage, or in some cases require, companies to pay closer attention to the social and environmental consequences of their actions and to disclose more information about those consequences.[9]

The US, which has comprehensive reporting requirements relating to a broad range of corporate governance matters, has been a notable laggard with respect to establishing a comprehensive general ESG disclosure framework; however, there are certain specific federal and state disclosure requirements in certain contexts such as releases into the environment, management through recycling, median employee pay, mine safety disclosure and “conflict minerals” disclosure.[10]  Public companies in the US are required to make certain of their CSR and corporate sustainability disclosures in their SEC filings, which means that those disclosures are being made with a higher potential risk of liability.  Apart from mandatory disclosure, several studies have found that about 80% of larger US public companies have voluntarily provided some form of disclosures on their CSR and corporate sustainability initiatives in the form of published CSR/sustainability reports and/or disclosures on the company website; however, the quality of these disclosures has been criticized by the Sustainability Accounting Standards Board, which found that 52% of a sample of almost 600 companies that had made disclosures of CSR-related risks had done so using boilerplate language and has failed to disclose their plan to address such risks.[11] Directors need to be involved in decisions regarding placement of CSR and corporate sustainability disclosures including links in SEC filings to online sustainability reports and adding sustainability information to proxy statements as part of the company’s investor-focused communication efforts.  Companies can, and often do, rely on communications professionals to prepare sustainability reports; however, even when such reports are not included in the company’s SEC filings they should be subject to the same level of scrutiny applied in procedures established by the board’s disclosure committee.

Proposals from shareholder activists often help create the list of CSR and corporate sustainability topics that garner the most attention from companies and trigger movement toward greater transparency and disclosure.  In recent years, companies have frequently been required to respond to call for changes in corporate policies and activities with respect to political and lobbying activity, sustainability reporting, gender pay gap reporting, and child labor issues.[12]  In many cases, companies have been able to calm the concerns of activists, sometimes getting them to withdraw their proposals, by promising to provide fuller disclosure; however, once a commitment is made to expanded disclosure the company needs to fulfill its promises and allocate sufficient resources to the effort since activists will be watching closely to ensure that their expectations are satisfied.  When formulating voluntary CSR-related disclosures it is important to engage with activists to ensure that they understand the approach that the company is willing to take and the company’s need to balance disclosure against the need to protect sensitive and strategically important information.

A large number of parties providing non-form comments to the Securities and Exchange Commission (“SEC”) on its April 2016 concept release on disclosure required by Regulation S-K, the prescribed regulation under the Securities Act of 1933 that provides the framework for mandated disclosures in filings with the SEC, recommended that CSR disclosure be expanded and strengthened.[13]  While it is not likely that more CSR-related disclosures will be formally mandated in the immediate future, companies must nonetheless give greater consideration to CSR and corporate sustainability when responding to several current items in Regulation S-K include those related to describing the business activities of the company (Item 101); legal proceedings (Item 103); disclosures of material known events and uncertainties in the Management’s Discussion and Analysis (Item 303) and risk factors (Item 503(c)).  Public companies must also be mindful of the SEC’s guidance regarding disclosures relating to climate change, which was issued in 2010[14], and Rule 13p-1 under the Securities Exchange Act of 1934 relating to conflicts materials disclosure.

In addition, companies may be subject to disclosure requirements under the laws of foreign countries in which they operate as well as various state and local laws.  For example, under the California Transparency Supply Chains Act of 2010[15], which went into effect on January 1, 2012, every retail seller and manufacturer doing business in California and having annual worldwide gross receipts that exceed $100 million is required to disclose its efforts to eradicate slavery and human trafficking from its direct supply chain for tangible goods offered for sale.  The disclosures must be posted on the retail seller’s or manufacturer’s website with a conspicuous and easily understood link to the required information placed on the business’ homepage. In the event the retail seller or manufacturer does not have a website, consumers must be provided the written disclosure within 30 days of receiving a written request for the disclosure from a consumer.  At a minimum, the disclosures should disclose to what extent, if any, that the retail seller or manufacturer does each of the following:

  • Engages in verification of product supply chains to evaluate and address risks of human trafficking and slavery. The disclosure must specify if the verification was not conducted by a third party.
  • Conducts audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains. The disclosure must specify if the verification was not an independent, unannounced audit.
  • Requires direct suppliers to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the country or countries in which they are doing business.
  • Maintains internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking.
  • Provides company employees and management, who have direct responsibility for supply chain management, training on human trafficking and slavery, particularly with respect to mitigating risks within the supply chains of products.

