The Objectives and Impact of Mandatory Sustainability Disclosure in Securities Regulation

Abstract

This chapter evaluates the extension of mandatory sustainability disclosure within securities law, comparing frameworks in the US, UK, and EU. It critically examines whether such disclosures align with traditional objectives of protecting investors and ensuring market efficiency, or if they represent a novel paradigm promoting corporate accountability. A cross-jurisdictional analysis reveals divergent approaches: the investor-focused US model, the UK's market-centric yet society-conscious framework, and the EU's comprehensive mandates aimed at societal impact transparency. The chapter discusses the potential for mandated disclosures to change company cost structures through stakeholder engagement, encouraging firms to internalize 'Pareto-relevant externalities.' This shift implies that sustainability information could become financially material, akin to disclosures on transition risks. The premise assumes that the threat of stakeholder action incentivizes companies to preemptively address sustainability-related costs. However, the effectiveness of such disclosures in altering corporate behavior remains an assumption needing empirical validation. The chapter concludes by suggesting that future research should explore the actual impact of sustainability disclosures on corporate strategies and investor information paradigms, potentially redefining materiality within securities law.

Keywords: Externalities, sustainability, mandatory disclosure, securities laws, stakeholder engagement