Mandatory Corporate Climate Disclosures: Now, but How?

41 Pages Posted: 14 Nov 2021

See all articles by John Armour

John Armour

University of Oxford - Faculty of Law; European Corporate Governance Institute (ECGI)

Luca Enriques

University of Oxford Faculty of Law; European Corporate Governance Institute (ECGI)

Thom Wetzer

University of Oxford; University of Oxford, Faculty of Law; Institute for New Economic Thinking at the Oxford Martin School; University of Oxford - Oxford-Man Institute of Quantitative Finance

Date Written: November 1, 2021

Abstract

Mitigating the worst consequences of climate change by transitioning to a net zero economy requires investment on a large scale. Directly pricing emissions, the first-best solution to drive capital reallocation, is considered politically infeasible—so policymakers put their currency in facilitating the pricing of climate risk by investors. Yet investors, faced with scientific and policy uncertainty around climate risks compounded by a lack of information about companies’ exposures, struggle to do just that. This essay shows that current disclosure policies do not require companies to disclose the information that investors need to price climate risk, and voluntary frameworks like the TCFD—important as they are—have failed to turn the tide. The result is mispricing and a misallocation of capital, which harms investors and hampers the net zero transition. Against that context, this essay argues that traditional securities regulation rationales and net zero imperatives call for mandatory corporate climate disclosures. To create a yardstick against which governments’ proposals can be evaluated, both to support their efforts and to call out policy greenwashing, it outlines several design principles that go beyond the emerging consensus and cover the regulatory architecture that supports such a disclosure regime.

Keywords: Climate Change, Climate-Related Disclosures, Climate Risks, Voluntary Disclosure, Mandatory Disclosure, Net Zero Transition.

JEL Classification: D62, G14, G18, G32, G38, K22, Q54, Q55, Q58

Suggested Citation

Armour, John and Enriques, Luca and Wetzer, Thom and Wetzer, Thom, Mandatory Corporate Climate Disclosures: Now, but How? (November 1, 2021). European Corporate Governance Institute - Law Working Paper No. 614/2021, Columbia Business Law Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3958819 or http://dx.doi.org/10.2139/ssrn.3958819

John Armour

University of Oxford - Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom
+44 1865 281616 (Phone)

HOME PAGE: http://www.law.ox.ac.uk/people/john-armour

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Luca Enriques (Contact Author)

University of Oxford Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://http:/www.ecgi.org

Thom Wetzer

University of Oxford, Faculty of Law ( email )

Oxford
United Kingdom

University of Oxford ( email )

St Cross Building
St Cross Rd
Oxford
United Kingdom

Institute for New Economic Thinking at the Oxford Martin School ( email )

Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Oxford
United Kingdom

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