The exclusive remedy for a violation of the disclosure obligations is an action brought by the California Attorney General for injunctive relief.

When companies were first attempting to provide voluntary disclosures relating to their CSR and corporate sustainability initiatives they often struggled with the format and depth of their reporting.  Fortunately, as time went by, a consensus began to emerge about the benchmarks that companies should use for guidance in preparing their CSR and corporate sustainability reports.  Of particular note is the Global Reporting Initiative (“GRI”), which is a multi-stakeholder developed international independent organization that helps businesses, governments and other organizations understand and communicate the impact of business on critical sustainability issues such as climate change, human rights, corruption and many others.  The Global Sustainability Standards Board (“GSSB”) issues and maintains the GRI Standards for organizations to use in their “sustainability reporting”, described by the GSSB as “an organization’s practice of reporting publicly on its economic, environmental, and/or social impacts, and hence its contributions–positive or negative–towards the goal of sustainable development”.[16] GRI has pioneered sustainability reporting since the late 1990s, transforming it from a niche practice to one now adopted by a growing majority of organizations.  The GRI Standards are the world’s most widely used standards on sustainability reporting and disclosure and available for use by public agencies, firms and other organizations wishing to understand and communicate aspects of their economic, environmental and social performance.[17]

The International Integrated Reporting Council, or IIRC, which was founded in August 2010, released its International Integrated Reporting Framework in December 2013 as a guide that companies could use to describe how their governance structure creates value in the short, medium and long term; supports decision making that takes into account risks and includes mechanisms for addressing ethical issues; exceeds legal requirements; and ensures that the culture, ethics and values of the company are reflected in its use of and effects on the company’s “capitals” (described to include financial, manufactured, intellectual, human, social and relationship, and natural (i.e., the environment and natural resources) forms of value) and stakeholder relationships.[18]  Guiding principles for preparation of integrated reports include strategic focus and future orientation, connectivity of information, stakeholder relationships, materiality, conciseness, reliability and completeness and consistency and comparability, and integrated reports prepared using the Framework are expected to include the following common elements[19]:

  • Organizational overview and external environment: What does the organization do and what are the circumstances under which it operates?
  • Governance: How does the organization’s governance structure support its ability to create value in the short, medium and long term?
  • Business model: What is the organization’s business model?
  • Risks and opportunities: What are the specific risks and opportunities that affect the organization’s ability to create value over the short, medium and long term, and how is the organization dealing with them?
  • Strategy and resource allocation: Where does the organization want to go and how does it intend to get there?
  • Performance: To what extent has the organization achieved its strategic objectives for the period and what are its outcomes in terms of effects on the capitals?
  • Outlook: What challenges and uncertainties is the organization likely to encounter in pursuing its strategy, and what are the potential implications for its business model and future performance?
  • Basis of presentation: How does the organization determine what matters to include in the integrated report and how are such matters quantified or evaluated?

Other helpful resources are available from the Sustainability Accounting Standards Board, or SASB, which publishes the SASB Implementation Guide for Companies that provides the structure and the key considerations for companies seeking to implement sustainability accounting standards within their existing business functions and processes.[20]  The Guide helps companies to select sustainability topics; assess the current state of disclosure and management; embed SASB standards into financial reporting and management processes; support disclosure and management with internal control; and present information for disclosure.  The SASB’s online resource library also includes annual reports on the state of disclosure, industry briefs and standards and guidance on stakeholder engagement.  Companies should monitor CSR disclosures by their peers and the SASB library has examples of disclosures made by companies in annual reports filed with the SEC on Form 10-K.  Companies can also follow the reporting practices of competitors by reviewing sustainability reports that have been registered with the GRI.

While the efforts of the GRI and the SASB indicate that some progress has been made regarding the development of measurement and disclosure frameworks relating to corporate sustainability and ESG practices, companies and their stakeholders are not yet able to rely on universally accepted guidelines.  Hurdles that still much be overcome, and which may never be totally resolved, include variations in ESG rating methodologies and a lack of uniformity in disclosure expectations and requirement across jurisdictions.  For the time being, the most effective approach for directors and their companies may be engaging with their own key investors and other stakeholders to understand how those parties view and prioritize ESG issues and their preferences regarding measurement and disclosure with respect to the initiatives taken by the company relating to those issues.  Such an approach not only reduces the likelihood of misunderstanding between the company and its primary stakeholders but will also contribute to the improvement of measurement and disclosure tools and the development of best practices that can be widely disseminated.  In the meantime, work continues among corporate governance groups and consulting to develop performance measurement tools and disclosure frameworks that integrate traditional measures of financial value with new metrics that afford proper weight to projects launched primarily to pursue and achieve long-term value creation.

