The Transparency Trap: Non-Financial Disclosure and the Responsibility of Business to Respect Human Rights

50 Pages Posted: 3 Jan 2019 Last revised: 28 Apr 2019

See all articles by David Hess

David Hess

The Stephen M. Ross School of Business at the University of Michigan

Date Written: May 12, 2018

Abstract

This article examines the potential for transparency programs to improve corporations’ human rights performance. The primary focus is on “general” transparency programs, such as the inclusion of human rights issues in sustainability reports. Regulators increasingly rely on such programs, such as through the EU Directive on the Disclosure of Non-financial Information, which many commentators view as a model for legislation in other countries and for a business and human rights treaty. This article identifies several problems with this approach. The human rights metrics used in current sustainability reporting standards, and in practice, often lack validity or are based upon data that is most easily collected, rather than most important. Moreover, the empirical evidence on sustainability reporting shows continued problems of selective disclosure, impression management, incomparable disclosures, and the use of disclosure as an end in itself (as opposed to a process that leads to organizational change). To move forward, regulators should shift focus to a model grounded in regulatory pluralism. Under this approach, regulators would combine a selection of targeted transparency mechanisms to create a more complete regulatory system that corrects for one disclosure mechanism’s weaknesses by including other mechanisms that have complementary strengths.

Keywords: Transparency, Business and Human Rights, Sustainability Reporting, Nonfinancial Reporting, Nonfinancial Information, Corporate Social Responsibility

JEL Classification: M14, K38, K29, K20

Suggested Citation

Hess, David, The Transparency Trap: Non-Financial Disclosure and the Responsibility of Business to Respect Human Rights (May 12, 2018). American Business Law Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3300303 or http://dx.doi.org/10.2139/ssrn.3300303

David Hess (Contact Author)

The Stephen M. Ross School of Business at the University of Michigan ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-9779 (Phone)

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