What are big companies not telling you now?
Risks to human rights, health, and the environment – from Sudan to suntan lotion – should be part of required disclosure.
What do human rights abuses associated with oil drilling in Sudan, the nanotechnology used in your suntan lotion, and growing concerns about climate-related water shortages in the southwestern United States have in common?Skip to next paragraph
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These are all examples of specific risks the US Securities and Exchange Commission (SEC) does not require publicly traded companies to disclose – not even to shareholders and potential investors.
This lack of disclosure is not a question of some missing technical paperwork. Rather, it stems from the absence of rules and explicit guidance from the SEC and reluctance by companies to make this information available voluntarily.
The global economic crisis makes it painfully apparent that our system for corporate reporting is not working for shareholders. Some observers say that robust sustainability reporting might have mitigated some of the impacts of the financial crisis.
The extent to which investors are provided with a clearer picture of all types of risks – including those categorized as environmental, social, and governance factors (ESG) – is key to efficient markets. In fact, it can determine if markets run smoothly or falter spectacularly.
The good news is that the SEC, under new leadership, is sending signals that it is open to considering better disclosure. The first meeting of the SEC Investor Advisory Committee even included discussion on whether more disclosure is needed, particularly in the areas of environment and climate change. While this is an important step, climate risks are just one of many threats to a company's sustainability.
Disclosures would promote longer-term thinking by investors and corporations, making it possible to detect destructive business practices such as predatory lending, which affects us all. Consider how potential investors would benefit from being informed of the following three things:
Human rights issues
Today, companies in the oil, gas, and mining industries face a wide range of human rights challenges that disrupt their day-to-day operations, diminish their prospects for growth, and threaten their general license to operate in many places around the world.
These issues include the displacement and relocation of communities; the use of security forces in protecting company personnel and assets; and conducting operations in countries with endemic human rights abuses, such as Sudan.
Potential liabilities also extend to consumer products companies and retailers grappling with the use of child and forced labor and other so-called sweatshop abuses in their supply chains.
A recent report from the Investor Environmental Health Network notes that nanotechnologies are being deployed in a wide array of consumer products, from cosmetics (including suntan lotions) to sporting goods, despite preliminary evidence that some nanoparticles have toxic properties.