This article is part of the Sustainable Entrepreneurship Project’s extensive materials on Sustainability and Corporate Governance.

[1] For further discussion of non-financial disclosures and reporting, see “Sustainability Reporting and Auditing” in “Corporate Social Responsibility: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (

[2] As mentioned above, expansive disclosure of this type increases the risk of litigation and/or adverse market reaction in the event that the company fails to meet its stated CSR and corporate sustainability goals, even if the disclosures are accompanied by appropriate disclaimers and are not included in regulatory filings that typically are covered by anti-fraud standards.  Disclosure of actual or potential links between CSR and corporate sustainability goals and compensation must also be handled carefully, similar to links between short-term financial goals and compensation.

[3] C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 15, available at (citing Initiative for Responsible Investment, Corporate Social Responsibility Disclosure Efforts by National Governments and Stock Exchanges (March 12, 2015), available at  These countries included Argentina, China, Denmark, the EU, Ecuador, Finland, France, Germany Greece, Hungary, India, Indonesia, Ireland (specific to state-supported financial institutions after the 2008 financial crisis), Italy, Japan, Malaysia, The Netherlands, Norway, South Africa, Spain, Sweden, Taiwan, and the U.K.

[4] See ¶ 6 of Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014, amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups, Official Journal of the European Union L330/1-330/9.

[5] C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 16, available at (citing Initiative for Responsible Investment, Corporate Social Responsibility Disclosure Efforts by National Governments and Stock Exchanges (March 12, 2015), available at

[6] Id.

[7] Id. at 19 (citing KPMG, UNEP, Global Reporting Initiative and Unit for Corporate Governance in Africa, Carrots and Sticks: sustainability reporting policies worldwide 8 (2013), available at

[8] KPMG, The KPMG Survey of CR Reporting 2013, available at  In addition, in 2013 76% of the top 100 companies in the Americas published a separate corporate responsibility report, as did 73% of top 100 companies in Europe and 71% in Asia.  Also, 59% of the Global 250 had their reports “assured” typically by the specialist bureaus of the major accountancy firms.  As reported in C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 5, available at

[9] C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 2-3, available at (citing M. Blair, C. Williams and Li-Wen Lin, “The New Role for Assurance Services in Global Commerce”, Journal of Corporate Law, 33 (2008), 325).

[10] Id. at 16-19.  See also C. Williams, The Securities and Exchange Commission and Corporate Social Transparency, Harvard Law Review, 112 (1999), 1197.  The federal Securities and Exchange Commission has also occasionally issued guidance on selected ESG topics such as disclosures related to climate change.

[11] See Flash Report: Eighty One Percent (81%) of the S&P 500 Index Companies Published Corporate Sustainability Reports in 2015 (Governance & Accountability Institute, Inc., 2016), available at; and Sustainability Accounting Standards Board, The State of Disclosure Report 2016, available at  The percentage is particularly striking given that less than 20% of the companies in the same group in 2011 published sustainability reports in that year.

[12] H. Gregory, “Corporate Social Responsibility, Corporate Sustainability and the Role of the Board”, Practical Law Company (July 1, 2017), 4.

[13] Sustainability Accounting Standards Board, “Business and Financial Disclosure Required by Regulation S-K—the SEC’s Concept Release and Its Implications”, (2016), 3-4, available at

[14] SEC Release Nos. 33-9106, 34-61469, FR-82 (February 8, 2010).

[15] California Civil Code § 1714.43.

[16] GRI 101: Foundation 2016 (Amsterdam: Stichting Global Reporting Initiative, 2016), 3.

[17] For detailed discussion of the GRI Standards, see “Sustainability Reporting and Auditing” in “Corporate Social Responsibility: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (

[18] P. DeSimone, Board Oversight of Sustainability Issues: A Study of the S&P 500 (IRRC Institute, March 2014), 7.

[19] The International <IR> Framework (London: The International Integrated Reporting Council, December 2013), 5.  For detailed discussion of the International Integrated Reporting Framework, see “Sustainability Reporting and Auditing” in “Corporate Social Responsibility: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (

[20] For detailed discussion of the activities of the SASB, see “Sustainability Reporting and Auditing” in “Corporate Social Responsibility: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (

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